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Stocks gain despite health crisis, dollar rallies

Stock markets in Europe have pulled back some of the ground that was lost yesterday. 


In relation to the coronavirus, the situation has deteriorated in the past 24 hours as the number of confirmed infections has risen, and so has the number of fatalities. The positive move in equities is probably down to short covering plus bargain hunting as the health crisis has deepened. The longer the news story hangs around, traders might build up a tolerance to it. The Chinese central bank has made it clear it is willing to use monetary tools in a bid to lift economic sentiment, should they feel it is required. The message from Beijing reassured traders somewhat, but the acid test will be whether the rebound lasts or not.       

AG Barr appear to be turning their business around, which is why the stock has jumped today. In a quarterly update, the group confirmed the recovery plans for drinks like Rockstar and Rubicon are being ‘implemented’. It is worth remembering that issues with the brands earlier this year are a part of the reason why the company issued a profit warning during the summer. The drinks business has finished the first phase of the ‘business re-engineering’ programme’, and there was ‘encouraging trading momentum’ at the end of the year. The recovery seems to be going well as AG Barr now expects full-year adjusted pre-tax profit to be at the top-end of market expectations.

Crest Nicholson confirmed that client interest has improved since the UK general election in December – where the Tory party had a big victory. There was a dip in activity ahead of the election as some people were afraid a Labour win could bring about a capital flight. The house builder said that footfall on sites, as well as traffic on their website has increased in 2020. The upbeat commentary overshadowed the fact full-year pre-tax profit fell by 39% to £102.7 million, while house completions dropped by 4%.

McCarty & Stone, also a house builder, had a similar experience in January, whereby the firm noticed an uptick in interest post the general election. Purchasing a home is costly so it is understandable that some potential buyers were keen to sit on their hands until the domestic political situation in the UK became clearer. The figures were respectable as full-year underlying pre-tax profit and revenue rose by 2% and 8% respectively.

Sainsbury’s are getting on environmentally-friendly bandwagon as the supermarket giant intends to lower its net carbon emissions to zero by 2040.

Saga Group shares are in demand after the company is still on track to achieve it full-year profit target despite taking a £4 million hit in relation to the collapse of Thomas Cook. The upward move in the stock price must be put in the context of the four month low that was registered yesterday. The troubled company has an uncertain outlook as trading has been ‘challenging’, plus the home and motor insurance unit is expected to undergo a dip in revenue. 


The mood on Wall Street is cautiously optimistic as traders swoop in and snap up relatively cheap stocks. Dealers appear to be unfazed by the fact the health crisis is getting worse, but whether the bounce back can last is another story.  

The Conference Board consumer confidence reading increased to 131.6 from the 128.8 posted in December. The durable goods update was a little mixed .The headline reading for December showed growth of  2.4%,which smashed the 0.4% forecast, but the November reading was revised from -2.1% to -3.1%. The reading that excludes transport showed a 0.1% fall, undershooting the 0.2% consensus estimate.

Pfizer shares are lower this afternoon on the back of disappointing figures. EPS were 55 cents, and the equity analysts were expecting 58 cents. Revenue dipped by 9% to $12.69 billion. The company’s patent for its pain medication Lyrica expired last year so the contributed to the fall in sales. The group missed expectations on a breast cancer treatment too, which added to the downbeat announcement.          

It has been another bad day for 3M as the industrial company revealed an earnings forecast that missed expectations. The group expects full-year EPS to be $9.30-$9.75, which gives a mid-point of $9.52., while the consensus estimate was $9.61. In the latest quarter EPS topped forecasts, but the yearly forecast too precedence. Asia-Pacific sales fell for the fifth consecutive quarter on account of weaker demand in the electronics and auto sector in China. The coronavirus crisis hit 3M hard yesterday, so the timing of this news isn’t great.           


A broad push higher in the US dollar index has put pressure on EUR/USD and GBP/USD. The greenback is now at its highest level since late November. The view held by many traders is the Fed are less likely to loosen monetary policy than the Bank of England or the European Central Bank. The UK CBI distributive trade report held steady at 0 in January, but traders were expecting the reading to tick up to 3.  


Gold has been pushed lower today on account of the reversal in market sentiment – traders are in risk-on mode in the wake of the risk-off play yesterday. The greenback is higher, and that is a factor for gold too as the metal tends to have an inverse relationship with the commodity. It is interesting that gold’s upward move yesterday wasn’t that big in comparison with today’s bearish move. It would seem that traders are quicker to sell gold on a risk–on day, than they are to buy it on risk-off day.    

WTI as well as Brent crude are higher today after a losing streak. The wider fear factor in relation to the coronavirus has faded a little today, even though the situation is getting worse. In a bid to try and stabilise the energy market, OPEC said yesterday that it would consider extra supply cuts, and that helped spur on some buying today. 


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