European markets have seen another solid session today, rallying for the third day in a row, over optimism over the lifting of lockdown restrictions, with airlines, travel and retail stocks all moving higher.

Some of the main gainers included the usual suspects of IAG, EasyJet and TUI, though these gains have been tempered a little heading into the close TUI’s rebound has been particularly impressive in the last few days, its share price is up over 70% this week alone. Of course, the current rebound does need to be set in the context of the fact the stock is still over 35% down on the year, and well below last year’s peaks.

German airline Lufthansa’s shares fell back sharply on reports that the board couldn’t agree to accept certain parts of the German government bailout plan, due to possible remedies that might be required as part of being signed off by the European Commission. This seems a rather dangerous strategy given the lack of alternative solutions to Lufthansa’s current woes, which look rather binary, bankruptcy or bailout.

The afternoon session saw some tempering of today’s enthusiasm on a report from the South China Morning Post that said China was ready to hit back on the US over any punitive action with regard to Hong Kong. Until then markets had been content to ignore the risks of the rising tension between the two over the implementation of a new security law, and the prospect of the US implementing economic sanctions against key Chinese officials.

Market sentiment was also given a lift by details of plans laid out by the European Commission for a €750bn recovery fund of which €500bn would be in the form of grants. The reporting of these plans also helped push the euro to its best levels since the end of March.

The proposals would include the raising of €500bn of debt on bond markets, with other measures set to include a suite of new taxes and levies on tech companies and on single use plastics, over the course of the next few years. While most attention is on the headline number, several obstacles still remain in terms of who will end up paying for all of this new debt as well as how it will affect the new EU budget in terms of higher contributions.

Much has been made of the prospect that this could well be Europe’s Hamilton moment on the road to closer fiscal integration. These measures still remain significantly short of any such moment, and we have been here any number of times before over the past ten years.

As things stand a number of European countries still remain clearly unhappy at being asked to pony up for grants with no guarantees that the money will address the underlying structural issues facing the worst affected countries like Italy. Against this backdrop a quick distribution of any money is highly unlikely in the short term and given the obstacles from some quarters it is unlikely any help will be forthcoming much before March next year, at the earliest.   

Supermarket food sales surged at a record pace over the last quarter compared to a year earlier rising over 14%, led by Tesco and Lidl with sales up by in excess of 12.7% and 16.5% respectively. On line sales also enjoyed a boom in spending, though that wasn’t enough to prevent Ocado shares being the worst performer on the FTSE100 today, down over 5%, though when your shares are up by over 80% since March some profit taking probably isn’t too much of a surprise.  

Amongst other big moves on the day is M&G, after the company chose to keep its dividend intact despite pressure from the Bank of England to withhold it. It would appear that management feel confident enough in their own financial position to go ahead and keep the payout for shareholders.    

US

Having tried and failed to close above 25,000 and the 3,000 level yesterday, both the Dow and S&P500 had another go today as they once again opened above these key psychological levels.

Since the markets opened, we’ve once again seen some tempering of the initial early enthusiasm with shares slipping back from the highs of the day on a South China Morning Post report that said China was ready to hit back on the US over any punitive action with regard to Hong Kong.

US banks are still outperforming with JPMorgan, Bank of America and Citigroup all posting some decent gains; however, we’re starting to see further weakness in tech shares with falls in Facebook and Netflix shares, amongst others.  

FX

The euro has been given a lift by this morning’s plans from the European Commission for a €750bn recovery fund of which €500bn would be in the form of grants.   

The pound is one of the worst performers slipping back after comments from Sir David Frost, the UK’s Chief Brexit negotiator said that the current EU mandate for talks would make it difficult to arrive at an agreement the UK can accept, though he did say it could well change over time.

The US dollar had been underperforming for most of today’s trading session, however we have seen a bit of a comeback on the back of that South China Morning Post story, on some haven demand.

Commodities

Crude oil prices have slipped back from their recent 2-month highs on the back of an IEA report that warned that global energy investment could well fall by as much as 20% this year by $400bn, with oil demand set to fall by 9m barrels a day by 2025. Reports that Russia was looking to ease supply cuts as early as July haven’t helped either.

It’s a bleak prognosis and this lack of investment could have significant consequence for future energy supply, and the move towards renewables.  

Gold prices have lost a little bit of their attraction in the past few days, largely on the back of the rebound in equity markets, but have thus far managed to hold above the $1,690 level and the lows over the last two weeks.

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