European equity markets are showing modest losses as we approach the end of the trading session.
Europe
Volatility has been low in US markets so that has been an influence on trading on this side of the Atlantic. The ECB meeting was the main story today and monetary policy was kept on hold – meeting forecasts. The refinancing rate and the deposit rate were left at 0.0% and -0.5% respectively, and the pandemic emergency purchase programme (PEPP) was left at €1.35 trillion. Christine Lagarde, the head of the ECB, said it is likely the full PEPP envelope will be used. In terms of forecasts, the ECB predicts that headline inflation will remain negative in the months ahead, but will turn positive in early 2021. This year the euro area economy is expected to contract by 8%, and keep in mind the previous forecast was for an 8.7% fall. The euro has been strong recently, mostly because of dollar and sterling weakness, and policymakers at the ECB have said there is no need to overreact to the euro’s strength. A firmer euro could curtail the region’s recovery, but it sounds like the ECB don’t want to fight the Fed – deliberately weakened the euro.
Games Workshop Group shares hit a record high following the bullish trading update, where the company said that trading in the three months until late August was ahead of management’s expectations. In the time frame, revenue is estimated to be £90 million, which is an improvement on the £78 million posted in the same time frame last year. Operating profit before royalty income is roughly £45 million, and that would be a sizeable jump on the £28 million registered one year ago. A 50p dividend was announced too.
Morrisons shares are in the red on the back of the disappointing first half update. In the six month period, like-for-like (LFL) sales excluding fuel and VAT increased by 8.7%. The second quarter sales increased by 12.3%, which was a sizeable improvement on the 5.7% posted in the first quarter. The pandemic has proved to be a double-edged sword for most retailers that stayed open during the crisis, because health and safety overheads jumped. Morrisons saw Covid-19 related expenses jump by £155 million, but that was partially offset by the savings made on business rates, which saved the company £93 million. The rise in overheads pushed pre-tax profit down by over 25% to £148 million. Morrisons dropped its target of adding a profit of £75-£125 million on account of the disruption caused by Covid-19 – this seems to have hit the stock price the most. On the bright side the interim dividend was increased by 5.7% to 2.04p. Given the state of the trading environment, it is yet to make a decision with respect to its special dividend. While earnings are in decline, the group is unlikely to go ahead with the extra pay-out.
Dunelm, the household goods retailer, announced its full year numbers. Sales for the 52 week period slipped by 3.9% to £1.05 billion, but sales until February rose by 6.8%. The closure of stores because of the pandemic impacted revenue. Online sales in the fourth quarter surged by 105.6%, and digital sales as a percentage of total sales were 27%, up from 19.6% last year. It is encouraging to see that gross margin ticked up by 70 basis points to 50.3%. All things considering, the company performed well and the health crisis has sped up the move to a more digital era, and Dunelm is clearly capable of dealing with that volume. The board of directors have decided not to declare a final dividend as they feel it would be sensible to conserve its cash position for the busy winter season. Looking further down the line, the company said it intends to pay an interim dividend in the next financial year, provided there isn’t a second wave of Covid-19. The stock is lower today, but just over one week ago it set a record high.
Dixons Carphone revealed that online sales more than tripled amid the lockdown, but it remains cautious in its outlook.
US
Equities were building on yesterday’s but the optimism has faded now the picture is mixed. It would. Like yesterday, the NASDAQ 100 is outperforming.
The latest jobless claims reading was 884,000, and economists were expecting 846,000. The previous report was 881,000 – which was the lowest since the lockdown was introduced, but it was revised up to 884,000. The continued claims report is one week behind the jobless claims update, and it was 13.85 million, up from the revised 13.29 million in the previous announcement. It is fair to say the jobs market is slowly improving.
The PPI rate increased from -0.4% to -0.2%, and the core reading rose to 0.6% from 0.3%. The increases in the readings, especially, the core update, point to higher demand.
Nikola Corporation shares are in the red today as Hindenburg Research issued a note claiming the truck manufacturer has engaged in fraudulent behaviour. The report alleges the Nikola CEO has made ‘false statements’.
Peloton will announce its second quarter results after the close of trading. The technology and fitness company revealed well received numbers in May. Revenue jumped by 66% to $524.6 million, and equity analysts were expecting $487.7 million. Subscriptions, came in at over $98 million, up 92%. The group’s previous yearly subscription revenue forecast was $1.53-$1.55 billion, and that was raised to $1.72-$1.74 billion. The lockdown prompted a surge in demand for its spinning bikes and thread mills, but now that gyms have reopened again, dealers will be paying close attention to the forecast as demand for their service is likely to fade.
Game Stop shares are in the red on the back of the poor second quarter numbers that were posted last night. Revenue was $942 million, undershooting the $1.02 billion consensus estimate. The loss per share was $1.40, which was worse than the loss of $1.13 that traders were anticipating. In typical pandemic form, the store sales suffered, while the online operation boomed. Comparable same store sales fell by 12.7%, while online sales rose by a colossal 800%.
FX
The US dollar index is down for the second day in a row. Yesterday it briefly hit its highest level in almost one month, but the wider risk-on sentiment hit the currency as traders turned their backs on the currency as it is deemed to be a safe-haven play. Today, the broader move higher in the euro has hit the greenback.
EUR/GBP hit its highest market since March as a combination of a stronger euro and a softer pound pushed up the currency pair. It is clear the ECB are not going to try and devalue the euro, probably because they don’t want to take on the Fed in an easing fight. Sterling remains under pressure due to uncertainty surrounding the UK-EU trade negotiations.
Commodities
Gold hit its highest level in over one week as the slide in the US dollar has boosted the metal. Once again, the relationship with the US dollar has been a major factor in its move. In the past few weeks, the commodity has been directionless but more recently it has been pushing higher, and while it holds above the 50-day moving average at $1,916, the bullish move is likely to continue.
Last night’s update from the American Petroleum Institute (API) showed that US oil inventories increased by 3 million barrels, while energy analysts were predicting a decline of 1.4 million barrels. The surprise rise in stockpiles suggests that demand is a lot weaker than expected. Earlier in the week, Saudi Arabia trimmed its oil shipment prices to the US, so traders took that as a sign that demand is slipping, so the API update compounded those fears. The EIA report showed that US oil stockpiles grew by 2.03 million barrels, while the consensus estimate was for a draw of 1.65 million barrels. WTI and Brent crude are in the red.
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