16-6-2020 10:08:02Equity markets have enjoyed a very bullish move today on the back of a report that progress has been made on a Covid-19 treatment.
Remdesivir - an antiviral drug produced by Gilead Sciences, is greatly helping patients with their respiratory and fever symptoms, according to a report. The bulls have jumped on this story and are using it as an excuse to keep the recovery in equity markets going. The pharma industry can be hit and miss, and it seems like this treatment is in its early stages yet, so there is a risk that dealers are getting ahead of themselves.
The positive mood is also being fuelled by the easing of restrictions in a number of countries. Some businesses in Italy, Spain and Austria re-opened this week, and Germany will follow suit next week. The steps taken so far to return to normal have been small, but at least they are heading in the right direction.
The Remdesivir and restrictions stories have overshadowed the awful growth figures from China overnight. In the first quarter, the Chinese economy contracted by 6.8%, which was worse than expected, as the consensus was for a 6.5% fall. The shocking growth report failed to derail copper – which hit a one month high. Antofagasta, Glencore and BHP Group are higher on the day.
Rio Tinto shares are in demand on the back of its first quarter production report. In the three month period, iron ore production increased by 2.3%.The group maintained its full-year production guidance for aluminium, alumina, bauxite, and iron ore. It wasn’t all good news as the mined and refined copper guidance’s were lowered. Rio confirmed that all its major operations have been impacted by the health emergency. The miner has decided to lower to its capital expenditure to between $5 billion and $6 billion, while the guidance was $7 billion. In light of the uncertainty surrounding commodities, a little prudence is no bad thing.
Whitbread, the owner of Premier Inns, confirmed that is eligible to access funds from the Covid Corporate Finance Facility (CCFF) – the government backed lending scheme, created to assist firms during the lockdown. The group has cash reserves of £400 million, and it has access to its pre-existing £900 million credit facility, so in terms of financing, it is in a strong position. Associated British Foods, the parent of Primark, also confirmed they are eligible to access funds from the CCFF.
Flutter Entertainment owns Paddy Power and Betfair, and the group posted a respectable set of first-quarter results, all things considered. Total revenue for the three month period rose by 16%, but when you strip out March, revenue jumped by 29%. Online growth was 20%. The cancellation of major sporting and racing events in the UK and Ireland has impacted the company, but the operations in Australia and the US have cushioned the blow. In the first quarter, total revenue in Australia and the US increased by 21% and 51% respectively.
Just East Takeaway shares are in the red. The UK regulator has provisionally approved Amazon’s £400 million investment in Deliveroo. Just Eat have been very popular recently on account of the lockdown, and it’s no surprise the stock has lost a little ground today. In a similar fashion, Ocado shares are offside, but then again, they enjoyed a decent rally recently.
LVMH revealed its first quarter numbers yesterday, and revenue fell by 15%. The Covid-19 crisis has hurt the company in terms of both manufacturing and sales. The lifting of the lockdown in China has helped the group and it has seen an increase in store traffic and sales since business has returned to normal in the country. The group predicts that trading in the second quarter will be tough because of the lockdowns in Europe and the US, but it hopes to see a recovery from May and June. In a bid to cut costs, the chairman and CEO, Bernard Arnault, will forgo all remuneration in April and May, as will executive managers. The dividend will cut by 30%, and the company received rent reductions in China, but getting discounts in the west is proving tricky. When things go back to normal, LVMH should be in a strong position, because the wealthier in society usually hold up better during an economic downturn.
Stocks are driving higher on the hopes of an effective coronavirus treatment. Should the drug go on to be a tool that is used to combat the virus that would be welcomed by dealers but we are still a long way off from that point. President Trump has set out new guidelines for loosening restrictions, and it is possible that many US states will be able to re-open for business in a measured way in the next few weeks – that is adding to the bullish move.
Gilead Sciences shares are higher this afternoon on the reports that their drug, Remdesivir, has had positive results in treating victims of Covid-19. It is understood the trials are in there early stages so this is far from a fully recognised treatment. Even if the drug is successful in tackling the symptoms, there is an enormous difference between a treatment and a vaccine.
Procter & Gamble announced positive third-quarter numbers. EPS were $1.17, topping the $1.13 forecast, Net sales increased by 4% to $17.21 billion, but the consensus estimate was $17.46 billion. Disruptions caused by the coronavirus were blamed for weaker sales in China. The company are bullish in their outlook, as the quarterly dividend was upped by 6%, and adjusted EPS are expected to increase by 8-11%.
Boeing will re-open its operation in Washington State next week. The resumption of commercial jet production sends out a very positive message, and the stock has rallied on the news. GE have cancelled an order with Boeing for 69 737 Max jets.
Ford predicts it will post a first-quarter loss of about $2 billion. The stock is up on the day.
The FX market has been quieter than stock markets today. The US dollar has handed back some of the gains it registered in the past two sessions. The fall in the greenback has lifted GBP//USD and EUR/USD. As far as economic reports go, the only big one from Europe was the eurozone inflation update. The final reading of the headline CPI for March was 0.7%, unchanged from the flash update. It is worth remembering the level posted in February was 1.2% - so the coronavirus impact is evident. The bullish move in copper has boosted the Australian dollar, but it took a huge knock during the week so it was relatively cheap a few days ago. The CMC NZD index is up more than 0.7% today, as the ‘Kiwi’ rebounded from three straight days off losses. New Zealand is edging towards loosening its lockdown guidelines.
Gold had been hit by traders switch to risk-on mode. The metal tends to outperform when dealers are dumping stocks – gold is viewed as a lower risk asset. Seeing as equity markets are driving higher, we are witnessing a fall in gold. The metal is lower today, but the wider bullish trend remains intact, and a retaking of the $1,700 mark would be a positive sign.
Oil has been hammered again as demand woes continue to weigh on sentiment. The dismal growth figures from China underlines the pain in the global economy, so demand is likely to take a beating. OPEC cautioned demand for the energy could drop to a thirty year low. It was reported that refiners in Europe and Asia have been trimming or pulling orders.
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