Traders remain fearful of the latest trade development between the US and China. President Trump has threatened to impose tariffs on imports from China because he blames the country for the pandemic. 

Europe

The US leader claimed the Covid-19 crisis was a ‘mistake’ by the Chinese government. US officials feel the Beijing administration deliberately played down the severity of the health crisis when it first took hold, and therefore other governments were underprepared to tackle the crisis. The two counties - China and the US - had a long and drawn out trade spat, and that led to the signing of the first phase of the trade agreement in January, but now we could be facing another painful economic fight. The FTSE 100 is fractionally higher on the day, while continental equity markets are nursing heavy losses - playing catch up, as they were closed on Friday for the May Day holiday.   

Royal Mail shares are in demand this afternoon on the back of the news that Daniel Kretinsky, a Czech billionaire, has acquired a 5.35% stake in the company, the move has triggered chatter than this could pave the way for a takeover bid. Royal Mail was struggling before the pandemic, so it would seem that Mr Kretinsky, has taken advantage of the recent share price weakness. In March, Royal Mail’s share price fell to an all-time low. It is worth noting the firm’s parcel delivery business is believed to be in high demand amid the lockdown.

Air France have been bailed out by the French government to the tune of €7 billion. The EU signed off on the package today. The Air France share price is lower on the session despite the rescue package, but it is possible that traders never seriously thought a bailout wouldn’t be approved.

Tate & Lyle shares are in the red after the company confirmed the lockdowns have had a negative impact on their out-of-house ingredients. Bulk sweeteners volumes have tumbled on account of the closure of bars, cinemas and restaurants. The group noted there was a ‘significant change’ in demand patterns in April. The lockdowns have prompted people to stay indoors, and as a consequence, the firm has seen robust demand for ingredients used in packaged and shelf stable foods, so its not all bad news for the company. Tate & Lyle said the full year results will be ahead of the previous guidance – which is something that not many companies are stating these days.

It was reported that Rolls Royce will cut their staff numbers by up to 8,000- which would equate to approximately 15% of the workforce. The aeroplane engine manufacturer is in the firing line from the fall-out of the travel ban, which has brought airlines to a standstill, so demand for aircrafts has dropped. The pandemic has had a horrific impact on the all aspects of the aviation sector.

TUI have started to offer trips within China. The move comes three months after the travel group suspended operations in China, so today’s news offers a little hope for the struggling sector.

US

The Dow Jones and the S&P 500 are a little lower today as traders are concerned about the rising trade tensions between Washington DC and Beijing. When the US and China signed phase of their trade agreement in January, traders thought the situation was put to bed for a while, but now the landscape has changed. The tough talk from President Trump and Mike Pompeo, the US Secretary of State, has chipped away at market sentiment. We could now be entering another phase of a trade spat, and that has the potential to undo the rebound that has been in place since mid/late March.        

The big four airline stocks, Delta, American Airlines, Southwest Air and United Continental are all in the red today after it was announced over the weekend that legendary investor, Warren Buffett, dumped all his holdings in the companies. It is understood that Mr Buffet had stakes of between 9-11% in the groups at the end of 2019. The savvy investor said he has no interest in holding stocks that ‘chew through money’. In late April, Southwest Air said it expects to burn through between $30 million and $35 million per day in the second quarter. Warren Buffett’s investment vehicle, Berkshire Hathaway revealed a first quarter loss of almost $50 billion.  

In the past few days, the Food and Drug Administration approved Remdesivir – an antiviral drug produced Gilead Sciences – for emergency authorisation as a treatment for Covid-19. Remdesivir has helped some Covid-19 patients in terms of respiratory problems and fever, but its success rate is far from 100%. At the moment, there is a lot of hype surrounding the product, but it is possible that dealers are getting ahead of themselves as the results are good, but not amazing.  

FX

A broad move higher in the greenback has put pressure on the GBP/USD and EUR/USD. Towards the back end of last week the Fed widened the scope of its Main Street lending scheme, and that dented the greenback, but now it is clawing back some of the lost ground. The UK remains on lockdown, but on 7 May, Prime Minister Johnson, is tipped to map out a plan to loosen restrictions, but there isn’t a huge amount of hope that things will change drastically. Sterling is being held back by the UK’s current lockdown policy as a number of European counties have already taken small steps to reopen their economies. The CMC EUR index is lower today on account of the awful manufacturing PMI report for the currency bloc, the reading fell to 33.4 in April, from 44.5 in March.

Commodities

Gold is higher this afternoon as traders are in risk-off mode. The heightened trade tensions between the US and China has prompted dealers to trim their positions in equities, and divert their cash into assets that are deemed to be lower risk, such as gold. The commodity is back above the $1700 mark, despite the firmer US dollar.

Oil saw a lot of volatility today. Earlier in the session, the energy market was in the red as the US-China trade situation weighed on sentiment, but now WTI and Brent crude are in positive territory. Last week, the oil market staged a recovery from the recent sharp sell-off it endured, as inventory reports showed that US oil stockpiles weren’t as high as expected.   

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

 

 

CMC Markets Singapore may provide or make available research analysis or reports prepared or issued by entities within the CMC Markets group of companies, located and regulated under the laws in a foreign jurisdictions, in accordance with regulation 32C of the Financial Advisers Regulations. Where such information is issued or promulgated to a person who is not an accredited investor, expert investor or institutional investor, CMC Markets Singapore accepts legal responsibility for the contents of the analysis or report, to the extent required by law. Recipients of such information who are resident in Singapore may contact CMC Markets Singapore on 1800 559 6000 for any matters arising from or in connection with the information.