Stock markets in Europe are lower as traders are cautious that reopening of economies might spark a second wave of the Covid-19 crisis. 

Europe

A number of countries that have loosened their lockdown restrictions have seen the number of new cases increase, so that is playing on traders’ minds. Many European nations are celebrating Ascension Day, so volatility has been low. Whenever some equity markets are closed on account of holidays, trading on the exchanges that are open tends to be quiet.  

Lufthansa shares are higher today as it was reported the company is close to reaching a bailout deal with the German government. It is understood the transaction could be worth up €9 billion. The much-needed cash injection would come with a few strings attached, as it is believed the Berlin administration will take a 20% stake in the group in addition to two seats on the governing advisory board. Lufthansa are likely to introduce restrictions on management pay packets as well as changes to their dividend policy.

Sticking, with the airline industry, easyJet confirmed that it plans to recommence flights from 15 June. It is believed the company will operate largely domestic flights from a limited number of countries, such as the UK, France and Spain. Strict health and safety guidelines will be in place for the customers as well as staff. The news marks a slow return to normality, which is why the stock is up 3%.

Whitbread finally released its preliminary full year results after delaying them. In addition to revealing the numbers, the company announced a 1 for 2 rights issue as the company is seeking to raise £1 billion. The hotels in the UK have been closed for roughly two months, while the hotels in Germany reopened last week. All 52 sites in Germany are operating under the new social distancing protocol, so the group is just waiting for the greenlight form the UK government to get business going. Whitbread is well funded as it has cash and credit of £503 million and £950 million respectively. The cash from the rights issue will help it beef up its balance sheet and it will be in a strong position for when it can resume business in Britain. Full-year revenue was a touch higher at £2.07 billion, while statutory profit after tax rose by 23.2% £218 million. The news of the rights issue hit the share price, but the cash injection should help the group in the medium term.    

Pets At Home saw a surge in revenue when the health crisis struck as customers stocked up on items, but seeing as those days are gone, the group is a less bullish in its outlook. Fourth-quarter like-for-like sales jumped by 15.9%, which assisted annual total group sales increase by 10.8% to over £1 billion – the first time that metric was topped. The health crisis cost the company an additional £5 million in expenses as things like cleaning costs rose. Now the stockpiling phase has passed the group has the inconvenience of social distancing being carried out in stores, but the spending by clients has cooled. The stock is down over 10%.  

Inchcape shares have tumbled as the company revealed a 76% fall in revenue. The car dealership is currently operational in 22 of the 33 countries it has sites in, but demand is very low. The group predicts the pain suffered as a result of the Covid-19 crisis will continue into 2021.  

US

Trading in the US is also quiet as dealers are focused on the reopening of states. The Dow Jones and the S&P 500 are mixed, and it seems as some traders are content to sit on the sidelines for the time being. There is cautious optimism is relation to the easing up of restrictions, as traders want to see an increase in economic activity, but they don’t want the associated health risks.

The latest US jobless claims reading was 2.43 million – the seventh consecutive weekly decline. The Philly Fed manufacturing reading for May was -43.1, and that was an improvement on the -56.6 registered in April.     

Macy’s warned that it expects a first quarter loss of between $905 million and $1.11 billion, which would be a huge difference from the profit of $203 million posted in the same period last year. Revenue is predicted to be in the region of $3 billion, and keep in mind last year’s level was $5.5 billion. The retailer closed all its stores in mid-March on account of the pandemic, but business is slowly getting back to normal as states loosen their restrictions. In April, the firm saw an increase in online actively, but it only partially offset the loss of revenue from the closure of the stores. The Covid-19 crisis has exposed the weakness in the group’s business model – its major reliance on stores and its relatively small online operation.

Best Buy saw revenue slip in the first quarter despite the surge in demand for their goods amid the early stage of the pandemic. The metric slipped by 6.3% to $8.56llion, but it narrowly exceeded expectations. EPS smashed analysts’ forecasts as the reading was 67 cents, and the consensus estimate was 44 cents. Same sales dropped by over 5%, but dealers were anticipating a fall of 10%. The online division picked up some of the slack as the unit registered a 154.4% increase in sales. Things at Best Buy are slowly starting to go back to normal as some stores reopened this month.    

FX

The US dollar index is a bit higher on the session after three consecutive days of losses. At the weekend, the Fed’s chief, Jerome Powell, said there are ‘no limits’ when it comes to the lending capabilities of the US central bank. Traders took that as an indication that additional stimulus might be on the cards, hence the slide in the US dollar earlier in the week.  

GBP/USD is unchanged on the session, while EUR/USD is down due to the slightly firmer greenback. There appears to be a lack of volatility across the entire the foreign exchange market. France, Germany, the UK and the US, posted the flash readings of their manufacturing and services reports for May, and all of the updates improved from April, but the readings were still dreadful. Currency traders had a muted reaction to the updates, but it is encouraging to see that things are starting to turn around.   

Commodities

WTI and Brent crude July contracts have hit levels last seen in early April as oversupply worries have faded. In addition to that, demand is ticking up too. The API update plus the EIA report showed that US oil stockpiles fell – that was probably because states are reopening their economies. Dealers are now far less worried about storage issues in the US in light of the previous two Baker Hughes reports, as the number of active rigs fell to record lows. Fuel demand is on the rise in China and India.

Gold is in the red as the US dollar’s recent negative run has come to an end. The nudge higher in the greenback has hit gold. At the start of the week the commodity reached its highest level since late 2012. Gold has lost ground today, but it is comfortably above the $1,700 mark.