Stock markets in Europe are showing strong gains as traders are hopeful the lockdown restrictions will be eased, and that should bring about an increase in economic activity.
A number of counties have already reopened sections of their economies, and traders are banking on a continuation of that process. Earlier in the day, equity markets were pushed lower by a ruling from Germany in relation to the ECB’s asset purchasing programme, but indices have recouped the lost ground.
The German constitutional court found that aspects of the ECB’s stimulus package were not supported by EU treaties, some areas were illegal, and in turn not valid in Germany. The Bundesbank, the German central bank, will not be able to cooperate in the region wide stimulus programme beyond three months from now, unless the ECB make a decision in relation to the setup of the scheme. This could be a speed bump for the ECB as the body is keen to keep the show on the road. It also leaves open the possibility, that the pandemic stimulus package could also face legal challenges. In light of the pain being endured in the eurozone, the last thing the ECB needs are setbacks in relation to its assistance of the currency bloc.
In London, BP and Royal Dutch Shell are some of the biggest gainers on the FTSE 100 thanks to the rally in the oil market.
Total shares are in demand today after the oil company confirmed that it will keep its first quarter dividend on hold at €0.66. The recent slump in the oil market put the French company’s dividend policy in focus, as some dealers were wondering would the company go down the Royal Dutch Shell route and cut its dividend. Before the energy market took a hammering, Total had planned to pursue a progressive dividend policy, so leaving the pay-out unchanged, could be seen as a slight step backwards. First quarter net adjusted profit dropped to €1.78 billion, but equity analysts were expecting €1.3 billion. The company now anticipates full-year oil and gas production to fall by 5%, its hardly surprising seeing as the health emergency has caused a huge demand shock. Total enjoyed good timing for the release of its quarterly numbers, as the oil market is higher today.
The travel bans have effectively suspended the aviation industry, and that was reflected in the travel figures from Ryanair and Wizz Air, who confirmed that April passenger numbers were down 99.6% and 97.6% respectively. At the end of last week, Wizz restarted a limited number of flights. Ryanair are hoping to restart operations in July, and keep in mind they were previously hoping to resume business in June.
Staying with the travel sector, the cruise operator Carnival said the bulk of their operations will remain suspended until the end of August. In March, the firm suspended its cruises on account of the pandemic. There was some positive news in today’s update, Carnival said it would resume a small number of cruises from 1 August.
Tim Richards, the CEO of Vue Cinemas, said he is hoping that theatres will be reopened in mid-July, and that should coincide with the release of Tenet – the new Christopher Nolan movie. On the back of the update, Cineworld shares are up on the session.
The mood on Wall Street is optimistic as a large portion of US states have loosened lockdown restrictions. The gradual reopening of the US economy is acting as a greenlight to the bulls. Andrew Cuomo, the governor of New York, said the state is now on ‘the other side of the mountain’ in relation to the Covid-19 crisis, the new infection rate and the fatality rate are still in decline. There is a feeling the US is slowly on the up, so traders are buying into stocks. The ISM non-manufacturing reading for April was 41.8, which was a big fall form the 52.5 posted in March, but traders were expecting 36.8. The reading is poor but it’s streets ahead of the levels of activity seen in Europe.
Wayfair, the online furniture group, confirmed that its first quarter loss per share widened to $2.30, but the consensus estimate was for a loss per share of $2.60. Revenue jumped by almost 20% to $2.33 billion, which was fractionally above estimates. Deliveries in the three month period rose by 21% on an annual basis, and no doubt the lockdowns have helped the firm from a demand point of view. The stock hit a record high on the back of the results.
Pfizer, along with its partner, BioNTech, are working on an experimental drug that they are hoping will be a vaccine for Covid-19. Testing on humans in the US began today, while testing on humans began in Germany last month. Pfizer shares are slightly higher this afternoon, so there is a certain amount of optimism doing the rounds, but the pharma business is known for its ups and downs.
Disney will post its second quarter numbers after the closing bell tonight. EPS are expected to be $0.91. Revenue is tipped to be $17.5 billion, which would be an improvement on the $14.9 billion posted in the same period last year. The closure of the theme parks is likely to be reflected in the figures, so the group might struggle to live up to analysts’ expectations for revenue. The streaming division, Disney+, is likely to show robust figures seeing as Netflix benefitted from a captive audience due to the lockdowns.
The CMC EUR index is -0.5% today following the ruling form the German constitutional court. The ruling could hamper the current stimulus package, but then again the ECB will probably muddle through, as that’s what Europe does best. Without a clear strategy, the euro will probably struggle to rally.
GBP/USD is holding up alright considering the dreadful services data report that was released by the UK this morning. The final reading of the UK services PMI report for April was 13.4, while the March reading was 34.5.
USD/CAD is in the red due to the big move higher in the oil market.
The WTI June contract and the Brent crude July contracts both hit their highest levels since 20 April. The oil market is pushing higher as demand fears have faded a little as countries appear to be edging closer to loosening their lockdown restrictions. On a similar note, seeing as the perception is that demand will rise, that has reduced some of the fears surrounding storage issues – which was a big reason for oil’s recent declines.
Gold is slightly lower today thanks to the risk-on attitude of traders. The bullish moves witnessed in stocks points to a willingness to take on more risk, so it not a major surprise that dealers are turning their attention away from gold. That being said, the metal isn’t too far away from $1,700, so the market is still firm.
Palladium fell to level last seen in late March. The metal is used in catalytic converters in cars, and today it was announced that UK car sales crashed by 97% in April, on an annual basis. If the vehicles market is effectively frozen, it is possible that demand for the metal will fall.
Disclaimer: CMC Markets is an order execution-only service. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.