European equity markets are deep in the red on the back of the Fed minutes from last night.
Europe
The update warned the US economy could face a ‘considerable’ negative impact over the medium term on account of the pandemic. The Fed also repeated the need for fiscal stimulus, as they feel they can’t tackle the crisis alone. The absence of a coronavirus relief package is playing on traders’ minds even more so in light of the Fed’s comments. It seems a bit strange that traders are all of a sudden worked up about the Fed’s bearish outlook, when it has been known for a while now. The US unemployment benefit scheme ended in late July, so it’s a surprise that dealers are now running scared. Nonetheless, the mood is bearish and in terms of index points, the biggest fallers on the FTSE 100 are mining and energy stocks.
AO World, the online electrical goods retailer, posted a short and sweet trading update for the four months until the end of July. On a yearly basis, UK revenue jumped by 58.9% to £401.3 million, and the German unit saw revenue surge by over 90% to €74.3 million. The group confirmed that demand has remained robust even when competitors’ stores have reopened, and that adds to AO’s view that there is a change in the way that consumers buy electrical goods.
Frasers Groupshares are in demand on the back of a well-received full year numbers. Group revenue rose by 6.9% to £3.95 billion, and underlying EBITDA ticked up by 5% to £302.1 million. The premium lifestyle division outperformed as revenue jumped by almost 35%. When you strip out acquisitions, the premium lifestyles unit posted an 18.6% jump in revenue. It is possible the Premium division performed well as a big percentage of higher income earners worked remotely during the lockdown, so their consumer appetite was not dented. Frasers issued an optimistic outlook too as the group expects full year EBITDA to grow between 10% and 30%. The stock hit its highest level since early June.
M&G shares are in the red following a downgrade by Deutsche Bank. The German finance house lowered its rating to hold from buy, and cut its price target to 195p, from 210p. Last week, M&G shares hit a five month high, so it seems dealers used the downgrade as an excuse to lock-in profits.
The fall in copper prices because of the pandemic hit Antofagasta. First half revenue was $2.13 billion, a 15.3% fall. EBITDA for the six month period dropped by over 20% to $1.01 billion. The interim dividend was 6.2 cents, which was a big fall from the 10.7 cents paid out last year. The company maintained its full year guidance in terms of production, but it cautioned it might be at the lower end of the range.
US
Its’ the same old story in the US, the tech-focused NASDAQ 100 is up 0.5%, while the broader S&P 500 is essentially flat, and the small cap, Russell 2000 is in the red. The cautious tone has hurt the wider market.
There were mixed economic reports from the US today. The jobless claims reading increased from 971,000 to 1.1 million, and keep in mind economists were expecting 925,000. The continuing claims metrics cooled to 14.84 million from 15.48 million. The Philly Fed manufacturing index for August was 17.2, which undershot the 21 consensus estimate, and it was a drop from the 24.1 registered in July. The reports point to a slowdown in the rate of recovery.
NVIDIA posted respectable quarterly numbers but the reaction in the stock price has been muted. On a quarterly basis, revenue rose by 39% to $3.87 billion, topping forecasts. EPS was $2.18 and that exceeded the $1.97 that equity analysts were expecting. The data centre division saw revenue surge by 167% to $1.75 billion, exceeding forecasts. The market reaction has been muted, but keep in mind the stock hit a record high on Tuesday, so it seems that good news was already baked into the price.
Intel revealed a $10 billion stock buyback scheme, which has given the sharp price a lift today.
Alibaba, the Chinese online retail titan, posted solid first quarter figures. Revenue and adjusted EBTIDA were CNY154.7 billion and CNY51.04 billion respectively, and both comfortably topped forecasts. The 34% jump in revenue on an annual basis points to robust demand.
FX
The dollar index was higher earlier today, but it is now fractionally lower. In the last few months, the greenback has acted as a flight to quality play, and that was the case a few hours ago. It seems odd that some traders are dumping equities on the back of the economic warning from the Fed last night, but at the same time the greenback is only marginally lower. The CMC CHF index and the CMC JPY index are up as the risk-off strategy has taken hold.
EUR/USD hasn’t much today as volatility in the dollar has been low. It was been a quiet day in terms of economic announcements from Europe. The German PPI rate improved from -1.8% in June to -1.7% in July. The tick up might be down to increased commodity prices, or perhaps an actual increase in demand.
GBP/USD is gaining ground as sterling is performing well across the board.
Goldhas moved up as dealers are in risk-off mode. Historically the asset has seen a jump in demand when equities slide, and that is what we are seeing today. The metal endured a relatively large fall yesterday, so it was starting from a low point.
Brent crude and WTI have sold-off sharply on account of the wider negative sentiment. The energy market is seen as a good barometer for global demand and seeing as dealers are less optimistic about the state of the global economy in light of last nights Fed minutes, oil has tumbled. Just over two weeks ago, oil hit a five month high so a sizeable drop isn’t unexpected.
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