It’s been a disappointing end to the week for European stocks with travel stocks bearing the brunt after the UK decided to add France, the Netherlands and Malta to its list of quarantined countries, over concerns about rising infection rates in all three countries.
Add in to that the even more juvenile retaliation by the French government, and the recipe for disaster is complete, as the travel sector has to absorb yet another headache, as the holiday season in Europe starts to unravel even further, against a backdrop of isolated infection flare ups across the entire region.
If European governments were hoping to salvage something tangible from the 2020 summer holiday season these recent setbacks are unlikely to help, and with the days getting shorter, the window for buying time for the finances of countries like Spain, Italy and Greece is starting to close.
In Spain there is rising concern that increasing infection rates could prompt a second lockdown, if the current new measures which restrict nightclub openings, as well as drinking and smoking in the streets don’t stem the rise in cases.
British Airways owner International Consolidated Airlines is the worst performer on the FTSE 100, while easyJet, Ryanair and TUI have also underperformed on the mid cap index, while in Europe we’ve seen Air France KLM and Lufthansa also slip back sharply.
The setback over the new quarantines overshadowed the news that easyJet had been able to conclude the successful conclusion of the sale and leaseback programme of 23 aircraft, which has helped generate an extra £608m, on top of the other £1.8bn which the airline has raised since the beginning of the coronavirus pandemic.
Other shares linked to the aviation and travel sector are also sliding, with BP and Royal Dutch Shell under pressure over lower demand expectations, along with Rolls-Royce, which has slipped back as well.
On the plus side Hollywood Bowl shares have jumped after the UK government eased restrictions on the re-opening of bowling alleys, and other leisure venues where you can socially distance, along with beauty salons and spas.
US market update
US markets have opened broadly softer, just shy of record highs, ahead of the resumption of US/China trade talks this weekend.
The latest retail sales numbers for July, painted a mixed picture of the US consumer, showing a monthly gain of 1.2%, slightly below expectations, however the upward revision to June from 7.5% to 8.4% more than made up for that, while the control group measure which is used to calculate GDP rose by more than expected to 1.4%.
All in all, the numbers were all over the place, which tells you little about the overall state of the US economy, apart from that it is continuing to recover from the effects of the shutdown in April, albeit on a patchier scale than expected.
Industrial production for July showed a slight slowdown from June, coming in at 3%.
Tech stocks are underperforming with Apple shares slipping back from yesterday’s record highs, after the company was accused of monopoly abuse by Epic Games, makers of the Fortnite game, after the app was removed from the App Store. The company has taken out a lawsuit claiming abuse of power against the US tech giant, and it is hard to argue that the company doesn’t have a case.
There is rising disquiet among app developers that Apple is abusing its position as a marketplace for innovation by charging up to 30% fees, in an area that is becoming an increasingly important revenue earner for the Cupertino giant.
The increasingly onerous rules the likes of Apple, as well as Google, place on their app stores is generating increasing disquiet amongst the users of its marketplaces, as well as attracting the attention of US and EU regulators.
With Spotify also complaining of Apple’s practices in this area it is hard not to detect a trend that could embolden other brands in respect of Apple’s practices, which in turn could force the company to take steps to offset some of these concerns, before regulators force them to do so.
FX
The pound appears to be finishing the week on an upbeat note, while the euro has slipped back after the latest employment data for Q2 showed that the euro area had lost half of the jobs it had created since the financial crisis, as the number of people employed fell 2.8%.
The Japanese yen has also been gaining ground ahead of the release of its latest Q2 GDP numbers early next week.
Despite a brief rebound early in the week the US dollar has continued to struggle, and could well close at its lowest level in over two years against a basket of currencies, largely as a result of underlying pessimism over a possible conclusion to stimulus talks on Capitol Hill.
Commodities
Oil prices are also slightly softer, although they still look set to finish the week higher, as gains get tempered over concerns about a weaker demand outlook, particularly around air travel, where future demand expectations have been dialled back this week by OPEC, the IEA and the EIA.
Gold prices have stabilised after their first weekly decline since May, and could well fall further in the event that yields continue to rise. This week has seen a big rise in US, UK and German yields and while there appears to be differing views as to why, a continued move higher in these yields could dilute the current attraction for the yellow metal as a haven play in the short term.
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