News

Equity bulls maintain control, Zoom hits another record high, gold falls

CMC Markets

Stock markets are set to finish the session firmly higher as dealers are optimistic about a recovery in the global economy. 

Europe

The strong services data from China overnight set the tone for the session. The reading was the highest since 2010, which is incredible seeing as the country was on lockdown earlier this year. Sticking with the services theme, reports from eurozone economies and the UK all showed major improvements from the readings posted in April. Everyone knows the lockdowns have been brutal in terms of the global economy, but there is a feeling that things are moving in the right direction.    

Wizz Air shares hit their highest level since late February on the back of the company’s strong full year figures. Underlying net profit came in at just under €345 million, which was a record level. Passenger growth increased by 16%, and the net profit margin was 12.5%. The airline started operating a small number of flights last month and as we get into holiday season, it will roll out further flights. Yesterday, easyJet launched its biggest ever summer sale, so competition will be tough. Wizz are in a healthy position in terms of liquidity as its total cash balance stands at €1.49 billion, and the airline was quick to remind the market that it has one of the strongest balance sheets in the business, hence why the stock has hit a multi-month high today.    

C&C shares are also in demand as the company posted decent annual numbers. Revenue rose by 7.8% to €1.7 billion, while operating profit jumped by over 10% to €116.4 million. The drinks company has seen its revenue stream from trade – pubs, bars and hotels dry up since March. The shutting down of the hospitality sector will continue to be painful for C&C, but the group has sufficient liquidity. Its leverage position has fallen by over 29%, and in an effort to conserve cash it didn’t pay a final dividend. Normally in this time of year, beer gardens across Ireland and the UK would be packed with people socialising, some enjoying C&C’s Magners cider, but it is likely to be months before we could see pubs reopen. In the current environment, having the cash to stay in the game is what dealers are looking out for, so its prospects are still relatively optimistic.

Chemring shares are flying high today as the company maintained its full year guidance – something that few firms are doing these days. The group provides services and products to the defence and aerospace industry. All of its businesses have managed to remain open despite the chaos caused by the lockdown – once again, not many firms can boast such a claim. First half underlying profit before tax surged by 144% to £24.2 million.

US

Sentiment is bullish on Wall Street as dealers are optimistic about the reopening of the US economy. There is a growing feeling that we are over the worse of the economic pain caused by the pandemic. The US ADP employment reading showed that 2.76 million jobs were lost in May, which is a shocking reading, but economists were expecting a decline of 9 million jobs. The April reading was revised to -19.55 million, from -20.2 million. The fact that last months reading was only a fraction of the April update, could be an early sign that we have moved past the most painful point. The US services PMI report and the non-manufacturing ISM reading were 37.5 and 45.4 respectively, and both readings were higher than the April levels. When you factor in the improvements in the US services data it shows the US economy is in a less awful state.     

Zoom revealed impressive first quarter figures. Revenue was $328.2 million, which was a 169% increase when compared with the same period last year, and keep in mind that dealers were expecting $202.7 million. The EPS came in at 20 cents, easily exceeding the 9 cents forecast. Not only did the group comfortably top the high expectations that equity analysts had in place, the company issued a very bullish full year outlook too. EPS are now tipped to be $1.21-$1.29, while the upper end of the old guidance was 45 cents. Revenue is now anticipated to be in the region of $1.78-$1.8 billion, and that is nearly double the previous forecast. The stock hit a new record high.    

Lyft shares are up on the day as the company reported that rides in May increased by 26% when compared with April’s figure – which was awful on account of the lockdown.  

FX

Continued weakness in the greenback has pushed up GBP/USD and EUR/USD. The services sectors of the major eurozone economies are still in deep contraction, but they are in a far better position now than they were in April, so that is a factor too in the euro’s move. The UK services PMI report for May was 29, and that is a shocking reading, but it was a massive increase on the 13.4 posted in April.

USD/CAD is in the red as the Bank of Canada kept interest rates on hold at 0.25%, meeting forecasts. The ‘loonie’ is still firmer versus the US dollar despite the recent move lower in oil. The energy tends to be a big influence on the Canadian dollar and oil’s strength in the past few weeks has helped the currency.    

Commodities

Gold is lower today as traders are turning their backs on assets that are deemed to be lower risk, such as gold. The rally in global stock markets is a clear sign that dealers are in risk-on mode, so it is hardly surprising the metal is in the red. A weaker US dollar would normally assist gold, but that is not the case today so it highlights the bearish sentiment surrounding the commodity.

Oil is a little lower this afternoon after Saudi Arabia and Russia agreed a preliminary production cut. It is understood the current output levels will remain in place until the end of July but that needs to be approved from other members of OPEC+. Before the announcement, there was speculation the existing output levels would be kept in place for many months. The EIA report showed that US oil stockpiles fell by over 2 million barrels, while traders were expecting a build of over 3 million barrels.

 

 

 


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