12-5-2020 10:11:51The stimulus packages from yesterday have done little to reassure the markets as panic selling was witnessed today. 

Europe

 

European equity benchmarks are set to close firmly in the red as traders’ fear the health situation will get worse before it gets better. Governments announced packages to help combat the crisis, but they won’t kick in for a while, and there is the possibility they won’t be enough to stop a major slowdown in economic activity.   

In the past few days, images of people queuing at supermarkets have been doing the rounds. Some people have been stockpiling household items, and that has benefited the supermarkets as there is a perception their sales figures in the months ahead will be impressive. For the first six weeks of the year, Morrisons saw a 5% increase in like-for-like sales. In response to bulk buying from consumers, the group will hire 3,500 people for its home delivery service. Staying with the home delivery service theme, Ocado shares are higher again today.

Sainsbury’s should benefit greatly from the government’s decision to scrap business rates for the rest of the year. It is worth noting that last year the company spent £500 million on business rates relating to its stores. Tesco, Marks and Spencer and Morrisons should benefit from the initiative too.   

Unilever as well as Reckitt Benckiser are posting modest gains as they produce hygiene products, so traders are taking the view their goods will be in high demand for some time to come.

There has been no respite for the travel sector. Airlines such as International Consolidated Airlines Group, Wizz Air, easyJet plus Lufthansa are all in the red. Domestic travel firms are in the firing line too as a growing number of people are scrapping their travel plans. Go-Ahead Group as well as National Express are down 9% and 32% respectively.

Rolls Royce as well as Airbus have been hurt by downgrades from JP Morgan – the bank feels the major disruption caused to the travel industry will damage the aerospace sector.    

Social distancing is going to hurt the hospitality industry. Restaurant Group, Marston’s and Mitchells & Butlers all issued warnings relating to the evolving health crisis. Restaurant Group now anticipate a 25% fall in yearly like-for-like annual sales. Marston’s are bracing themselves for significantly lower sales in the weeks ahead, while Mitchells pulled their guidance.

Zara’s parent company, Inditex, are already feeling the pain of the health emergency as the group revealed a 25% fall in sales for the first 16 weeks of the new financial year – store closures are hitting hard. The frim took the prudent decision not to propose a dividend – at a time like this, companies need to conserve cash.  

The UK house building sector has been clobbered in recent days. There is a perception in the markets that individuals will hold-off from purchasing properties on account of the huge economic uncertainty, hence why Persimmon, Redrow, and Barratt Developments are enduring large losses.

BP and Royal Dutch Shell are suffering due to the sizeable fall in the oil market.

US

The major indices are firmly in the red as fear continues to dominate on Wall Street, despite the talk about a huge stimulus package being in the offing. The rapid increase in the number of new case of infections is prompting traders to drop stocks. The Trump administration are keen to provide financial assistance to the economy, but that hasn’t calmed the markets.

Boeing shares are in the red after the company made it clear they will be seeking assistance from the government’s aviation industry rescue fund. Boeing were already struggling for a while on account of the 737 Max fiasco, so the health crisis has put extra pressure on the group. The firm is believed to be in need of tens of billions of dollars to keep its supply chains in operation.

Auto makers in the US are feeling the strain of the health crisis too, as Ford Motors, Fiat Chrysler and General Motors brokered a deal with United Auto Workers Union to reduce the hours of workers in an effort to reduce the possibility of employees catching the virus. Tesla was instructed to suspend operations at its plant in California as a way to help combat the health emergency.  

FX

GBP/USD has been hammered by the continued rally in the US dollar. It seems as if the greenback is acting as a safe haven currency. The Fed have taken their tough medicine by slashing rates to almost zero, so the central bank is likely to sit on its hands for some time now. The weakness in sterling seems odd given the heath crisis is worse in mainland Europe.

EUR/USD is also under pressure because of the surge in the dollar. Eurozone CPI for February came in at 1.2%, meeting forecasts. Considering the lockdowns in the eurozone, the single currency is holding up well.

USD/CAD is up more than 2% thanks to the slump in oil prices. Canadian CPI came in at 2.2%, topping the 2.1% forecast, but that couldn’t stop the selling pressure on ‘the loonie’.

Commodities

 WTI and Brent crude have tumbled to levels last seen in 2003 as demand and supply fears have hammered the energy market. As the Covid-19 crisis deepens in the west, there is a belief that demand will drop, and that is one part of the equation. Saudi Arabia are keen to drive up supply in a bid to punish Russia for not agreeing to cut output, and that is also a factor in oil’s very poor performance.

Gold has fallen on account of the powerful upward move in the greenback. The inverse relationship between the two markets is strong today. The metal seems to have lost its safe haven status recently, as some traders appear keen to cut and run from most assets.

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