Traders are in risk-on mode on the back of the reports that President Trump’s health is improving.
Europe
There was chatter that the US leader might be released from the Walter Reed medical centre today or possibly tomorrow, and that has lifted the spirits’ of traders. On Friday, it was revealed that the Donald tested positive for Covid-19 and that set the tone for the session, and now we have seen a turnaround in sentiment. The mood has also been boosted by the prospect of a US coronavirus relief package being agreed upon. The US president called on Republicans and Democrats to strike a deal over the weekend. Recently, Nancy Pelosi, of the Democrats, has been in contact with US Treasury Secretary, Steven Mnuchin, in regards to the proposed stimulus package but as of last week, a pretty large gulf between the sides still existed. The calls for a compromise from Mr Trump has assisted the bullish move.
Weir Group shares hit a one year high on the back of the news that the group will sell its entire oil and gas business to Caterpillar for £314 million. Weir are existing the energy business as the sector has endured a tough time this year. The Scottish company looks set to focus more on the power industry. In March, Weir shares tumbled to a 10 year low – the coronavirus sell off dragged down commodity prices. The funds raised from the asset sales will be used to pay down debt, so that should help the group’s balance sheet. Asset stripping is not uncommon on the back of a downturn.
Rolls-Royce shares have rebounded today after falling for five consecutive sessions. Last week, the engineering titan announced long-awaited plans to raise funds, it is hoping to raise £2 billion from a deep discount rights issue, and it hopes to draw in an additional £1 billion from a debt issue. The stock tumbled to a level last seen in 2003 on Friday, so now we are seeing some bargain hunting.
Cineworld announced extreme measures this morning, the company plans to temporarily close all 127 of its cinemas in the UK and the same goes for all 536 Regal theatres in the US. The news clobbered the share price. The closures of the cinemas could come as early as later this week. Up to 45,000 employees could be impacted by the decision. The group said it is considering its liquidity options, so it seems that it is fearful it could run out of cash. The fact the latest James Bond movie – No Time to Die – won’t be released until April 2021 has made matters worse for the struggling business.
It was reported that Prime Minister Johnson is putting together a scheme that will see first time property buyers’ gets access to 5% deposits on mortgages. Mr Johnson clearly wants to assist younger people get on the property ladder, and the story has boosted the likes of Barratt Developments, Persimmon and Vistry Group PLC.
US
The S&P 500 and the NASDAQ 100 are both up over 1% as the feel good factor in relation to Mr Trump’s health is doing the rounds. The bearish sentiment of Friday has been replaced with a desire to stock up on shares. The latest services data were mixed. The services PMI report for September was 54.6, and that was a touch lower than August’s reading of 55. The ISM non-manufacturing report increased from 56.9 to 57.8 in September.
AMC Entertainment holdings inc and Cinemark inc shares are in the red on the back of the Cineworld story.
FX
EUR/USD and GBP/USD are higher thanks to the fall in the US dollar. In the last few months, the dollar has benefitted from safe-haven trades so today we are seeing the opposite. Dealers are happy to move funds out of the greenback and plough their cash back into stocks, now that it seems that President Trump appears to be on the mend. The CMC EUR Index is up on the session despite the not-so hot services data from the currency bloc. The services reports for September for Spain, Italy and France were 42.4, 48.8 and 47.5 respectively – all showed negative growth – which doesn’t bode well for the recovery. The UK services PMI update for last month was 56.1, which was a touch higher than the preliminary reading of 55.1, keep in mind the August update was 58.8.
Gold has been lifted by the weakness in the US dollar. Historically, the yellow metal has dipped when traders were pouring their funds into riskier assets such as equites, but more recently, the dollar has become a safe haven trade. The risk-on attitude has prompted traders to sell the dollar and in turn that has assisted gold – the inverse relationship has helped the commodity.
WTI and Brent crude have rebounded on the optimism surrounding the health of the US president. At the back end of last week, the energy market dropped to its lowest level since mid-June, and that was partially because of the news that Donald Trump contracted the coronavirus. The mood has turned around today. Oil output in Norway has been curtailed by industrial action and that is lifting the energy market too.
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