Stocks in Europe are in the red this afternoon as health concerns have chipped away at market confidence.

Europe

Beijing is currently in partial lockdown and its restrictions have become stricter in the past few days. A number of states in the US have seen an increase in the number of Covid-19 cases, most notably Texas – yesterday’s hospitalisation rate jumped by 11%. This day last week, equity markets sold-off sharply as traders were terrified at the prospect of a second wave of infections. There has been a rise in cases since then, but dealers are less fearful about the situation spiralling out of control.

The Bank of England kept interest rates on hold at 0.1%, meeting forecasts. The quantitative easing (QE) scheme was boosted by £100 billion, and that was also in line with expectations. Eight of the nine members of the MPC voted for an extra £100 billion of QE. Some traders felt the UK central bank would have backed more stimulus than what was delivered, as there was chatter of an extra £150-£200 billion being announced. The BoE feel the economic contraction in the second quarter won’t be as severe as initially predicted, which is possibly why the increase in the QE scheme was a little measured. The BoE have also the EU situation to contend with, so the central bankers might be keeping some stimulus up their sleeves in case there is a no-deal scenario come January.  

Wirecard shares took a knock today because the company delayed the release of its results again. The firm has been dogged by concerns that fraudulent actions were carried out in order to inflate its revenue, so some traders have been cautious of the stock. EY, the auditor, said there was no evidence of a cash balance of €1.9 billion There are worries about ‘spurious’ transactions, and there were fears that actions were taken to deceive the auditors. Having questions being asked about the reliability of your accounts is bad enough, but to make matters worse, if the group doesn’t publish its 2019 results by tomorrow it runs the risk of being in breach of covenants. Credit lines can be tricky to achieve when your company is in good health, let alone when some people don’t believe your figures. The stock tumbled to a four year low, but has since clawed back some of the lost ground.

Taylor Wimpey raised £520 million from a share offering, with the view to buying up land as prices have fallen a little. In the current environment, when companies are raising capital it is typically because they need to shore up their balance sheets, but Taylor Wimpey are going on an offensive play. The house builder is obviously bullish about the prospects of the market in the medium-term, so it wants to boost its land bank now.

Ted Baker shares are down today after it confirmed it raised £105 million via an offering where the shares were offered at the discounted price of 75p. Keep in mind it raised £95 million at the start of the month from a different offering – the offer price was also 75p. The group’s share price has taken a knock in recent years on account of a scandal surrounding Ray Kelvin, the founder and previous CEO. There were issues regarding the valuation of inventory too. The firm was in a relatively weak position going into the crisis, so now it is raising capital to help see it through the pandemic. There is clearly demand for their shares, albeit at a discounted price. The group might want to consider reducing it presence on the high street as a way of conserving cash, besides, online shopping is far more popular now due to the lockdowns.

Tesco have sold-off their Polish business for £181 million. As far as Central Europe is concerned, Tesco wants to focus on Hungry, The Czech Republic and Slovakia. Keep in mind the group disposed of its businesses in Thailand and Malaysia in March as the retailer wanted to simplify the business. The asset sales are a part of a wider restructuring plan to help the group get back to basics.      

Allied Minds shares have jumped today after it was revealed that a company they have invested in, Federated Wireless, has partnered with Amazon Web Services (AWS). The deal relates to connectivity service for an AWS data transfer device.   

US

Stocks are marginally higher on the day as dealers are monitoring the health situation. The infection rate in Florida and Texas have ticked up so that is playing on traders’ minds. There was mixed economic data from the US today. On the bright side, the Philly Fed manufacturing reading for June was 27.5, a major rebound from the -43.1 registered in May. The jobless claims reading was 1.5 million, which barely dropped on the week, and economists were expecting it to fall to 1.3 million. The continuing claims reading only moved fractionally lower to 20.54 million, which highlights the fact that very few people are re-joining the workforce.

Carnival, the cruise operator, announced its preliminary second quarter results, and they were not received-well. The adjusted loss per share was $3.30, much bigger than the loss of $1.56 that traders were expecting. Revenue slumped by 85% to $700 million, while equity analysts were expecting $1.13 billion. Not surprisingly, the group does not know when things will return to normal. It expects to post a loss in the second half. It has $7.6 billion available in liquidity, but the monthly cash burn rate is roughly $1 billion. It is hoping to drastically lower the cash burn rate, otherwise it might have to rack up more debt, and the terms are likely to be less favourable when compared with previous loans. There has been strong growing demand for 2021 bookings but discounts have been a factor.  

Kroger shares are down this afternoon despite the solid first quarter numbers. EPS were $1.22, comfortably topping the $1.09 forecast. Revenue was $42 billion and traders were expecting $40.45 billion. The impact of the lockdown was evident in the digital sales metric, which surged by 92%. In April, the group maintained its guidance amid the madness of the pandemic, which was a bit bullish. Today, the company said it will exceed that guidance.   

FX

GBP/USD has been hit hard by the BoE’s decision to ramp up its QE scheme by £100 billion. To an extent, the negative move in the currency pair is to do with the US dollar attracting safe-haven flows, but the loosening of monetary policy caused the bulk of the damage. A softer pound should help the UK economy export its way out of the crisis, but then again, external demand has taken a huge hit too.

EUR/USD has been pushed lower by the rise in the greenback. It was a quiet day as far as economic reports are concerned in the eurozone.

The May Canadian ADP report showed that 208,400 jobs were added, but the April reading was revised from -226,700 to -2.36 million. The revision was colossal, but it didn’t have a major impact on USD/CAD, which is showing only a modest rise.  

Commodities

WTI and Brent crude are showing decent gains today. OPEC+ are due to hold a teleconference to discuss their output arrangements. Yesterday it was revealed that there was an 87% compliance rate in regards to the production cut. At the group’s latest meeting, not only did they maintain the very deep output cuts, they also stipulated that countries that don’t comply, would have to make up for it in August and September.

Gold is down again as the upward move in the US dollar has hit the metal. The commodity typically does well when stocks are lower, but lately the greenback has acted as a safe-haven play too. It would seem the inverse relationship between gold and the dollar is winning out. 

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