News

Markets muted, Sunak posts new spending plans

CMC Markets

Equity markets in Europe are in the red as concerns relating to the pandemic continue to weigh on sentiment.

Europe

Volatility has been low as the health crisis has been bubbling away in the background. The health situation in the US seems to have a bigger impact on European stocks than it does across the pond.  

Rishi Sunak, the Chancellor of the Exchequer, announced £30 billion worth of schemes that should help trigger economic activity. Some of the programmes were already known about, while others were revealed today. The stamp duty threshold for England and Northern Ireland will be raised from £125,000 to £500,000, until the end of March 2021. The reaction from the house builders was muted as the story has been in the news for the past few days. The hospitality and tourist sectors have been hit hard by the health crisis, so Mr Sunak will cut VAT for the sector to 5% from 20% - it will be in place for six months. In addition to that, people who dine out between Mondays and Wednesdays will have up to £10 knocked-off the price of their meal in August. It will include hot takeaways too. Restaurant Group shares jumped on the back of the news, but now the stock is basically flat on the day. The assistance to the hospitality sector doesn’t include alcohol, which could explain why pub groups like JD Wetherspoon are in the red. It is worth noting that most of the big chains serve food. As previously mentioned during the week, £2 billion was mapped out for new green homes and £1 billion has been allocated for improving energy efficiency. Funds will be deployed to encourage employers to keep on staff that are currently on furlough, and incentives will be offered to take on trainees and apprentices.  

FirstGroup shares are in the red today after the group posted a full year operating loss of £152.7 million, which was a big difference from the £9.8 million profit from last year. The company’s US business, Greyhound, incurred a total impairment charge of £186.9 million. Not surprising, the group blamed the pandemic for the poor performance. In light of the current environment, the company didn’t offer a guidance. FirstGroup confirmed that it has increased its liquidity position to roughly £850 million, so it is well financed. Traders aren’t holding out much hope of the company reinstating its dividend any time soon. 

Boohoo have been in the news this week for all the wrong reasons. It was reported that Jaswal Fashions, a textile company that are alleged to be connected to Boohoo’s supply chain, have a track record of paying their staff £3.50 per hour, and that working conditions are substandard. Boohoo said the group in question are not a third party supplier, and they have established an independent review of its UK supply chain. So far the investigation, has found no evidence of any of its suppliers paying its worker £3.50 per hour. However, it has found evidence that some suppliers were not complying with their code of conduct, and that has led to the immediate termination of the relationship with those parties. Even though the investigation is still ongoing, firms such as ASOS, Very, Next and Amazon have suspended the sale of Boohoo brands, hence the fall in the share price. 

SEGRO, the commercial property and warehouse group, is working with its tenants that have been impacted by the pandemic in relation to the collection of rent. Some firms have had difficulty in paying rent, so SEGRO re-profiled £9 million worth of rent that was due in the June quarter. Stripping out the re-profiled sum, it collected 93% of the rent that was due. As far as property specialists go, SEGRO is in good shape, and that is because it largely caters for warehousing for online retailers.

HSBC shares are in the red as there has been talk the Trump administration might undermine the Hong Kong Dollar (HKD) peg. The US government could try and limit the amount of US dollars that are bought by banks based in the territory. China’s decision to introduce the controversial national security law to Hong Kong has attracted anger from Mr Trump so the HKD might be targeted as a way to hit back at Beijing. HSBC has a large presence in Hong Kong and the Far East in general.

WPP shares are in the red as Credit Suisse reiterated it’s underperform rating for the stock, and its price target is 565p. 

US

Sentiment is a little cautious as the S&P 500 is down 0.2%, but the NASDAQ 100 is just about up on the day, so it seems that once again the tech sector is leading the way. Traders will be keeping an eye on the fatality rate as the WHO warned it could tick given there has been a jump in cases recently. 

Biogen shares are in demand as it has submitted its marketing application to the FDA for its Alzheimer’s drug, Aducanumab. The US regulatory body has 60 days to accept the application for review. The process will be fast-tracked as the pharma giant requested a ‘priority review’.  

Nikola manufacturers electric and hydrogen trucks, and for that reason it has been lumped in Tesla. The company is relatively new to the stock market and it has been performing well. It’s share price has been driving higher today after JPMorgan upgraded it to overweight from neutral.    

FX

The US dollar has come under pressure in the past few hours. The greenback has typically lost ground recently when traders have been in risk-on mode but sentiment is a little weak today – European markets are in the red, while the US indices are mixed. It has been a quiet day in terms of economic indicators, and the mini budget from the UK didn’t have much of an impact on the pound. ‘Commodity currencies’ such as the Australian dollar and the Canadian dollar are higher versus the greenback, which would usually point to risk-on sentiment, but the fresh multi-year high in gold suggests otherwise.    

Commodities

Gold topped the $1,800 mark for the first time since September 2011. Once again, the softer US dollar has assisted the metal as the inverse relationship is still strong. Broadly speaking, global stocks hit multi-month highs in early-to-mid June, and they have retreated since then as renewed health fears took hold. In recent weeks, gold has gained ground as some traders’ fear a second wave of Covid-19 cases could be in the offing, and that has helped gold lately. 

WTI and Brent crude are largely flat on the day as the mood in the energy market has been muted. There was an increase in volatility on the back of the EIA data being announced. The report showed that US oil stockpiles jumped by 5.65 million barrels, while the consensus estimate was for a decrease of 3 million barrels. The surprise build was counteracted by the 4.83 million barrel fall in gasoline inventories.  

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