News

FTSE 100 tumbles on health crisis and firmer pound

Coronavirus fears are back at the forefront of traders’ minds, hence why stocks have fallen today. 

Europe

The health crisis in China is deepening as the number of confirmed cases as increased, and so has the number of fatalities. Stocks that have exposure to China are bearing the brunt of the sell-off. Commodity, consumer as well as travel stocks are lower today. The rally in the pound on the back of the Bank of England (BoE) keeping rates on hold has pushed helped push the FTSE 100 to its lowest level since mid-December.      

Deutsche Bank shares started off the trading day in the red on account of the disappointing figures, but now that traders have sifted through the numbers, the stock is higher on the day. In the final-quarter the bank registered a loss of €1.5 billion, which was higher-than-expected. The annual loss was €5.3 billion, and that was also a larger than anticipated loss. The struggling bank has been trying to whip itself into place, it has completed roughly 70% of its cost cutting scheme. There were some, bright spots in the update and that gave dealers some hope. Investment banking revenues were robust, plus the fixed income and currency division had solid final quarter as revenues jumped by 31%     

In December Royal Dutch Shell indicated the company was going to take a write-down of $1.7-$2.3 billion, but it turns out the charge was $1.6 billion. Lower gas, LNG as well as oil prices hit the firm hard, especially in the fourth-quarter. The energy titan posted a 48% fall in current cost of supplies earnings attributable to shareholders excluding identified items in the last three months of the year. The full-year figures weren’t as ugly as the profit metric declined by 23%. The stock is down 3.7%, but keep in mind the weakness in the underlying oil market on account of the coronavirus is a factor in the share price decline.

H&M’s turnaround scheme continues to pay off as the fashion house posted solid fourth-quarter numbers. Pre-tax profit and revenue increased by 24% and 9% respectively. The dividend was left unchanged – which was welcomed by some traders as they feared it might be trimmed. The group will cut back on capital expenditure rather than the cash pay-out in a bid to conserve cash. The stock is up roughly 57% since the lows of December 2018, so traders are clearly happy with the transformation progress.

There is a report circulating that a couple on-board a Carnival cruise ship have been quarantined. The vessel is near the coast of Italy, and it is believed to be carrying approximately 6,000 passengers. The report has pushed Carnival shares lower. 

US

The US economy grew by 2.1% in the final-quarter of 2019, meeting economists’ forecasts. The positive growth numbers couldn’t hold back the tide of bearish sentiment as the major indices are all in the red.

Tesla share hit yet another all-time thanks to the impressive fourth-quarter numbers that were posted last night. The auto-maker impressed traders by posted final-quarter EPS of $2.14, while the consensus estimate was $1.72. Revenue came in at $7.38 billion, topping the $7.02 billion forecast. Last year the company produced approximately 368,000 vehicles, and the target for next year is 500,000 – which would be a sizeable jump. The optimistic outlook helped the stock price go up a gear.

Facebook shares have tumbled in the wake of the news the company’s expenses jumped. The social media giant revealed its latest quarterly figures last night. Costs jumped by more than 50%, which was a factor in the operating margin falling from 45% to 34%. Tough rules have been imposed on the sector, so Facebook has had to ramp up its fight against fake news. With the US presidential election on the horizon, the group will be under extra scrutiny. The major metrics like revenue, EPS as well as daily active users are essentially in line with forecasts. 

FX

GBP/USD is higher on the day on account of the fact the BoE kept rates on hold, Roughly two weeks ago the markets were pricing in a 70% chance of a rate but, but more recently it drooped to approximately 50%. For all the speculation about a rate cut, only two of the nine policymakers voted to lower rates – which acted as a green light to the sterling bulls. The BoE now expected the UK economy to grow by 0.8% in 2020, but in November the outlook was for 1.2% growth.

EUR/USD has been helped along by the pullback in the greenback. The US dollar index is in the red following five straight days of gains. German CPI ticked up to 1.6% from 1.5%, but economists were anticipating 1.7%. Nonetheless, it is encouraging to see increased demand in the largest economy in the eurozone.   

Commodities

Oil has been hit hard by the fear factor surrounding the health crisis in China. The rising death toll in addition to the increased number of confirmed infections has spooked traders. China is the largest importer of oil in the world so dealers are dumping the energy for fear the situation in the country will get even worse, and in turn, demand for oil will fall.

It has been a win-win for gold today as the flight-to-quality effect plus the dip in the US dollar have boosted the metal. The coronavirus fears have gripped the market again, so dealers have been cutting their exospore to stocks, and in turn ploughing their funds into assets like gold. Should the bullish run continue it might target $1,600.   

For further comment from David Madden, please call 0203 003 8907 or 078 954 50516.

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