Stock markets in Europe are in the red as traders’ book some of their profits from yesterday’s massive gains.
In the past 24 hours the outlook hasn’t really changed, but equities have handed back some of the ground that was made yesterday. Economies around the global are still being reopened, and hopes remain high for a potential Covid-19 vaccine, but it seems like the bulls have decided to take a breather today. It might transpire that today’s negative move was just a slight retracement before the next leg higher.
France and Germany are backing a €500 billion rescue plan for Europe – which would hand out grants to regions struggling with the Covid-19 crisis. A number of Northern European countries, like the Netherlands, are not keen on the scheme as they would prefer to see loans being issued. While the divisions over the plan continues, sentiment is unlikely to be positive.
Beazley shares are in demand today as the insurer raised £247 million from an equity placing. Last month, the group announced that Covid-19 related losses would be in the region of $170 million, so the raising of funds was to strengthen the balance sheet. In March, the stock fell to its lowest level since June 2015, but it has recovered a little since then, and today it is up 7%.
Imperial Brands share are down on the back of the company cutting its interim dividend by 33.3% to 41.7p. The group is reducing the cash pay-out in order to improve its gearing position. In the first half, the group’s net debt position increased by £14.14 billion from £13.38 billion, and paying down outstanding loans is a prudent move. In the current climate, it is common for firms to cut their dividend, so in a way it’s hardly surprising. Revenue for the six month period increased by 2% to £14.6 billion, while the operating profit fell by nearly 20% to £925 million. The firm blamed impairments, increased restructuring costs as well as expenses associated with the sale of Premium Cigars for the drop in profit.
In light of the lockdowns in Chile, Antofagasta has decided to revise its dividend. The Chilean miner confirmed that its operations have not been directly impacted by the lockdown, but in light of the wider impact on Santiago, and the country, the final dividend will now be 7.1 cents, a cut of 16.3 cents. The total dividend for the year will be 17.8 cents.
Hammerson shares are higher again today as Lightstar Capital have recently acquired in 9.3% stake in the struggling real estate investment trust. In February, the property firm sold off assets worth approximately £450 million in a bid to slim down, as well as raise cash. The pandemic has put far more pressure on the business. It appears that Lightstar are interested in picking up stock in a vulnerable firm, and it has the potential to be the start of an all-out takeover bid.
Compass Group confirmed they are seeking to raise £2 billion to bolster its balance sheet. The pandemic has dented the company, so the stock is down 5%.
The mood in New Yok is muted as traders are paying close attention to the testimony of Fed Chair Jerome Powell, and Steve Mnuchin – the US Treasury Secretary. The commentary from the men in question has had little impact on the equity markets. The S&P 500 is essentially flat on the day, but keep in mind it rallied over 3% yesterday, so it seems that traders are keen to sit on the fence today.
Walmart shares are modestly higher this afternoon on the back of the company’s solid first-quarter results. The pandemic promoted some people to stock up on food as well as health care products, so Walmart proved to be very popular in recent months. Same stores sales in the US rose by 10%, while the online US operation saw sales jump by 74%. It is likely the pandemic will speed up the transition to online sales, so future earnings reports will probably show decent e-commerce sales components. Revenue increased by 8.6% to $134.62 billion, topping the $132.80 billion forecast. EPS came in at $1.18, while the consensus estimate was $1.12.
Home Depot’s first quarter numbers showed the company performed well in the first quarter in terms of sales, but the group incurred a jump in costs relating to the Covid-19 crisis, so that impacted the earnings. Revenue increased by 7.1% to $28.26 billion, narrowly topping forecasts. Same stores sales increased by 6.4%, and equity analysts were expecting 4.4%. EPS was $2.08, which undershot the $2.27 forecast. The earnings metric weighed on sentiment, but keep in mind the stock isn’t too far from pre-pandemic level seen in February.
The US dollar index is in the red again in the wake of Jerome Powell comments at the weekend. The central banker made it very clear the Fed have more tools available to tackle the health crisis. Dealers took that as a sign the bank is leaving the door open to additional stimulus, and that is why the greenback is weaker.
EUR/USD has been helped by the slide in the greenback. The German ZEW economic sentiment report jumped from 28.2 in April to 51 in May – it’s highest reading since April 2015. By contract, the German ZEW current conditions reading fell to -93.5 from -91.5 in April. The proposal of a €500 billion rescue package for the EU by Germany and France is likely to have helped the euro too.
The UK posted important jobs data this morning. The claimant count reading for April surged to 856,500 – a record high. The mammoth number underlines the economic impact of the lockdown. The unemployment rate, and the average earnings excluding bonuses, for March were 3.9% and 2.6% respectively, but traders paid for more attention to the Claimant count number as it is more up to date. GBP/USD is up due to the weaker US dollar.
Gold is a litter higher today as traders have adopted a more risk-off approach. Yesterday, equity markets soared amid optimism about a potential vaccine for the coronavirus, in addition the confident outlook from Jerome Powell at the weekend boosted sentiment too. Now that stock markets are softer today, there has been renewed demand for the previous metal. While gold holds above the $1,700 mark, the bullish trend is likely to continue.
Oil is higher on the day again as optimism in relation to demand has propped up the energy. As governments around the world are slowly getting back to normal in terms of economic activity, there is a view in the markets that demand for oil will increase. Fuel demand in India is rebounding, and same goes for China. In addition to that, OPEC+ and US firms are cutting output, so that is lifting the price too.
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.