After a brutal few days for stock markets, a late turnaround in banking and energy stocks saw US markets recover from their lowest levels this month, to closer higher for the first time this week last night.

With Asia markets also having a positive session, and the latest Chinese industrial production and retail sales data for April showing a marked improvement on the previous two months, markets here in Europe have opened higher this morning as we come to the end of what is still likely to be the worst week for European stocks since early March.

While we saw some nuggets of an improvement in the latest China data, the fact that retail sales numbers were still sharply negative for the third month in a row, should act as a warning to those hoping for a swift rebound in economic activity as lockdown measures here are loosened, that any recovery is likely to be slow and hard won.

This morning’s Q1 German GDP numbers added the final piece of the puzzle to the economic story for EU Q1 GDP, which is due later today. In France, Italy and Spain we’ve seen contractions in excess of 5% in Q1, so this morning’s contraction of 2.2% for Germany, while better, is still a serious blow to the economic prospects of the region, as we look ahead to Q2, which is expected to be even worse.

The pound has seen significant weakness this week as a result of the 2.1% contraction seen in the UK economy in Q1, and the £300bn costs of supporting the economy over the rest of the year, however the UK’s economic performance is still way better when compared to the economic devastation being wrought across the Channel. Whether it stays that way remains to be seen.

In company news, bookmaker William Hill saw a 27% decline in net revenue in its latest Q1 trading update, with the bulk of that decline coming in weeks 11 to 17, where the decline was 57%. In the period leading up to the March lockdown, the numbers were a little better, with online showing some strong gains, however high street shops were a significant drag.

Post-lockdown the biggest falls came in the US with a 90% decline in net revenues, while in the UK, both online and high street shops saw steep falls, with most of this coming about as a result of the wholesale cancellation of sporting events. Gaming revenue also saw a decline. Cash burn has reduced to £15m a month by a range of measures with management saying that banking covenants have been extended into 2021, with available liquidity increased to £700m. The company also suspended its guidance; however, it is also becoming clear that the situation has not been anywhere near as bad as first feared with the government furlough helping, while the restarting of sporting events in the coming months could also offer some respite.

BT Group shares are higher after reports that it is in discussions to sell off a multibillion-pound stake in Openreach, in order to help fund its investment in accelerating the build of its FTTP network, with a target of 20m homes by the mid to late 2020s, and a target of over 2m in 2020/2021. The company is also spending a great deal of money investing in 5G technology.

Last week the company announced it was suspending the dividend until 2022, in order to help free up extra cash, while at the same time trying to fund a rising debt level, and pension deficit. The urgency is all the greater given last week's big deal between Telefonica and Liberty Global, as they look to compete with BT in the quad play space of home phone, broadband, TV and mobile contracts into a one-size-fits-all package. If BT is able to pull this deal off, and in some respects, it really needs to if the UK is able to get the broadband infrastructure it needs, then we could see a considerable uplift in the share price, given that Openreach’s assets have been valued somewhere in the region of between £15bn and £20bn.

The travel sector is also seeing some decent gains this morning, with Carnival leading the gainers as bookings for the 2021 season rise sharply, pushing well above 2019 levels. Yesterday Carnival announced a series of layoffs, reduced work times and salary reductions in order to better ride out the period when it can return to normal operations. IAG shares are also higher after British Airways CEO Willie Walsh said that he would not be deferring the 12,000 job losses.

Royal Mail announced this morning that CEO Rico Back would be stepping down, from 15 August, ahead of next week’s full year results. His tenure in charge of the business has been a somewhat uneasy one given the terms on which he was employed where he received a £5.8m “golden hello”, and was then tasked with making significant cost reductions, which in terms of optics was a huge own goal.

His relationship with the unions never really recovered to the point that he received heavy criticism for working from his home in Switzerland at a time when postal workers on the front line were being pressured to continue working normally in spite of the lockdown. A year ago, Royal Mail cut its dividend in order to free up £1.8bn over 5 years as management endeavoured to take steps to lower the cost base of the business. Even without this morning’s Covid-19 update and the decline in letter volumes the scale of the challenge remains high.

In terms of recent performance, the company said it had seen a big increase in parcels, with volume up 30% since the end of March. Letter volumes were quite a bit lower, with revenues down 23%.

Staff would be getting a £200 bonus in June in recognition for their hard work during the lockdown, while management have said no bonuses will be paid for 2019-20 to executive directors. The hope is that any new CEO will be able to work more collaboratively with the unions to make the changes that are needed to improve the competitiveness of a company, which lags behind most of its peers.  

Oil prices have continued to edge higher, with Brent crude hitting a one month high, after Chinese industrial production increased in April by more than expected, rising 3.9% above expectations of 1.5%.

US markets saw a big turnaround yesterday finishing higher for the first day this week, as we look to the latest retail sales numbers for April. In March we saw a record decline of 8.7%, despite the lockdown only coming towards the end of the month. Today’s April numbers are expected to be even worse than that, with expectations of a 12% decline. This seems a touch on the optimistic side given that the US economy was shut down for the entire month.

 

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