European markets appear to have stabilised, rebounding strongly after yesterday’s slide in US markets, and a weak Asia session, which saw Softbank shares slide to a two month low.
Softbank has come under increasing scrutiny of late, having only recently taken a huge $13bn loss for its last fiscal year, in its latest quarter the company posted a $12bn quarterly profit, largely as a result of a recovery in the share prices of Uber and Slack.
The extent of the swings in these profit and loss numbers, while extraordinary also don’t tell the whole story, and the revelation that Softbank was behind the recent sharp move higher in tech stocks, due to the purchase of complex derivative contracts, should be a cause for concern for those who worry about market stability.
If these bets go sour, as they may well might then the resulting slide in stock markets could well be brutal and swift.
This morning’s news that AstraZeneca has suspended its phase 3 vaccine trials after a bad patient reaction to one of its studies has crystallised market naivety about the prospect that the current pandemic can be resolved with a quick vaccine solution. These reports have seen AstraZeneca shares slide back modestly on the open, though the overall share price reaction has been fairly modest.
This is unlikely to be the last setback on a clinical trial for a vaccine, and the market reaction seems to reflect that, however it also means that the idea we will see a positive vaccine outcome by year end is optimistic at best.
It was only a matter of time before a setback like this were to happen, given the complexities of trying to get a vaccine to a virus that is still very new. We already know from the number of flu vaccines that an immunisation program is not a magic bullet, and with the UK looking to re-tighten social gathering restrictions from the beginning of next week, investors will have to come to terms with the idea that the path out of the current crisis is likely to be choppy and much more prolonged than previously thought.
On the extremes markets may well have to adjust to the prospect that scientists may never find a vaccine, given that there is still no cure for the common cold, which can also be classified as a coronavirus.
Airline shares have continued to come under pressure, over concerns over a further tightening of restrictions, while Ryanair announced it was cutting its annual passenger target by another 10m, to 50m passengers. Ryanair CEO Michael O’Leary also announced that the airline would be slashing fares in an attempt to drive up headcount, but acknowledged that the winter season of 2020 would be a write off.
The weakness in sterling appears to be helping the US dollar earners on the FTSE100 in early trading with the likes of BP and Royal Dutch Shell among the early gainers, also helped by a firmer oil price, along with the likes of Unilever, Reckitt Benckiser and Ashtead.
Computacenter shares are also on the up after releasing its latest first half numbers confirming last week’s announcement that trading for the period was ahead of expectations. Revenues came in at £2.46bn, a rise of 1.5%, with profits before tax up by 42.5% to £72.4m. The rise in new business was primarily driven by the government and financial services sector.
The pound has continued to come under pressure overnight, after yesterday’s reports that the UK government intended to make minor changes to the EU Withdrawal Agreement that could break international law in a “specific and limited way”. With no detail on the changes the UK government intends to make it is still unclear as to whether the negative reaction that we’ve seen in the last few days is justified in terms of the price action. Hopefully we should get more details later today when the UK government.
The Canadian dollar is set to be in focus with the latest Bank of Canada rate meeting where policy is expected to be kept unchanged, as the economy continues to improve.
US markets look set to recover some of their lost ground from yesterday, as markets in Europe enjoy a bit of a rebound after yesterday’s big falls.
Tesla shares are once again likely to be in focus having lost almost a third of their value in the last week or so as the various bets that the company would gain inclusion in the S&P500, continue to get unwound.
New electric truck maker Nikola shares are also expected to see further interest after yesterday’s big gains on the back of GM taking an 11% stake in the business, as well as helping to produce its new Badger hydrogen fuel cell electric pickup truck in 2022.