News

Health woes rock sentiment, dollar pops, gold drops

CMC Markets

The fear of a London lockdown has clobbered the British stock market. 

Europe

The prospect of economic activity being curtailed across the board because of a potential reintroduction of tougher restrictions has hurt all sectors, but the hospitality industry has suffered the most today. Restaurants and pubs have had a brutal 2020 thanks to the pandemic and things only started to pick up for them in the past two months. The government scheme ‘Eat Out to Help Out’ gave the sector a lift, and that was evident in last week’s UK retail sales numbers. Today the speculation about a lockdown in London has hammered Marstons, Mitchells & Butlers, JD Wetherspoon and Restaurant Group.

The travel sector has also been rocked by the health emergency. The recent self-quarantine rules chipped away at sentiment and now the chatter of a lockdown in London has hit the industry again. International Consolidated Airlines Group owns British Airways and Iberia, and the stock traded below 100p today – its lowest level in eight years.

Worries about the health crisis has spread bearish sentiment in all directions, which has rippled out into mining, energy, retail and house building stocks. The risk-off sentiment has impacted commodities such as silver, copper and oil, hence the fall in Glencore, BHP Group, BP and Royal Dutch Shell

The chatter of a London lockdown has pushed up Morrisons and Tesco. Supermarkets saw a surge in demand for groceries when the lockdown was introduced in March, so now it seems that dealers feel there will be an increase in shopping activity again.  

Rolls-Royce is connected to the commercial aviation sector as it is manufacturers’ aircraft engines. The engineering giant was having problems before the pandemic set-in as it had issues with its Trent-1000 engine, so the chaos that engulfed the air travel sector made matters worse. It was reported that Rolls-Royce is in talks to raise £2.5 billion in funding. It is understood the group has been in discussions with sovereign wealth funds. Traders are turning their back on the stock as the need for a fresh capital injection is a sign of weakness.          

According to a report, a number of major European banks notified the US Treasury department that they facilitated suspicious transactions in the past couple of decades. The financial institutions are right to inform the authorities, but it calls into question their practices. Regulation in relation to money laundering has become tighter in recent years, but perhaps it is not strict enough. There are concerns that some banks continued to facilitate suspicious transactions. Deutsche Bank, HSBC, Standard Chartered and Societe Generale were listed in leaked files.  

US

The mood on Wall Street is bearish as traders are worried about the health crisis. The fear factor with regards to the pandemic has soured sentiment, which is why dealers are dumping equities.  

Nikolashares have had a rough ride recently as there have been allegations of fraud – which the truck manufacturer has denied. Stocks typically come under pressure whenever the validity of their accounts are being called into question. Trevor Milton, the firm’s founder resigned as executive chairman, and that sparked a fresh round of selling. The stock is down 21%.

JPMorgan, BNY Mellon, Citigroup and Wells Fargo are down on the back of the story about major banks facilitating suspicious transactions.  

The travel sector is one of the largest fallers because of the renewed health concerns. Airlines such as American Airlines, Delta Air Lines, Southwest Air and United Continental are all down more than 7%. Royal Caribbean Cruises, Carnival Corp and Norwegian Cruise Line holdings are incurring losses as a body representing the industry has put forward tougher health regulations in a bid to get back to business.  

FX

The US dollar index has hit its highest level since mid-August. Lately, the greenback has been a popular safe haven play and that is what we are seeing today. At the start of the month, the dollar fell to its lowest level in over two years, so this recent positive move started from a low base. In the past six weeks, the dollar has made a number of attempts to snap out of the wider bearish trend. If the US dollar index breaks above 94, it could point to further gains.

EUR/USD and GBP/USD are nursing large losses due to the rebound in the dollar. In the last few weeks the pound has come under pressure because of the uncertainty surrounding the UK-EU trade talks. Traders are fearful the two sides could wind up trading on basic WTO terms come January.

The CMC AUD index and the CMC CAD index are showing large losses as natural resources are feeling the pain. The ‘commodity currencies’ are suffering as dealers are in risk-off mode.        

Commodities

The rally in the US dollar has pushed gold into the red. The strong inverse relationship between the metal and the greenback is working against the commodity today. Gold has traded below $1,900 – its lowest level since mid-August. Further losses from here might encounter support at $1,863. Silver is in a similar situation to gold as it is down more than 9%.

WTI and Brent crude have been knocked by oversupply concerns as well as demand worries. It is understood that production at Libya’s Sharara field has recommenced, but the picture is less clear when it comes to what level of production is on the horizon. The energy market is also being hit by the rising number of Covid-19 cases as traders are fearful that demand will be hit.


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.