Equity markets are largely higher this afternoon as the reopening of economies, and the possibility of a Covid-19 vaccine remain in focus. 

Europe

Sentiment was weaker earlier in the session, but now the FTSE 100 and DAX are showing modest gains, while the CAC 40 marginally higher. As governments slowly unwind their lockdown restrictions that should equate to an increase in economic activity. In recent weeks we have broadly seen an improvement in economic indicators from countries that have reopened elements of their economies, and dealers are hopeful that trend will continue.

On Monday, global stocks were given an extra lift when Moderna said the first phase of their trials for a potential Covid-19 vaccine were positive. Since then, there have been questions over whether the study provided enough information, so some of the optimism surrounding that topic has faded.    

Marks & Spencer shares are in demand this afternoon as the retailer is going to accelerate its transformation plans. Like its peers, the high street firm has been muddling along in recent years, and that resulted in the stock being relegated to the FTSE 250. M&S were already in the process of reshaping their operations before the Covid-19 crisis struck, and now the company are going to ramp up their transformation. The firm still plans to close 100-120 stores in the UK, as the tie-up with Ocado will become a more important section of the group. E-commerce has thrived in the current environment, so M&S are pivoting towards a greater online focus. Full year revenue slipped by 1.9% to £10.18 billion. Profit before tax and adjusted items dropped by 21.2% to £403 million, which undershot the £420 million consensus estimate. In typical M&S fashion, the food business was the bread winner, as like-for-like sales ticked up by 1.9%, while the clothing division saw revenue dip by 6.2%. The annual figures were mediocre, but dealers are hopeful the transformation plans will pay-off.      

Experian shares are one of the best performers on the FTSE 100 today thanks to the company’s respectable full-year results. Organic revenue increased up by 8% to $5.17 billion. Statutory operating profit ticked up to $1.185 billion. In terms of organic revenue, the group performed best in the Americas, as North America and Latin America posted revenue increases of 11% and 13% respectively. The UK and Ireland unit saw revenue slip by 2%, while EMEA & APAC saw a decline of 3%. Traders were impressed by the fact the second half dividend was kept on hold at 32.5 cents, bringing the total dividend to 47 cents. Given what is going on in relation to the pandemic, if a firm maintains their dividend policy, it is seen as a bullish move.

Rolls Royce revealed plans to cut at least 9,000 jobs from its global workforce of 52,000 as the company had been negatively impacted by the health crisis The majority of the job cuts will be from the civil aerospace division, which is directly related to the sharp fall in demand for aircrafts on account of the travel bans. The group is aiming to save £1.3 billion from the restructuring plans.

US

The Dow Jones and the S&P are higher today as the indices have clawed back some of the ground that was lost last night. The bullish sentiment is ticking up as traders are optimistic in relation to states reopening their economies.

Moderna shares are a little lower today as traders are clearly cautious that the company’s phase one of the human trial might not be as positive as initially thought.  

Lowe’s had a terrific first quarter as EPS came in at $1.77, hammering the $1.32 estimate that analysts had expected. Revenue rose by nearly 11% to $19.68 billion, topping the consensus estimate of $18.32 billion. Same stores sales jumped by 11.2% and online sale were up 80%. The impressive performance from the digital division should stand to benefit the firm in the long run as e-commerce is likely to keep growing.   

Target posted impressive first quarter figures. Revenue increased by 11.3% to $19.62 billion, marginally topping forecasts. EPS for quarter were 59 cents, which smashed the 40 cents consensus estimate. Same stores sales rose by 10.8%, and comparable digital sales surged by 141%. The pandemic led to the company’s popularity going through the roof. Similar to Walmart, the retailer incurred higher costs, such as wages, on account of the pandemic. Profit margins weren’t amazing as demand for higher margin goods like apparel slipped. 70 million people signed up for the Target Circle app, so the group is hoping to build on its strong online performance.

The minutes from last month’s Fed meeting will be posted at 7pm (UK time). The update might provide more of an insight into the Fed’s thinking, but then again, the meeting took place a few weeks ago, and things have move on.  

FX

The US dollar index has lost ground this week. On Sunday, Jerome Powell, the head of the Fed, suggested the central bank might introduce additional stimulus, should it be required. The central banker said there were ‘no limits’ when it comes to tools the Fed can use.

EUR/USD and GBP/USD have been helped by the slip in the greenback. The UK’s headline CPI rate fell to 0.8% - a four year low - as the health crisis has dented demand. The core reading is considered to be a better reflection of underlying demand, and that dipped from 1.6% in March to 1.4% in April. The final reading of eurozone headline CPI for April was 0.3%, which undershot the flash update of 0.4%.     

Andrew Bailey, the BoE chief, was speaking in parliament today, and he wouldn’t rule out negative interest rates, but that was because he doesn’t want to rule out options on principle.   

Commodities

Gold is higher as the continued weakness in the greenback has helped the asset, as it is quoted in US dollars. The inverse relationship between the two markets is playing out this week. Gold has enjoyed a rally in the past two months. Earlier this week it briefly hit its highest level in over seven years, so the wider trend is bullish.

Oil has enjoyed a positive run recently as the commodity has come a long way from the negative prices that were seen last month. Increased demand for fuel in China as well as India has helped the energy this week. Last night, the API report showed that US oil stockpiles fell by 4.8 million barrels, so that played into today’s bullish move. Oil saw a jump in volatility when the EIA report was posted, it showed that US inventories dropped by nearly 5 million barrels, while dealers were predicting a build of 1.1 million barrels.  

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