Stocks are driving higher on the back of optimism in relation to the possibility of a Covid-19 vaccine being developed.

AstraZeneca are working with the University of Oxford on a possible vaccine, and Moderna’s potential vaccine has shown encouraging results. The bullish sentiment has rippled out across Europe, as the FTSE 100 traded above 6,300, the CAC 40 hit its highest level since late March and the DAX 30 reached a mark last seen in late February. It is early days yet in regards to the development of a potential vaccine, but many traders are keen to buy into the market.

In London, it is a broad based rally as banks, mining, oil and airline stocks are higher, while the supermarket sector and the hospitality industry are mixed.             

AstraZeneca shares pushed higher today on the back of the talk that progress is being made in relation to a possible Covid-19 vaccine. There was chatter in the markets that the initial trials at the University of Oxford are going well, and we could be hearing confirmation of that as early as tomorrow.   

Dixons Carphone posted a full year pre-tax loss of £140 million, and that was an improvement on the £259 million loss that was registered last year. On an adjusted basis, pre-tax profit was £166 million, and that was a 51% fall from the last year. Revenue slipped from £10.43 billion to £10.17 billion. The company previously predicted that total positive cash flow from the mobile division would be roughly £200 million, but now is expected it to be £125-£175 million. To make matters worse, the adjusted loss at the mobile division is now expected to widen – this has dragged on sentiment. The group is in good shape in terms of financing as it has over £1 billion in unutilised credit, so there are no worries in that regard. The lack of sales or profit guidance in relation to the electrical goods is a little concerning for some traders. No final dividend was paid, but that was already announced in April. There isn’t much hope for the pay-out to be reinstated anytime soon.       

ASOS shares got off to a good start this morning as the company announced that it expects full year profit before tax to be at the top end of market expectations, despite the extra costs of the pandemic. Retailers that continued to operate during the health crisis incurred additional costs in relation to health and safety, and in some cases delivery too. For most firms, the strong sales performance was somewhat counteracted by the jump in expenses, so it is impressive that ASOS still anticipates profit to be at the top end of forecasts. The group has seen a strong recovery in the EU on the back of the economies being reopened. In the four month period until the end of June, sales jumped by 10% to £1.014 billion, but the company is still cautious about its outlook in the medium term.  

Burberry announced that first quarter retail revenue fell by 48% to £257 million. The high-end fashion house blamed the lockdowns for the dreadful sales performance. As economies are reopening and things are starting to go back to normal, the firm witnessed improving trends in relation to sales. Comparable sales in the first quarter fell by 45%, while in June they only fell by 20%. There was clearly pent up demand in Korea and Mainland China as sales in those regions last month exceeded the pre-pandemic levels. Looking ahead to the next quarter, comparable sales are expected to be 15-20% lower, when compared with last year. The outlook for the group is a little mixed, as on one hand, it is expecting sales to improve, but the first half gross margin rate is anticipated to fall between 200 basis points and 300 basis points. In a bid to keep costs down, the group will lower the global headcount by approximately 500.  

Dunelm expects full year pre-tax profit to be £105-£110 million, and that would be a fall from the £125.9 million from last year. Full year sales slipped by 3.9% to £1.05 billion. The health crisis prompted it’s stores to close, but the reopening process began in May. It is estimated that social distancing and extra health and safety expenses are costing the firm roughly £150,000 per week. Technology costs are tipped to increase by £8 million next year. Rising expenses is not ideal, but that is the price of doing business in this climate. The company said that it does not expect to tap into the Covid Corporate Financing Facility, and that sends out a positive message in relation to its financial stability. The retail environment remains uncertain, but at least Dunelm are well positioned to cope with the environment.  

US

The Dow Jones hit a one month high, and the S&P 500 is showing decent gains too. The NASDAQ 100 is up, but it is underperforming when compared with the other benchmarks. It seems that traditional stocks are racking up bigger gains than tech stocks, but then again they were coming from a lower base. Airlines like United Continental, South West Air and Delta Air Lines are all up at least 5%. The optimism surrounding potential coronavirus drugs is fuelling sentiment.    

The New York Fed manufacturing index for July was 17.2, its highest reading since May 2019. The industrial production reading for June was 5.4%, and that topped the 4.3% forecast. The positive updates point to a recovery in the US economy, and it adds to the bullish sentiment.   

Moderna confirmed the potential Covid-19 vaccine that it is working on produced a ‘robust’ immune response in all 45 patients that took part in its early stage human trial. The promising results has driven up the stock price, and it is also helping sentiment across the board. The very nature of the pharma industry is volatile as potential drugs often go through several rounds of tests before it gets approval.   

Goldman Sachs posted solid second quarter numbers. On an annual basis, revenue jumped by 41% to $13.3 billion, and that comfortably topped the $9.8 billion forecast. EPS was $6.26, and that smashed the $3.78 estimate that equity analysts were expecting. The Wall Street titan benefited greatly from the surge in volatility in the financial markets earlier this year. The revenue from fixed income trading hit its highest level in nine years, while the equity trading division saw it highest revenue level in 11 years. The bank set aside $1.59 billion for potential bad debts.

Apple shares are slightly in the red now, but they traded higher earlier due to the ruling from the EU court, which said the tech giant does not have to pay roughly $15 billion in taxes to the Irish government.    

 FX

GBP/USD and EUR/USD have been helped by the drop in the US dollar. The risk-on sentiment in the markets has put pressure on the dollar – recently it has attracted safe haven funds, so today it is suffering as dealers are keen to take on more risk.

USD/CAD is in the red on account of the wider bearish move in the greenback. The Bank of Canada meeting was uninteresting. Rates were kept on hold at 0.25%, and the weekly QE scheme was kept at $CAD 5 billion.  

The euro hit a four month high versus the dollar. Italian CPI in June was -0.4%, and it was in line with economists’ forecasts. The negative inflation rate suggests that demand is weak, and that is concerning.  The UK CPI rate in June edged up to 0.6%, topping the 0.4% forecast. The core reading rose to 1.4% from 1.2% in May. The firmer CPI numbers helped the pound.    

Commodities

Gold hasn’t moved much today. Historically, it has declined when equities have rallied, but it seems that the softer US dollar is counteracting potential declines. Last week the metal hit its highest level since September 2011 and it is still above the $1,800 mark, so its outlook remains positive for now.

WTI and Brent crude oil are higher today even though there is continued talk that OPEC+ are keen to taper off from the record production cuts that were introduced in May. The latest EIA report helped the energy market as the update showed that US oil and gasoline inventories fell by 7.49 million barrels and 3.14 million barrels respectively – the readings suggest higher demand.