Stocks lost ground this afternoon due to health concerns in the US.
Europe
The FTSE 100 is still up on the day, but it has handed back much of its gains as the US markets are weighing on sentiment. Lately there have been concerns about the rise of Covid-19 cases in the US. Only yesterday, it was announced that Florida and Texas decided to pause the re-opening of their respective economies. Today, it was revealed that Texas will order bars to close as hospitals are under pressure from coronavirus cases. The development in Texas is worrying because re-imposing restrictions could become the norm. A big portion of the rally that equities enjoyed between late March and early June was down to the chatter that lockdown restrictions will be eased, and then they were eased, so now there are fears the process could be reversed.
Tesco, like other supermarkets benefited from people stockpiling items on account of the pandemic, but that has come at a cost. For many in the retail game, the health crisis has been a doubled edged sword – an increase in sales and higher health and safety costs too. Group like-for-like (LFL) sales increased by 7.9%, while the UK business saw an 8.7% rise. There was a surge in online sales as the UK and Ireland posted increases of 48.5% and 50.9% respectively. The CEO, Dave Lewis, warned that the full year impact of the health emergency is likely to be at the upper end of its forecast, £650-£925 million. The company raised its bad debt provision at its banking arm, so the unit is now expected to post an operating loss of £175-£200 million.
Aston Martinshares lost ground this morning when it was announced they were going to carry out a share placing and a retail share offering. The group confirmed the number of new shares would not exceed 19.9% of the existing total share capital. Shortly after midday it was revealed the group issued a total of 304 million new shares at 50p each, so it raised £152 million from the move. The company carried out a rights issue in April so traders are wondering whether there will be another round of financing or not. The luxury car manufacturer is in the process of turning its self around as it has cut costs, drafted in new management and it has received new financing too. Earlier today Aston Martin said it has £240 million in cash and that it is trying to secure £50 million of trade financing. It also hopes to raise $68 from a high-yield debt issue. In terms of its dealership network, 90% is open. Testing and production has resumed on its hybrid sports car Valkyrie, so things are starting to go back to normal for the firm.
Intu Properties, has collapsed into administration. The property group has been struggling for years, as the rise in online shopping has hurt the sector as a whole, but Intu were the weakest of the herd. The demise of the group will ripple out across the property and retail sector as firms that have stores in Intu properties are likely to be impacted. Many non-essential retailers suffered greatly on account of the lockdown, so things for that sector are likely to get even worse.
US
Stocks are pushing lower on the news that Texas will close its bars on account of the increase in the infection rate. Dealers are afraid other states might follow suit. US states made great strides in re-opening their economies, but if the number of new cases surges, we might see other states re-introduce certain lockdown policies.
US personal spending soared in May as shops re-opened. The reading was 8.2%, which undershot the 9% forecast, but it was a huge improvement on the revised -12.6% in April. The original April reading was -13.6%. Personal income swung from 10.8% in April to -4.2% in May, this is probably down to the fact many people in the retail and hospitality sector returned to work. The inclusion of lower wages in the calculation most likely weighed on the average.
US banking stocks are lower in the wake of the Fed’s stress test. The central bank ran an extreme pandemic-related scenario, and they found out a few of the 34 banks tested came very close to the minimum capital requirements. The Fed warned that in an extreme outcome, the banking sector could see total losses from bad loans hit $700 million. Banks will have their dividends capped at their current level, and there is speculation the payouts will be cut. Wells Fargo and Goldman Sachs are the biggest fallers in the sector today. The CMC US Banks shares basket is -6.2%
Nike shares have fallen out of fashion following the disappointing fourth quarter numbers posted last night. Equity analysts were anticipating EPS to be 7 cents, while it registered a loss per share of 51 cents. Stores closures hit revenue hard as it fell by 38% to $6.31 billion, while the consensus estimate was $7.32 billion. Higher delivery costs chipped away at margins as they slipped from 45.5% to 37.3%.
FX
The risk-off sentiment in the markets has seen demand for the US dollar increase. The greenback has been a popular safe haven play recently, and that is driving today’s positive move. This is the third day in a row it has gained ground, so if health concerns continue to weigh on equities, we could see further upside in the greenback. EUR/USD and GBP/USD are in the red on account of the dollar’s move.
Commodities
Gold has been hit by the rally in the greenback. The metal has traditionally been a popular safe haven trade, but now that the US dollar has moved into that category too, gold is feeling the pain, because it is listed in US dollars. The commodity hit its highest level in over seven years during the week, so a pullback is not a surprise.
WTI and Brent crude have been dragged lower by the negative sentiment surrounding the health situation in the US. In the past couple of months, oil and stocks often moved in tandem – both rallied as economies reopened and as traders felt that demand would rise, so in light of the Texas situation, there are fears that demand will fade.
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