Stock markets are mixed as we approach the close. 

The lack of a clear and robust response from Brussels in relation to the pandemic held back equity benchmarks for much of the session, but sentiment picked up towards the end of the day. There is talk of ‘corona bonds’ being issued to help combat the crisis, but the old divisions in the eurozone have re-emerged, where southern members like Italy and Spain are in favour, while Austria and The Netherlands are opposed to the plan. Stocks are well off the lows of this month, so sentiment has stopped falling through the floor, but with the health emergency still raging, the bulls might remain cautious.

The UK house building sector is largely in the red today as many banks have pulled a large portion of their mortgage products as the government is not encouraging people to move property during the health crisis. Taylor Wimpey and Persimmon have fallen the most in the sector. The hospitability industry is still suffering because of the restrictions about going outside. Restaurant Group shares have tumbled 17%. Cineworld shares have been hit hard by a downgrade from JPMorgan, who cut their price target to 90p from 300p. It is not all bad news out there, Unilever and Reckitt Benckiser are in demand as companies that sell hygiene products seem to be relative stable in this uncertain climate. BP and Royal Dutch Shell are in positive territory despite the slump in the oil price – the major players are in a better position to weather the storm than say the likes of Tullow Oil.   

EasyJet declared that it will ground its entire fleet of aircrafts on account of the health crisis. The group didn’t give any indication of when flights would resume, that is hardly surprising given the amount of uncertainty doing the rounds. The airline is cutting back on non-essential spending, and it said that its balance sheet is ‘strong’. EasyJet is in discussions with liquidity providers, but it doesn’t need to refinance its debt until 2022 so that should take some pressure off the organisation. EasyJet shares are down on the day, Ryanair, Norwegian Air Shuttle and Air France shares are in the red to.

Sir Stelios Haji-Ioannou, the founder of easyJet, has threatened to remove directors from the board of the company unless the airline cancel’s its 107 aircraft order with Airbus. Given that easyJet has now grounded all flights indefinitely, it seems like a prudent move to scrap the orders, especially as the firm is keeping an eye on its cash situation. Airbus shares have been hit hard by the news. Airbus will pause the majority of its production in Spain until early April.  

Hammerson shares are in the red today after the company confirmed it only received 37% of its billed rent for UK properties in the second-quarter. The group has had to close up its operations in the UK, France and Ireland – in accordance with the guidance from the respective governments. Despite the dreadful market conditions, Hammerson are in a strong position in terms of liquidity – it has £1.2 billion in unwithdrawn credit and cash, so that should provide some piece of mind to dealers. Regarding rent, the update echoes that of Intu Properties last week.

There are concerns about Rolls Royce’s cash situation seeing as the group is heavily dependent on the airline industry for business. The activity in the aviation sector has dropped off a cliff recently so the British engineering firm is under pressure. In a report over the weekend, it is believed the company will seek government assistance in terms of funding as well as cancel the dividend. Since the firm has already undergone extensive costing cutting recently, the group might struggle to become even leaner.         

Smith and Nephew issued a guidance in February, but now that has been pulled on the back of the Covid-19 situation. The medical services group is predicting an 8% fall in first-quarter revenue on an annual basis. It is taking action to cut costs, but it has a healthy liquidity position. The company confirmed that elective procedures have restarted in China, but activity is still way below the levels seen before the pandemic.   

Things are ticking along for Pennon Group as the full-year performance was in line with forecasts. The sale of Viridor to Planets UK Bidco Limited should be wrapped up by the summer, and the deal is worth £4.2 billion. Pennon said it would issue its new dividend policy in June, so shareholders could be in for a nice treat depending on how the pandemic plays out. In terms of liquidity, the firm is in a robust position as it has access to £1.6 billion in the form of cash and committed facilities.  

ING shares are in the red today after the Dutch bank took the advice of the ECB and suspended its dividend. The central bank recommended that all banks operating in the euro-area should suspend their dividends and share buyback schemes until at least October. The advice from the ECB is sound given the level of uncertainty hanging over the fragile eurozone banking system. Ralph Hamers, the CEO of ING, declared the bank is ‘well capitalised’.

US

The S&P 500 is slightly higher as the mood on Wall Street is cautiously optimistic. At the back end of last week President Trump approved the massive rescue package – it exceeded $2 trillion. Over the weekend the US government extended the social distancing guidelines until late April so traders are taking that as a sign that things are likely to get worse before they get better in terms of the health situation. The Dallas Fed manufacturing reading for March collapsed to -70 from 1.2 in February, and that underlines the huge economic impact of the pandemic.  

Johnson & Johnson are working on a vaccination for Covid-19 and the company said that human testing for the treatment should begin in September. Obviously, there is no guarantee the product will be effective, but for now traders are hopeful. The product might be available for emergency use by early 2021. J&J are creating more factory space to deal with the increased manufacturing output as it intends to produce 1 billion doses of the vaccine.  The stock is up 7%

United Technologies and Raytheon finally got regulatory approval for their merger. In order to get the green light, assets had to be sold-off and those disinvestment plans are in the pipeline. The merger should be completed later this week, and it the new group will be called Raytheon Technologies.    

FX

GBP/USD is in the red on the back of the rebound in the US dollar – which had a bad run last week. Conversely, the pound fared well recently. Over the weekend, Fitch downgraded their credit rating for the UK from AA to AA-, and the group kept their outlook on negative too. The agency is concerned about the UK national debt in light of the colossal rescue package. Fitch are fearful about the ‘deep’ near-term damage to the British economy caused by the coronavirus, as well as the lingering uncertainties posed by the post-Brexit UK-EU relationship. The move by Fitch acted as an excuse for traders to bank recent profits on the pound.

EUR/USD has also been hit by the move higher in the greenback. The preliminary reading of German CPI fell from 1.7% to 1.3% in March, undershooting the 1.4% consensus estimate. The large fall could reflect weaker commodity prices as well as demand.  

CMC CAD index is the worst performer of the FX indices today it is -0.8%, on account of the brutal decline in the oil market.

Commodities

Oil is under serious pressure again as there are major demand concerns, coupled with oversupply fears. Traders are taking the view that demand for the energy will fall substantially on account of the lockdowns. The oil market is also caught in the cross fire of the Saudi-Russian price war. Saudi Arabia are planning on boosting crude oil exports in May by 600,000 barrels per day (bpd), which would bring the total to 10.6 million bpd. WTI and Brent slumped to levels last seen in 2002.

Gold is currently in the red after spending much of the day in positive territory. The asset was in demand when stocks were lower earlier on, but now that sentiment has changed, dealers are cutting their exposure to the gold market. The rally in the dollar is hurting gold too seeing as the metal is priced in dollars.   

 

 

 

 

  


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