European equity markets are deep in the red this afternoon as a broad based sell-off has hit the indices. 

Europe

The European Central Bank kept rates on hold, meeting forecasts. Christine Lagarde, the ECB chief, left the door open to expanding its already huge stimulus package, should it be required. The central banker cautioned the currency region could contract by between 5% and 12% this year, depending on how the crisis plays out. The ECB revealed a new scheme to ensure that lending continues in the region – the Pandemic Emergency Longer-Term Refinancing Operations. In addition to that, the existing targeted lending scheme will lower its interest rate to banks, in a bid to encourage borrowing, and in turn spending, in the currency area. The ECB is trying its best to keep money flowing around the euro-area, but in the end, the schemes are putting more pressure on eurozone banks, hence why Deutsche Bank, BNP Paribas and UniCredit are in the red. The eurozone economy shrank by 3.8% in the first quarter.    

Royal Dutch Shell shares have been hit as the firm has decided to cut its dividend – the first reduction since the 1940’s. The company will also suspend the next round of the share buyback scheme. Cutting back on returns to shareholders has been a common move by companies these days, but when an industry leader like Royal Dutch goes down that route, it really highlights the severity of the situation. The stock has been hit hard today, but it is likely to be a short term loss, and a long term gain, as conserving cash in challenging times is a prudent move. In the first quarter, profit fell by 46% to $2.95 billion.  The energy giant might lower oil and gas production, depending on market conditions.

Lloyds posted their first quarter results this morning, and the bank revealed loan impairments of £1.4 billion – which was an increase of more than £1.1 billion on the year. The pandemic is likely to trigger a jump in bad debts. Statutory profit after tax tumbled by 60% to £480 million, but that includes a tax credit of £406 million. When you exclude the tax credit, earnings were only £74 million. The low interest rate environment caused the net interest margin rate to dip to 2.79% from 2.91% in the same period last year. It is fair to say the economic situation will get worse in the near-term, but at least Lloyds are in good health, as the CET1 ratio ticked up to 14.2%. The share price has drifted lower as traders realise that lending margins are likely to be squeezed further, while loan impairments are poised to rise.

JD Wetherspoon are hoping to raise £141 million through a share offering. The pub chain is suffering greatly as all its pubs are closed, but its liquidity position is still strong, all things considered. Waivers on covenants have been agreed upon in relation to credit facilities ending in the quarters for April and July. The firm has sufficient liquidity to last until the end of November. 99% of its workers have been furloughed, and even though there has been no reduction in head count, that might be reviewed. In a bid to conserve cash, senior management have taken pay cuts of 38-50% and £70 million worth of capital expenditure has been deferred.

JPMorgan have raised their outlook for Mitchells & Butlers to overweight from neutral, but at the same time, the finance house cut their price target to 340p from 490p.  

Flutter Entertainment, the parent company of Paddy Power and Betfair, are hoping to complete its acquisition of Stars Group, the owner of Poker Stars, on 5 May, following approval from the regulator and shareholders.  

US

The Dow Jones and the S&P 500 are in the red following some shocking economic announcements. The jobless claims reading was 3.83 million, taking the level to above 30 million since the pandemic took hold. The Chicago PMI reading for April plunged to 35.4 – the lowest reading since 2009. Personal consumption and income fell by 7.5% and 2% respectively. The Fed has expanded the scope of its Main Street lending scheme, but the economic data weighed on sentiment.  

Tesla’s shares are in demand after the company posted its first quarter update last night. The company announced a profit of $16 million – its third consecutive quarterly profit. Revenue for the three month period was $5.99 billion, meeting forecasts. Cash flow was negative to the tune of $895 million, and keep in mind, at the start of the year, the group said it would be cash flow positive this year. The firm might struggle to achieve its ambitious yearly production target of 500,000 vehicles, as factory closures and supply chain disruptions might hold the group back.  

In its first quarter update last night, Facebook said there was a fall in advertising revenue in March when the coronavirus panic kicked in, but in April it started to see some ‘stability’. The slightly optimistic tone in relation to advertising revenue in April has helped the stock today – traders usually latch onto any signs of recovery. Revenue rose by nearly 18% to $17.74 billion, exceeding the $17.41 billion forecast. Twitter shares are in the red today as traders are concerned the social media firm isn’t on the road to recovery from the Covid-19 fallout.     

Microsoft’s cloud business posted a 59% rise in third quarter revenue. That helped group revenue increase by 15% to $35.02 billion, topping the $33.66 billion forecast. EPS came in at $1.40, while the consensus estimate was $1.26. The tech giant confirmed the pandemic had minimal impact on the business. The group’s fourth quarter revenue guidance topped analysts’ estimates.

FX

The CMC EUR index is now higher on the day thanks to the recent sell off in the US dollar. Earlier in the session it was in the red as the currency bloc contracted by 3.8% in the first quarter. The economies of France, Spain and Italy declined by 5.8%, 5.2% and 4.8% respectively in the first three months of the year.

The US dollar index pushed lower shortly after it was announced the Fed’s Main Street lending scheme would be altered to allow bigger companies to gain access to funds. The expansion of the programme seems to have put pressure on the greenback.

AUD/USD is in the red today after rising for six straight sessions.

Commodities

WTI and Brent crude are higher today as traders are a little less fearful about oversupply in light of the inventory reports from the US yesterday. Both updates, the API and the EIA reports, showed that oil inventories grew by smaller amounts than expected, while gasoline stockpiles declined.

Gold is in the red even though stocks are down on the session. The declines in equities today paints a picture of risk-off sentiment, but that hasn’t helped gold, which is odd, as it typically benefits from traders turning their backs on riskier assets like stocks. Gold is still above $1,700, so it is possible the softer US dollar is helping the metal hold above that metric.     

 

 

 

  


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