News

Risk-on sentiment prevails on Covid-19 drug hopes

CMC Markets

Equity benchmarks in Europe are set to finish the day firmly in positive territory.  

Europe

The optimism is being driven by a report that President Trump is looking to fast-track the approval of a drug that has the potential to be a vaccine for Covid-19. AstraZeneca and Oxford University are working on the drug in question, and Mr Trump is apparently keen to get the regulatory approval sped up. The move could come in October, one month ahead of the US presidential election. Even though there are no guarantees that things will go according to plan in terms of the drug’s success, traders are snapping up stocks nonetheless. Nothing has been confirmed by AstraZeneca.  

In London, mining, energy, banking, airline and house building stocks are showing decent gains, so it’s a broad-based rally. The DAX 30 and the CAC 40 are outperforming the FTSE 100, but the continental indices suffered more on Friday on account of the not-so-hot services and manufacturing numbers.        

It was reported that BT have drafted in Goldman Sachs to help defend itself from takeover offers. It was reported the telecoms titan might be subject to a takeover bid from either investment vehicles or direct competitors. BT’s market capitalisation is in the region of £10.2 billion, but keep in mind that its value has slumped by over 40% year-to-date, so the weakened share price is likely to be a factor as to why there is chatter of takeover bids. One newspaper article said BT could be in for a £15 billion approach and should that be the case, it would be a generous premium on the current value. Shareholders in BT have had a rough ride recently so an acquisition offer might be welcomed, but then again, some investors might feel they are being targeted because the stock price is vulnerable.

Tesco announced that it will create 16,000 new permanent jobs at its online operation. The update has been welcomed as there has been a lot of negative news from the retail sector recently. E-commerce has thrived amid the pandemic, and the scale of the jobs creation by Tesco highlights how important the division is to the group. 

Bunzl delivered respectable first half numbers but more importantly it reinstated its final dividend. Four months ago, the company decided it was prudent not to press ahead with a final dividend, but today it decided to reverse that decision, and the pay-out will be 35.8p. The interim dividend was upped by 1.9% to 15.8p. Revenue in the six month period increased by 7% to £4.84 billion, and the adjusted pre-tax profit rose by over 16% to £306.8 million. The reinstatement of the pay-out is likely to make the stock more attractive to investors who are seeking an income stream, also, it sends out a positive message about the group. JPMorgan raised its price target for the company to 2,550p from, 2350p. 

JD Weatherspoon shares started off on a positive note, but it is now in the red. The pub chain saw a ‘rapid acceleration’ in sales recently because of the government incentive scheme, but it warned that business is likely to cool once the programme comes to an end – later this month. Wetherspoon cautioned that it expects to register a full year loss. 

US

The S&P 500 and the NASDAQ 100 opened at record highs as the bullish move continues. Hopes have been raised in relation to the health crisis as Mr Trump is thinking about speeding up the process of approving a drug that could potentially be a vaccine for Covid-19. The two indices were already enjoying a bullish run recently, so the drug story has added fuel to the fire.    

American Airlines is due to receive approval from the Environmental Protection Agency which will allow it to use a new surface coating that eradicates Covid-19 for up to one week. This should help the beleaguered airline, but dealers are likely to be cautious of the stock as there still isn’t much demand for air travel. Delta Airlines will recommence 50 international flights as a part of its winter schedule, which will include flights to China and South Korea.    

Apple shares have traded above the $500 mark for the first time. Today is the ‘record date’ for the 4-for-1 stock split that will take effect on 31 August.

Tesla shares have seen a lot of volatility today, and they are now just above the $2,000 mark. 

Deere posted a well-received set of quarterly figures on Friday. Bank of America changed its rating on the stock to ‘buy’ from ‘neutral’.

FX

The risk-on attitude of traders has put pressure on the greenback. As we saw on Friday, the greenback jumped because dealers were seeking out assets that were deemed to be lower risk, and today there has been a reversal of some of Friday’s positive move. The dollar index is in the red but it is still above it recent lows. It is worth noting that the wider bearish trend is still intact.

The negative move in the dollar has given a hand to EUR/USD. It was been a very quiet day in Europe and North America in terms of economic reports. GBP/USD is a touch lower as there is a broad decline in sterling.

AUD/USD has been lifted as metals such as silver and copper are up on the day. The Australian dollar tends to receive a boost when metals move higher.

Commodities

Gold was being assisted by the slide in the US dollar, but recently the greenback pulled back some of its earlier losses, so it is now in the red. The inverse relationship between the two markets has been robust lately. In the past few sessions, gold’s range has been relatively small but while it holds above the $1,900 mark, the broader bullish trend should continue.

Adverse weather in the Gulf of Mexico – hurricane Marco and tropical storm Laura – has prompted the evacuation of oil platforms in the region. The squeeze on supply, and the potential for disruption from the harsh weather has pushed up the price of WTI and Brent crude. The positive move in the markets overall has played a small role in oil’s upward move too as it is sensitive to the perceptions about the health of the worldwide economy.         

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