News

Stocks tumble despite Fed’s QE, dollar falls, Kingfisher pops

The coronavirus continues to hang over equity markets. 

A medical report from John Hopkins University claimed the number of reported cases has increased beyond 350,000 worldwide as testing is rolled out across the US, and the fear factor is setting in for traders, which is why they are dumping equities. As far as the west is concerned, the situation is getting worse by the day, in addition to that, there is a perception things will get even worse within the next few weeks.

The Fed’s announcement about a quantitative easing programme that could run on for the foreseeable future jolted European equity benchmarks higher, but the optimism was short lived, and the markets moved south again. The absence of a fiscal stimulus package from the US government is playing a role in the sell-off too.    

The beleaguered rail industry was given a hand by the government today as Westminster has suspended the franchise system. The Department of Transport will pay the rail operators to keep their businesses running as a way of helping essential workers get to and from work. Domestic travel has been clobbered by the coronavirus crisis, but today’s news has boosted FirstGroup and Go-Ahead Group.  

Spire Healthcare have signed a deal with NHS England, and the listed company will provide its facilities to the government body. The share price has suffered recently, but today’s news has given Spire a shot in the arm.

Royal Dutch Shell will be curtailing their outgoings amid the health emergency. Underlying operating costs will be cut by between $3 billion and $4 billion. In addition to that, cash capital expenditure will be lowered to $20 billion or less, and keep in mind the original plan was $25 billion. Shell will not go ahead with the next tranche of the share buyback scheme. The disinvestment programme will continue, but the timings might be thrown off kilter – asset prices are likely to be volatile in the near-to-medium term.

Kingfisher shares has seen big volatility today. In accordance with the FCA’s guidelines, the group will delay releasing its complete set of full-year results. The firm’s stores in Spain and France are closed on account of the health crisis. Today, the group confirmed it will not be proposing a dividend, in addition to that, it has drawn down its £775 revolving credit facility. The firm said it can easily make its loan obligations, hence why the stock is higher today.  

Pearson shares are in the red following its cautious update, but the stock is off the lows of the session. On account of the Covid-19 crisis, it will pause its share buyback programme. The publishing house has seen a ‘significant’ uplift in demand for digital products, but there physical sites are likely to suffer.

Associated British Food, the owner of Primark, have announced the closure of all their 376 shops, across 12 countries. The extreme move will roughly equate to a net loss of sales of £650 million per month. The retailer reassured the market it is in a comfortable position in terms of liquidity.  

The supermarket sector as well as the consumer goods industry are lower today. Marks & Spencer shares are suffering – the company warned last week that profits might be at the lower end of their guidance, or even below the forecast. Tesco and Sainsbury’s are offside too. Unilever and Reckitt Benckiser are down today, but both stocks rallied last week as they produce hygiene products.   

Airbus have secured a credit line of €15 billion. The company have also halted its dividend in addition to offering no guidance. The aviation industry has been hit hard on account of turbulence in the travel sector – Wizz Air and Norwegian Air Shuttle are offside again.    

IWG shares have been hit hard by then news the company will not pay out a dividend as well as suspend its share buyback programme.

Antofagasta, Rio Tinto and Anglo American have lost ground today due to the fall in copper.  

US

The Fed left the door open to quantitative easing to go on indefinitely, and the S&P 500 is still down 4%, so where would stocks be without the extremely accommodative US central bank. The Dow Jones has now handed back all the ground it made since the 2016 Presidential election, but I doubt President Trump will tweeting about that anytime soon.

Dealers was sick of the bickering between the two major political parties as it is causing a delay to the announcement of a stimulus package. The deadlock in Washington DC is not a good look for the US right now, as it projects an image of division, at a time when solidarity is desperately needed.  There is talk of a $2 trillion rescue package, but to be honest, traders seem to be so worried, it might not be enough to coax the buyers in from the cold.   

Apple’s market capitalisation dropped below the $1 trillion mark for the first time in five months. Things are bad when even the darlings of the market are falling.

Newmont Corp plus Deere scraped their guidance’s on account of the uncertainty.  

FX

The US dollar index has sell-off aggressively today in the wake of the Fed stimulus news. The fact the central bank said it is prepared to keep the bond buying scheme in place for as long is needed, showed the market how serious they are about combating the Covid-10 crisis. It is worth remembering the US dollar has been strong recently as it was attracting safe-haven funds – so the Fed’s news provided a nice profit taking opportunity. EUR/USD has been lifted the by fall in the greenback. The Eurozone consumer confidence report dropped to -11.6 in March, from -6.6 in February, while economists were expecting -14.2.

GBP/USD is lower despite the sizeable fall in the US dollar. Sterling is weaker against most currencies today. At the back end of last week, Rishi Sunak- the Chancellor of the Exchequer, stepped up the fiscal package to tackle the health crisis. The government will compensate workers impacted by the coronavirus to the tune of 80% of their salary, up to £2,500 per month, for 3 months initially. The salary move alone could cost the UK government approximately £40 billion.  

Commodities

Gold has been given a lift by the big fall in the US dollar - the inverse relationship between the two markets is playing out today. Also, the uncertainty in stock markets in Europe and the US has boosted the metal too. The asset is considered to be a safe haven, but its upward moves are far smaller than its downward moves – this suggest weakness in the commodity.

WTI and Brent crude are in the red today as the same old oversupply and weak demand fears do the rounds. The energy market acts as a good proxy for the perception of the health of the global economy. Traders are fearful there will be a sharp slowdown in the world wide economy, and in turn demand for oil will slide.

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