Equity markets are showing decent gains as the trading session draws to a close. 

Europe

Broadly speaking, European indices lost ground in the past two days, and today those losses have been mostly recovered. The mood on this side of the Atlantic is still optimistic in relation to the US coronavirus stimulus package, even though there are ‘serious differences’ between what the two sides want. Steven Mnuchin, the US Treasury Secretary, said that a ‘bipartisan agreement still should be reached’. The politicians are playing politics with the issue, but dealers are still hopeful that some sort of agreement will be achieved at some point. On the FTSE 100, Barratt Developments is the biggest gainer on account its full year update, and Taylor Wimpey, Persimmon and Berkeley Group are higher too. 

Barratt Developments shares have hit their highest level since late July even though full year pre-tax profit slumped by 45% to £491.8 million. In July, the house builder issued a trading update for the 12 month period so a lot of today’s negative news was already known. Completions fell by almost 30% to 16,604, and revenue came in at £3.4 billion, 28% lower on the year. Construction work was halted amid the lockdown but it would appear that work has been pushed back into the new financial year as the forward sales increased by 22% to £3.7 billion. The cash balance is in excess of £300 million and the group has access to £700 million in credit, so its financial health is solid, and it is in a good position to deal with the high demand. Barratts will not pay a special dividend of £175 million – which was due to be paid out in November 2021, but dealers know the company has a good track record of paying dividends – when it is in a comfortable position.     

The colossal surge in remote working has helped Computacenter, the company provides computer services to corporate clients and public bodies. In the current environment, technology is more important than ever. The firm said the strong demand that was seen in the first half was also witnessed in the first two months of the second half. Computacenter’s board now believes the full year results will top the previous forecast. The bullish statement sent the stock to a record high.

Morgan Stanley initiated their rating coverage of Aggreko, the power generation equipment hire company. The Wall Street titan issued an underweight rating for the company and their price target is 400p, which is below the current market price of 423p.

Ryanair announced that capacity last month was 60%. Passenger numbers fell by 53% to 7 million and the load factor was 73%. Wizz Air – another low-cost European airline – confirmed that August capacity and passenger numbers dropped by 19.9% and 41% respectively. Yesterday, Wizz lowered its third quarter capacity guidance to 60%, down from 80%.

Fresnillo is the largest silver miner in the world, and its shares are lower today as silver prices are in the red for a second day in a row. Early last month, Fresnillo shares hit their highest level in over two years, and recently the stock has been range bound.       

US

The S&P 500 posted a new intraday record high – as calculated by the exchange – and it is currently up over 0.5%, as Wall Street’s bullish run continues. The ADP employment report caught traders by surprise as it showed that 428,000 jobs were added last month, which greatly undershot the 950,000 that economists were expecting. The July reading was revised to 212,000 from 167,000. US factory orders grew by 6.4% in July, topping the 6% forecast. The report that removes transport, showed 2.6% growth.       

Macy’s shares are up as traders focused the on retailer’s strong online sales. Second quarter digital sales jumped by 53%, on an annual basis. Net sales in the three month period fell by almost 36% to $3.56 billion, but it came in ahead of market expectations. The loss per share was 81 cents, while equity analysts were predicting a loss per share of $1.77. The lockdown down had a dreadful impact on store sales as they tumbled by 61%, but by the start of the second quarter they were down 40%, so things are improving. 

Brown-Forman confirmed that first quarter sales slipped by 2% to $753 million, topping the $691.2 million forecast. Developed international markets sales increased by 13%, while sales in emerging markets dropped by 20%. US sales were robust as they rose by 3%. EPS was 67 cents, but when you strip out exceptional items it was 40 cents, topping the 30 cents consensus estimate.

Peloton shares have jumped as JPMorgan labelled it a ‘top pick’ and set a price target of $105 – which represents a 22% premium on the current market price. The fitness group will publish its fourth quarter numbers next week.  

FX

The US dollar index is driving higher, following the rebound that it experienced yesterday. It would appear that bargain hunters are helping the currency, which dropped to a 28 month low on Tuesday. The dollar’s move higher was momentarily interrupted on the back of the ADP report which greatly missed estimates, but its rally has continued, which underlines the bullish move.

GBP/USD and EUR/USD have been hit by the positive move in the dollar. A spokesman for Prime Minister Johnson said that major differences still exist between the UK and the EU in relation to reaching a deal. The EU chief negotiator, Michel Barnier, said he has flexibility in regards to negotiations and that he will be in London next week.

AUD/USD is down over 0.7% as Australia has entered a recession – it&rsquo s first in almost 30 years. Second quarter GDP was -7%.      

Commodities

Gold is in the red on the back of the rally in the dollar. Last month gold hit an all-time, and that was partially because of the weakness in the dollar, so we are now seeing the greenback hurt the commodity. The inverse relationship between the dollar and gold has been strong recently. Yesterday the yellow metal hit a two week high, so the dollar move has prompted profit taking.

WTI and Brent crude saw a jump in volatility following the publishing of the EIA report which showed that oil and gasoline inventories tumbled by 9.32 million barrels and 4.32 million barrels respectively – both were larger draws than expected. Even though inventories fell, the energy contracts have dropped too. The adverse weather in the Gulf of Mexico and in certain US states last week disrupted the oil industry in terms of refining and production, so a big drop in inventories was not a total shock.  


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