News

Economies reopening and optimistic Powell boosts stocks, oil jumps too

CMC Markets

Stock markets in Europe are pushing higher today as optimism in relation to economies going back to normal has driven sentiment. 

Europe

Governments have been easing up on their lockdown restrictions, and dealers are hopeful those tactics will continue. In addition to that, the reopening of businesses should help stop the rot in terms of the horrendous economic reports that have been witnessed recently. Traders are taking the view we are over the worst of the crisis, hence why the buying momentum is so strong.

Jerome Powell, the head of the Federal Reserve, gave an interview over the weekend. The central banker projected an air of confidence as he believes the US economy will steadily recover in the second half of the year. Mr Powell warned the bears not to bet against the US economy, which is part of the reason why the bulls are out in force today.  

Natural resource stocks are some of the best performers on the London market today as a rally in oil and metals has boosted commodity stocks. The energy market made headlines last month when WTI turned negative, but the commodity has undergone a major rebound in the past few weeks. Oil prices are at their highest in over one month, and in turn Royal Dutch Shell and BP are up today. The bullish move in copper has helped Glencore, Rio Tinto in addition to BHP Group.

Ryanairshares are flying high this afternoon on the back of the company’s full year figures being announced. Revenue ticked up by 10% to €8.49 billion, while profit increased by 13% to €1 billion. Revenue per customer rose by 6%, ancillary revenue jumped by 16% on an individual customer basis. The company is hoping to a have a meaningful resumption of flights in July, which should be running at 40% of capacity. The airline has predicted it will post a first quarter loss of €200 million, and the second quarter loss is expected to be lower. Ryanair revealed job cut of roughly 3,000. Due to the uncertainty of the pandemic, the group didn’t offer a guidance, but it did confirm that bookings are ‘building nicely’. The industry as a whole has been clobbered by the health crisis, but given that its cash burn rate has fallen significantly, and that its liquidity position is strong, the group stands a good chance of having a decent recovery from the crisis. IAG and eayJet shares are showing impressive gains too.

Mitchells & Butlers confirmed that a waiver it was granted in April to avoid the possibility of a technical default was been extended until 8 June. The business has been effectively ground to a halt as pubs are closed, and 99% of staff have been put on furlough. Today’s news gives the pub operator some much needed head room, hence why the stock is up 7.5%.

Intu shares are in the red after the company cautioned it might default of its loans next month. The company is seeking arrangements with lenders in a bid to try and obtain some breathing space. Even if the group survives in the near term, it will only limp along.

Ocado, Morrisons and Marks & Spencer shares are a little lower today as a survey found the majority of the public would support a windfall tax on companies that saw  a jump in business on account of the health crisis. There is no guarantee such a move will be implemented, but the sector is largely lower today, and keep in mind the firms all saw a rise in business because of the pandemic.    

US

US equity benchmarks are higher thanks to the optimistic commentary from Mr Powell, as well as the news about a potential vaccine for the coronavirus. Jerome Powell did a good job at putting people’s fears at ease as he believes the US economy recovery in the latter half of the 2020, but he cautioned that a without a vaccine, a full recovery would be difficult to achieve. The comment he made about not betting against the US economy, remained traders of the market saying ‘don’t fight the Fed’, which implies the central bank has the fire power to push the economy in the right direction.  

Moderna’s shares have surged today as it was announced the company’s human trial for a potential Covid-19 vaccine produced encouraging results. The patients who received the dosage saw their immune systems improve to levels associated with people who have recovered from the virus. Phase two of the trial will be starting shortly, and the third phase, which will includes thousands of patients, might start in July. There is a lot of optimism surrounding the trial at the moment, but it is worth noting the pharma sector is known for its ups and downs, so the share price is likely to be volatile.

Goldman Sachs shares are higher this afternoon even though Warren Buffett cut his position in the Wall Street titan. Mr Buffett’s investment vehicle, Berkshire Hathaway, now holds around 1.9 million shares in the bank, while its original holding was more than 10 million shares.

Uber and Grubhub shares are in positive territory this afternoon as it was reported the CEO’s of both companies met over the weekend to discuss merger talks. Towards the end of last week there were concerns the deal was going to fall apart, but it sounds like it still might go ahead.

FX

The US dollar index is in the red as Fed chief, Jerome Powell, left the door open to extra monetary stimulus to fight the Covid-19 crisis, should it be required. The US central have already taken drastic steps to cushion the blow of the coronavirus crisis, but it seems the institution is willing to do that it takes to assist the economy.

The fall in the greenback has helped the pound recoup some of the ground it lost last week. Sterling started out this week’s trading session on a negative note after the BoE’s Andy Haldane didn’t rule out the possibility of negative rates, but the currency has since rebounded.

The rally in the oil market has lifted the Canadian dollar as well as the Norwegian Kroner – both counties have large oil reserves so a big upward move in the underlying commodity tends to boost the currencies.      

Commodities

The WTI June contract and the Brent crude July contract hit their highest levels in over one month as optimism in relation to demand, plus fewer oversupply concerns, helped the energy. Economies around the world are reopening so that is fuelling hopes that demand for oil will pick up. The relatively optimistic language from Mr Powell has encouraged the bulls too. The latest Baker Hughes rig count report showed that active oil and gasoline rigs declined by 35 to 339 - a new all-time low. Keep in mind that last week’s EIA report showed that oil stockpiles fell for the first time since January. Dealers are less concerned about excess supply now than they were this time last month when WTI prices turned negative.     

Gold enjoyed a positive run at the back end of last week and the bullish move continued into the early part of today’s session, but it has not fallen slightly into the red. The metal hit its highest level since late 2012 earlier today. There has been very aggressive easing from the US central bank recently, so dealers feel that further rounds of stimulus could be in the offing, should the recovery stall, or if there is a second wave of the virus. The potential for an even weaker dollar is helping the gold market. Silver is up 3% today.

 

 

 

 

  

 

 

 


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