Equity traders are worried about the state of US-China relations as President Trump is due to deliver a press conference about the situation later today.

 

Europe 

 Animosity between the two governments has been growing lately as the US are not happy with the way the Beijing administration is treating minority communities. In addition to that, the Chinese government are keen to tighten their grip on Hong Kong and that has vexed the US too. 2019 saw a lot of toing and froing between the two countries with respect to trade, so there is a possibility we could be in for another prolonged spat between Washington DC and Beijing.       

B&M shares are in demand this afternoon as the bargain retailer confirmed it had a very strong finish to the final quarter of the last financial year. In addition to that, in the first eight weeks of the new financial year, sales in the UK jumped by over 22%. The lockdown prompted some shoppers to stockpile household items at the start of the health crisis, but as things settled down, gardening equipment became very popular too. B&M benefitted on both fronts. The stock hit a level last seen in January, and that highlights the bullish sentiment.

SIG had a poor performance last year as revenue fell by 9% to £2.08 billion, and the group registered a statutory loss of nearly £113 million. Today’s figures were in line with the forecast that was issued at the start of the year, so the disappointing figures didn’t faze traders. The group will be introducing a new strategy to rectify the underperformance. No dividend was recommend by the board. The group cautioned that revenue next year might be 25% below last year’s figure. SIG are planning to raise £150 million from an equity issue in the near term – the move will help strengthen its balance sheet. Dealers are clearly focusing on the fact the company has a plan to turn itself around.

Rolls Royce shares have been hit by the downgrade from S&P. The ratings agency have downgraded the company to junk status, and that has hurt the stock price today. The engineering giant has been clobbered by the pandemic as the travel bans has dented demand for aircraft, and in turn aircraft engines – which Rolls Royce manufacture.  

Renault are hoping to receive a government loan in the next few days, and the group is depending on state assistance for its survival. The auto sector has been hit hard by the health emergency, which is why the group plans to save €2 billion over the next three years. The programme will entail lowering the headcount by roughly 15,000. 

Young & Co Brewery has been given breathing space by its lending banks as all four covenant tests between June and March 2021 have been replaced. The company has entered into a new £20 million bilateral revolving credit facility with NatWest, in addition to that, it also agreed a £50 million lending facility with HSBC and NatWest. In March the firm took the decision to suspend its dividend, and today it said it will resume paying dividends when it is practical, but dealers won’t be holding their breath.

US

The major indices are showing small losses as traders are cautious ahead of the press conference from President Trump. Some dealers are sitting on their hands as they are afraid the Donald might go on a tirade against the Chinese government. All things considered, the indices are holding up alright, but the absence of buying is notable, seeing as US markets were powering ahead earlier this week. The April personal spending and income readings were -13.6% and 10.5% respectively. The terrible spending metric could be partially because certain aspects of the economy were closed, for example hospitably. The Chicago PMI report for May dropped from 35.4 to 32.3 – the lowest since 2009. It is concerning the level fell seeing as lockdowns were relaxed.       

Costco posted third quarter numbers last night. Revenue ticked up to $37.27 billion, which was a little ahead of forecasts. The retailer saw a surge in demand as the pandemic set in but costs jumped because of the health crisis. More money was deployed on cleaning as well as wages, and that hurt the bottom line. EPS were $1.89, while equity analysts were expecting $1.95. Costco pointed out that Covid-19 related costs shaved 47 cents off the EPS, so it appears the virus has been a net negative for the retailer. 

Williams-Sonoma experienced ‘breakout’ growth in sales towards the end of the first quarter, in addition to that, the group confirmed that sales ‘continue to accelerate’ It is impressive the momentum is still in force as some companies saw a tapering off in activity after the initial phase of the pandemic. Revenue in the first quarter was $1.24 billion, and that topped the $1.1 billion consensus estimate. 

FX

The US dollar index is down for a fourth day in a row and the bearish move has lifted GBP/USD and EUR/USD. The impact of the Covid-19 crisis was highlighted in the French and Italian growth reports. Both counties saw output shrink by 5.3% in the first quarter, and keep in mind they are the second and third largest economies in the eurozone. The headline CPI reading for the currency bloc fell to 0.1%, meeting forecasts. 

The CMC GBP index saw some decent volatility today as it was previously in the red but now it is up more than 0.2%. There is talk that traders are squaring up their books for the end of the month and that is believed to have helped sterling. Uncertainty in relation to the UK’s post transition period relationship with the EU is doing the rounds. The Irish government are preparing for a no-deal situation as talks have not gone well so far.     

Commodities

Silver and gold have been given a boost by the uncertainty surrounding the US-China situation. Some traders have bought bullion as there are concerns we might be on the cusp of another trade conflict between the two largest economies in the world. Silver is outperforming gold, and it hit a three month high. The softer US dollar has helped the metals.

WTI and Brent crude are in the red today on account of rising inventories in the US, and there are concerns about Russia’s commitment to the steep production cuts that are in place until the end of June. This week, the API and the EIA updates showed that US oil stockpiles jumped, so that has encouraged some dealers to book profits from the very bullish moves that were seen in May.   
 

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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.