News

Stocks higher on health hopes, gold and Tesla rally

CMC Markets

Equity markets are largely higher as we approach the close of the trading day. 

Europe

Optimism is doing the rounds as some of the restrictions in Spain and Italy have been lifted. Some industries in both countries has seen work resume, and that has encouraged traders to snap up stocks, as there might be light at the end of the tunnel. The FTSE 100 is slightly in the red, and the British market has the fall in oil stocks to blame as Royal Dutch Shell and BP are weighing on the index.

The IMF issued a stark warning about the state of the global economy as it predicted the coronavirus crisis will trigger a global recession that is ‘very likely’ to be the largest economic contraction since the 1930s. The organisation anticipates a 3% fall in world growth this year, while in January it predicted that global growth would be 3.3% in 2020. The eurozone is tipped to be hardest hit as the IMF foresees a 7.5% contraction for the currency area.   

The German stock market experienced technical issues this morning, but in the afternoon, trading has been running smoothly.

Last month Next took the decision to close its warehouse and online business after consulting with its staff, but today it has reopened the operations in a ‘very limited way’. The group will offer certain home products and child’s wear items, and it might decide to sell other products at a later date The fashion house confirmed that staff in the warehouse side of the business will follow strict social distancing guidelines. It is encouraging to see the firm has returned to business, albeit, a tiny section of the overall operation. Next had to close its website by 8.30am (UK time) due to such high demand, but it will re-open tomorrow. 

Mitchells & Butlers’ shares have sold-off heavily today even though the company said it has received a waiver until the middle of next month in relation to the prospect of breaching its secured financing agreements. The waiver should give the firm some much needed head space, but it seems that traders are viewing the need for an extension as a sign of weakness. The pub group is doing its bit to hoard cash in these challenging times. Operating costs have been pared back, discretionary capital expenditure has been stopped, and all employees have seen their remuneration reduced to 60%-80% of pre-crisis levels.  

Wizz Air are optimistic even though the lockdowns have had a terrible impact on their business. All aircrafts have not be grounded, but the vast majority of them have been. Due to the pandemic and hedging costs, the company anticipates to post a loss in the fourth-quarter. The full-year statutory net profit should be between €270 million and €280 million. Wizz confirmed it has €1.5 billion in cash – one of the strongest cash positions in the industry, and that should alleviate some trader&rsquo s fears. In an effort to preserve its healthy cash position, the group revealed some though cost cutting measures. 19% of staff have been made redundant, while others have been put on furlough. Senior management will take a 22% pay cut, while other members of staff, such as cabin crew and pilots, will endure pay cuts averaging 14%. The low-cost carrier are still optimistic in their outlook as the company still hopes to grow its capacity by 15% on a yearly basis.

AstraZeneca will start to use Calquence – a treatment used for certain blood cancers, in a trail for Covid-19. The treatment will focus on the immune system. The pharmaceutical industry is all about trial and error, so there is no guarantee that Calquence will even come close to working, nonetheless AstraZeneca is one of the biggest risers on the FTSE 100 today.

British American Tobacco shares are in the red on the back of a report that they are being investigated by the US regulator. The tobacco company said it was working with the Department of Justice and the Office of Foreign Assets Control. It is believed the US authorities are looking into a suspected breach of sanctions, but no country or countries have been mentioned.  

US

The mood on Wall Street is bullish as traders are cautiously optimistic that the lockdowns are working, and that the authorities are getting a handle on the situation. In the past day we have heard positive comments from President Trump and Andrew Cuomo, the governor of New York, about the health situation. Judging by last week’s jobless claims numbers, the economy is clearly suffering greatly, and more pain is in the pipeline, but there is a sense we might be turning a corner in the health emergency in the term-near.   

JPMorgan Chase revealed its first-quarter figures, and the bank’s earnings greatly undershot estimates, largely because of a huge increase in provisions for bad loans. EPS came in at 78 cents, while equity analysts were expecting $1.84. The firm set aside an additional $6.8 billion to the loan loss provision – defaults on loans because of the lockdowns are expected to surge. On an annual basis, group revenue only slipped by 3% to $29.07 billion. In the three month period, the trading division registered a 32% jump in revenue to $7.2 billion – a record.    

Wells Fargo also expect a major surge in loan defaults as the bank put $3.1 billion into its ‘reserve’. The provision for loan impairments hammered the first-quarter earnings. EPS for the three month period came in at 1 cent, and keep in mind it was $1.20 in the same period last year. Net interest income, - the money it makes on lending, was $11.3 billion, an 8.1% drop on the year, but it exceeded the $10.91 billion forecast.

Tesla shares are in demand after Credit Suisse upgraded their outlook for the stock to neutral from underperform. The Swiss bank feels the disruption caused by the Covid-19 crisis will only be short-term. The finance house upped its price target to $580 from $415.

Johnson and Johnson posted strong earnings, but the company lowered its guidance on account of the pandemic. EPS for the first-quarter were $2.17, which was a 53% increase on a yearly basis. The firm’s new full-year EPS guidance is $7.50-$7.90, and keep in mind the old outlook was for between $8.95 and $9.10.    

FX

The CMC USD index is down 0.3% as the greenback is still suffering from the colossal stimulus package that was revealed by the Federal Reserve last week. The ‘Main Street’ scheme is essentially an enormous lending programme for US companies, and the Fed are the driving force behind the move. EUR/USD and GBP/USD has been helped by the weakness in the greenback. Sterling is holding up well despite the Office for Budget Responsibility warning the UK economy could contract by 35% between April and June.  The Canadian dollar is in the red today on account of the decline in the oil market, while the positive move in the metals market has assisted the Australian dollar. The rise in both the Swiss franc and the yen suggests that safe-haven currencies are popular.

Commodities

Gold has been boosted by the slide in the US dollar. There is often an inverse relationship between the two markets as the commodity is traded in dollars, so a dip in the greenback makes it relatively cheaper to buy the metal. Gold hit its highest level since late 2012, so the sentiment is clearly bullish. If the commodity holds above the $1,700 level, further gains are likely to be in the offing.

Oil is offside as demand concerns still hang over the commodity. OPEC+ recently agreed to cut production by nearly 10 million barrels per day in May and June, but dealers clearly feel the drop–off in demand on the back of the Covid-19 crisis will outweigh the reduced supply. The optimism that equity traders have in relation to the pandemic has not spilled over into the energy market.  

 

 

  

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