European markets got off to a poor start to the week, as rising virus cases threaten to undermine sentiment as we come to the end of the month, quarter and first half of 2021, with the energy sector, along with travel and leisure leading the losses.
Europe
Oil prices are slipping back ahead of this week’s Opec+ meeting, as well as concerns that a rise in global cases and new restrictions will act as a brake on the pace of global reopening, with BP and Royal Dutch Shell lower.
It’s been another difficult day for the travel and leisure sector today, with the likes of IAG, easyJet, Ryanair and TUI all lower, along with Air France-KLM and Lufthansa, after falls at the end of last week over the limited government relaxation of travel restrictions, which saw the addition of Malta, Madeira and the Balearics to the green list. Airlines were also unhappy that the government wasn’t bolder in promising that it would look at dropping quarantine rules for fully vaccinated UK residents returning home from amber list countries.
While airlines and travel companies expressed disappointment over last week’s announcement, criticising the government for its cautious approach, the reality is whatever countries the government puts on its green list now matters less than the restrictions being faced by UK passengers when they leave the UK for their destination country. Airlines can huff and puff all they like, the reality is the UK government could have put a much higher number on its green list, but unless that list is reciprocated then passengers are still going to face pretty significant obstacles to travel, and sadly no amount of complaining will change that fact.
We’ve heard this morning that German chancellor Angela Merkel wants to ban all UK travellers from coming into the EU due to rising Delta variant cases. While this isn’t a view that is shared across Europe, Spain has announced that they want to see a proof of vaccination, or a negative covid test for those who want to go to the islands on the UK’s green list. Portugal is also insisting on certain safeguards, but it's not just a Europe problem as the Delta variant starts to spread across Asia.
In Australia, the Sydney region has implemented a full two-week lockdown, due to rising cases of Delta. With so few of the population vaccinated it is highly probable this will get extended and unlikely that borders will reopen quickly. Hong Kong also announced that it would also ban all UK travellers from Thursday this week in a bid to keep the Delta variant out.
This is ultimately where the longer-term problem lies for airlines in Europe, and it appears that markets are slowly waking up to this, with British Airways owner IAG shares falling to four-month lows, as the prospect of a return to its profitable Asia routes diminishes further. Air France-KLM shares are at their lowest levels this year, while Lufthansa shares are at five-month lows.
Burberry shares have plunged on today’s news that CEO Marco Gobbetti had notified them of his intention to step away from the business and return to Italy, joining Salvatore Ferragamo as CEO, based in Florence. In 2017 Gobbetti was tasked with turning around a business that had lost its way in the wake of the departure of Angela Ahrendts a few years before, taking over from chief designer Christopher Bailey. On the whole he appears to have largely succeeded, although challenges still remain, with the share price only modestly higher from when he took over. Today’s declines appear to revolve around concerns as to who might replace him, given the drift that occurred in the wake of the departure of Ahrendts. While Gobbetti has said he will be staying on until the end of the year, it is important that a replacement is lined up quickly.
Having seen their shares get a Nike-induced boost on Friday, JD Sports this morning announced it has acquired Deporvillage in Spain, an online-only retailer that specialises in sports equipment for cycling and running, a business that at the last set of accounts turned over €117.8m, and returned profits of €7.7m.
High-street bakery Greggs has managed to deal with most of the challenges that have been thrown at it over the past 15 months, with the share price recovering all of its post-lockdown losses to set a record high back in May. This morning the company issued a trading update, saying that like-for-like sales have remained in positive territory as lockdown restrictions have been eased, with comparisons to 2019 showing between a 1% and 3% rise. As a consequence of this, expectations for its full-year numbers are expected to be favourable with respect to its previous guidance.
Cineworld shares pulled off four-month lows today in the hope that release of F9, the next instalment of the Fast and Furious franchise, will have a similar effect on its audience and revenue numbers, as it has in the US this weekend, as we get ready for the release of a number of big box-office releases. This weekend’s release in the US and Canada saw the movie make $70m on its opening two days, and with the film due to open this Thursday in the UK, cinema bosses here will be hoping for a similarly enthusiastic uptake, albeit with social distancing measures in place.
On the upside, healthcare stocks are among the best performers, with AstraZeneca rising after its Forxiga drug for the treatment of chronic kidney disease was approved for use in the EU. Also helping perhaps was the latest report on covid-19 vaccine efficacy, which showed encouraging signs that a third booster dose of the Oxford vaccine had the potential to increase the antibody response even further.
US
While European markets are sliding, US markets continue to look resilient with the Nasdaq and S&P 500 both hitting new record highs, while the Dow has slipped back. There appears to be increasing optimism that some form of infrastructure deal can be done on a cross party basis, after Republican senators indicated the deal could move forward.
Boeing shares are lagging after the FAA cited new concerns over its updated 777, which it said it won’t certify until 2023. Given the recent problems with the 737 MAX it's perhaps not surprising that the US regulator is more circumspect when it comes to Boeing. Chevron and Exxon Mobil are also lower and acting as a lag on the Dow.
GameStop shares have moved higher after getting added to the Russell 1000 index, in light of the recent gains of the last six months. AMC Entertainment didn’t make the cut, staying in the Russell 2000, although its shares are higher after the successful first weekend for F9.
Virgin Galactic shares initially opened higher, continuing their large gains from Friday, however further upside could well be tricky given the proximity of its record highs, which were set in early February, just above $60.
FX
The pound is among the best performers today despite rising Covid-19 cases of the Delta variant. This may well be as a consequence of the UK’s higher vaccination rates, at a time when cases of the variant are spreading much more widely across Europe, as well as Asia, where vaccination rates are much lower.
The US dollar is slightly firmer today, however overall direction is somewhat difficult to determine ahead of this week’s jobs report, which is due out at the end of the week.
Crude oil prices are also softer, despite Brent prices hitting a new multi-month high, with this week’s focus expected to be on the Opec+ meeting. The rise in prices seen in the past few weeks has probably been a surprise to most members of the cartel, however there are risks that unless they ramp up production further, they could kill demand at a crucial time in the globe recovery.
Bitcoin prices have continued to chop around, failing again to break below the $30k level at the weekend and are back near the top end of their recent five-day range. The banning of Binance by the UK regulators certainly doesn’t appear to have affected sentiment around the crypto sector.
Gold prices are treading water and are likely to continue to do so ahead of this week’s US jobs numbers. It seems fairly clear that rates aren’t likely to go higher in response to higher prices with a renewed focus now on the jobs market, which appears to be lagging behind in terms of getting back to pre-pandemic levels.
