18-5-2020 10:21:5518-5-2020 10:10:46Speculation of a major stimulus package from the US government has boosted sentiment in equity markets. 

Recently there has been support from various governments and central banks, but there has been some toing and froing in Washington DC, so traders are waiting to see what the Trump administration will deliver. In addition to the US, the German government are tipped to post a stimulus package in the near-term too. In light of the awful PMI reports from Germany today, lawmakers must want to be seen to assist the economy.

In London, we have mostly seen a reversal of fortune for the major sectors. The food and drinks industry has seen major rallies – notably Marston’s and JD Wetherspoon. The health crisis caused a meltdown in the travel business, but today Carnival, easyJet and Wizz Air are showing decent gains. Transport firms such as Stagecoach are in demand too. Banks are showing gains this afternoon. On the other side of the coin, Ocado shares are in the red after a positive run last week.  

These days it is common for companies to issue Covid-19 related updates. Today we heard from Redrow, Dunelm and JD Sports. Redrow cancelled their interim dividend of 10.5p, and warned that operations will be ‘significantly’ impacted. The house builder will cut its net debt position in a bid to become leaner in these challenging times. Dunelm will close all its customer facing stores in light of the update from Prime Minister Johnson yesterday. The firm will be reducing capital expenditure in addition to cancelling the interim dividend. Dunelm pointed out that its finances are in rude health. JD Sports will essentially close all its stores in Europe and the US. It’s not all bad news as far as the business is concerned, as the online division will continue to operate. The fashion house will delay the release of its annual results in accordance with the FCA’s guidance.    

Prudential, updated the market because of the health crisis too, and the company reassured dealers the business in resilient. The group still plans to spin-off some of the US business – Jackson, by doing a minority IPO. Seeing as the markets are very volatile at the momentum, Prudential will wait until the timing is right with regards the Jackson deal.

Anglo American and Rio Tinto will see their production hit by lockdowns. Countries that they operate in are set to impose restrictions, so their operations are likely to be hurt. Traders shrugged off the news as the jolt higher in copper took precedence.

After a horrendous few weeks, the oil market has seen a rally today, but keep in mind the energy has handed back a good chunk of its earlier gains. Royal Dutch Shell and BP are showing great gains.      

US

Sentiment on Wall Street is bullish as traders are hopeful the US government will post a stimulus package in the not too distant future Nancy Pelosi, the Speaker of the House of Representatives, said there is ‘real optimism’ that Congress can agree on a package in the next few hours. In the past few days there has been unsuccessful attempts to get the deal across the line, but there is still hope that politicians will get there in the end.  

Chevron said it will cut its capital expenditure by 20%, in addition to that, the share buyback scheme will be suspended. The measures are a response to the coronavirus crisis, but the oil titan has no plans to cut its dividend -this is a sign of the company’s resilience in these difficult times. Twitter has seen advertising sales fall, and in turn the company have decided to pull their guidance. It’s not a surprise that firms are looking to cut back on advertising amid the health emergency. The social media group has seen a jump in activity due to the Covid-19 situation.        

FX

The US dollar is in the red again after the Federal Reserve posted a major stimulus package yesterday – the central bank will pursue an open-ended bond buying scheme. The US PMI reports were poor, as the services reading slumped to 39.1, from 49.4. The manufacturing level fell to 49.2 from 50.8, while the consensus estimate was 42.8.  

EUR/USD is up on the day thanks to the weaker US dollar, but it is off the highs of the session. The PMI reports from the eurozone were dreadful. German and French manufacturing reports came in at 45.7 and 42.9 respectively – the update showed a decline in activity. The services figures for Germany were 34.5, while the French update was 29 – the reports undershot the very low forecasts.

GBP/USD has surged today, but only some of the move was because of the weakness in the US dollar. The UK services sector has undergone a huge swing from expansion to a sharp contraction – the PMI report was 35.7. The pound has been weak recently, so now it appears that traders are bargain hunting.

Commodities

Gold is higher on the back of the slide in the US dollar. The metal has surged past the $1,600 mark as volatility across all markets has tapered-off. The health crisis has caused the closure of three refineries in Switzerland, so supply is in short demand. The metal took a beating when stocks were tumbling in the past few weeks as there were reports that some dealers were cashing in their gold positions to fund their margin calls on stocks. The relative calm in equities has helped gold.   

WTI and Brent crude are in positive territory, but both markets have handed back a lot of their earlier gains. The wider feel-good factor has assisted the oil market, and that was driven by speculation that US lawmakers are close to brokering a rescue package. The fact the oil market has given up ground speaks volumes about the market sentiment.    

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