It’s been another decent day for European stock markets, with a second day of gains, propelling the DAX to its highest levels since early March, while the FTSE 100 has underperformed, probably as a result of the strength of the pound, on the back of a move to a two-week high against the US dollar.

Europe

Travel and airlines stocks have had a pretty decent day on the back of a combination over the planned reopening of European holiday destinations sometime in July, as well as yesterday’s reports that German national carrier Lufthansa is on the brink of a controversial €9bn bailout from the German government, with British Airways owner IAG leading the way, along with decent gains for Easyjet and Ryanair.

The deal still needs to get the nod from the European Commission, who could well impose a number of conditions in return for its approval, including the surrender of a number of key flight slots at Frankfurt, or other European airports. These types of rescue usually come with strings attached as UK bank Royal Bank of Scotland found when it was bailed out by the UK government in 2008. The bank was forced to sell a number of assets at fire sale prices including Worldpay, Direct Line, as well as spending years to try and sell off Williams and Glyns branches at a significant cost.  

The EU Commission has already felt the heat from Ryanair CEO Michael O’Leary who has said today that Ryanair will appeal against “this latest example of illegal state aid to Lufthansa”, thus effectively raising the stakes in terms of applying pressure on the EU Commission to ensure they exact a heavy price, if they do wave this bailout through, on an airline which has been badly run for several years now.  

Cruise ship owner Carnival and Holiday Inn owner IHG shares are also higher, along with TUI Travel, whose shares have shot up over 35% to their best levels since early April, all on hopes that they will all be able to take something out of a severely curtailed holiday season.

Bakery chain Greggs has also said it will reopen 800 of its sites from the middle of next month.

The restructuring of Aston Martin has continued today as new owner Lawrence Stroll carries out further surgery in trying to turn the business around. The latest development is the announcement of the departure of existing CEO Andy Palmer, which has seen the shares surge, as the company announced that Tobias Moers, the current head of Mercedes AMG performance division would be its new CEO, starting on 1 August.

Transport company Stagecoach Group this morning said it would be discussing with the government how best to use the latest tranche of funding from the Department of Transport so that the resumption of normal rail, bus and tram operations can restart across England.  

US

US markets opened the new week very much on the front foot, taking cues from the strong performance from markets here in Europe, which saw a strong start yesterday, on optimism over the reopening of economies, as well as positive reports from a number of ongoing vaccine trials.  

The S&P 500 opened above the 3,000 level for the first time since early March, and more importantly also rose above its 200-day MA. If we are able to hold on to these advances, and hold above 3,000, there is the prospect we could well see further gains towards the March highs at 3,140.

On the data front the latest new home sales for April showed a gain of 0.6%, confounding expectations of a decline of 23.4%. US consumer confidence for May also improved from 85.7 to 86.6.

In a sign that companies are also becoming more confident about the outlook Warner Music announced that they would be proceeding with a plan to sell 70m shares in a new IPO at $23 to $26 a share.

FX

The US dollar has taken a beating across the board today, sliding the most against the commodity currencies of the Australian and Canadian dollar and Norwegian Krone.

The pound has held up well despite another set of disappointing retail sales numbers for May from the CBI, and Bank of England MPC member Andrew Haldane reiterating that the MPC was still considering the merits or otherwise of looking at negative rates.

The euro has underperformed on reports that the European Central Bank is drafting contingency plans to carry out its bond buying program without the Bundesbank is case the German court forces it to quit the program. This is a huge development and shows how concerned the ECB is and how serious the crisis facing the euro area could be. It highlights the constitutional minefield facing the prospect of any future moves towards the prospect of any type of fiscal union.

Commodities

Crude oil prices have continued their recent recovery with US crude prices hitting their best levels in over two months after Russia said that it expected that its production cuts would help reduce the global surplus sharply by the middle of the summer.

There had been some doubt that OPEC+ members, along with US producers might stick to cuts in production but they do appear to be sticking for now. It would appear that the prospect of having nowhere to put your inventory has concentrated minds, as well as pushing prices up.

Gold prices not surprisingly have slipped back as investors rotate capital in riskier assets

 

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