European indices are in the red as the trading session draws to a close. 

Europe

Traders on this side of the Atlantic are worried about the increase in the number of new Covid-19 cases. The Americas, China, India and Germany have seen relatively sharp increases in new infections, and that has weighed on confidence for much of the session. The losses aren’t huge so traders are not that worried, but they are cautious that some of the good work that has been done in relation to suppressing the virus could be undone.   

Lufthansa’s €9 billion rescue package from the German government is not a done deal as it needs to be backed by its investors. Only 38% of the airline’s shareholders registered to vote in relation to the package, so that means it will require the support of two thirds of the voters to back the terms of the deal. It is proposed the German government will take a 20% stake in the company in exchange for the cash injection. Heinz Hermann Thiele, who owns 15.5% of Lufthansa, is opposed to the deal as he feels the Berlin administration are being opportunistic. Sadly for the airline, it is in need of cash so it’s not like it has many other options, but the group might seek to re-jig the terms in an effort to offer the German government a smaller stake, but that is unlikely to happen before the current terms have been voted on first.  

Wirecard has been in the news recently for all the wrong reasons. An accounting scandal has engulfed the company and there are concerns that fraudulent transactions took place to deliberately inflate revenues. EY, the group’s auditors implied that people in the company tried to deceive them. There is serious debate over the existence of a €1.9 billion balance. Today, Wirecard said the cash in question probably doesn’t exist. The firm is in talks with banks about securing credit lines but given the headlines it might have to agree to unfavourable terms to secure funding as many lenders will be wary of the situation.

Saga Group specialises in providing services to people over 50 years of age, namely insurance and holidays. Given what has happened to the tourist trade, the stock has taken a hammering in recent months. To make matters worse for Saga, their target market is older than average, so when the tourist trade starts to go back to normal, many of its potential customers might choose to avoid tours and cruises for health purposes. Saga confirmed that it will be ready to resume operations at its travel department once restrictions have been lifted, and it will continue to run stress tests in relation to various potential outcomes in regards to the resumption of the tourist business. Times are tough at the moment so the group hopes to cut expenses this year by £20 million. The monthly cash burn rate will be lowered to between £6 million and £8 million per month. Between 1 February and 21 June total insurance policies fell by 5%, as travel products dragged on the unit’s numbers. Motor and home policies increased by 1%.   

Kingfisher shares are higher this afternoon on the back of RBC upping their price target from 230p from 270p. 

Marston’s, JD Wetherspoon and Mitchells & Butlers are higher today as dealers are hopeful the government will reduce the social distancing guidelines from 2m to 1m, which would give a big boost to the pub sector – which is tipped to reopen early next month. There was chatter of a VAT cut too.  

US

It was been a quiet session so far on Wall Street as the S&P 500 is fractionally up on the day. US stocks are holding up alight seeing as several states has seen a jump in fresh coronavirus cases. The NASDAQ 100 continues to be in a league of its own as it’s up over 0.5%. Traders are content to buy tech stocks like Apple and Amazon despite some people having reservations about them being overpriced.     

The existing home sales report for May came in 3.91 million, the lowest reading since 2010, which raises concerns about the prospect of a rebound in the housing market.

American Airlines revealed plans to raise $3.5 billion in a bid to shore up its balance sheet. The group plans to $1.5 billion from a stock and convertible notes offering. Hence why the stock is in the red. The rest will be raised through debt instruments and a credit facility. There has been chatter that United Continental airlines will seek to raise $5 billion from a debt sale this week. The airlines are looking to increase their capacity in terms of flights next month, so it would appear they are keen to build up their cash reserves in order to keep up with their plans. Delta Air Lines are to resume flights between the US and China on 25 June – another sign that things are going back to normal in the sector.

Virgin Galactic shares have jumped on the news the group has signed a deal with NASA to develop a programme for private astronaut missions to the international space station. The US listed company will help train new astronauts for commercial space flights.

FX

GBP/USD is higher on the day partially because of the dip in the US dollar, but comments from Andrew Bailey, the head of the Bank of England, have helped sterling too. The central banker said the bank’s balance sheet would be lowered before rates would be raised, he added the current scale of the bank’s reserves must not become a permanent feature. The BoE chief feels the aggressive expansion of monetary policy post the pandemic was necessary, but he also said, don’t get used to it, and that has assisted sterling

EUR/USD has been lifted by the slide in the greenback. There were no major economic announcements from the eurozone today, it had been a dollar driven move for the currency pair.

AUD/USD is driving higher on the session as currency traders appear to be in risk-on mode. Lately the greenback has attracted risk-off flows, and today the US dollar index is down over 0.5%. Philip Lowe, the head of the Reserve Bank of Australia, was speaking overnight, and he said the strength of the Australian dollar reflected the country’s performance in relation to the pandemic.

Commodities

Gold is up on the session on account of a move lower in the US dollar and the concerns circulating in relation to the health crisis. The metal is traded in dollars so the weaker greenback makes it relatively cheaper to buy. The mild worries about the rising number of Covid-19 cases has prompted some traders to seek out the safe haven assets such as gold too.

The Baker Hughes report from the back end of last week showed the number of active oil and natural gas rigs operating in the US and Canada fell to a new record low. The move comes even as energy prices have rebounded since May. WTI and Brent crude are higher as demand concerns and supply woes are in force.

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