European markets have undergone a fairly subdued session today, with gains constrained by today’s decision by Chinese authorities to retaliate on the US decision to sanction its Hong Kong officials, by implementing sanctions of its own against US senators Marco Rubio and Ted Cruz amongst others. It could well be that the decision by Chinese authorities to limit their retaliation to the senior Republican senators, and not senior administration officials is limiting any damage to risk in the short term.
The decision by Hong Kong police to implement a fresh crackdown on the media by arresting a number of pro-democracy figures, is also concern given that one of the people arrested is independent media tycoon Jimmy Lai, whose Next Media company owns the second best-selling newspaper in the region, Apple Daily.
The signing by President Trump of a number of executive orders to mitigate the loss of the $600 enhanced unemployment benefit, appears to have introduced an element of comfort to markets who believe rightly, or wrongly that there will be a longer term agreement in the coming weeks. In short, the President’s executive actions appear to be being interpreted as a starting point for a possible deal in the coming days.
Travel stocks appear to be getting a lift despite concerns over rising infection rates in Europe, however this could well be the inevitable result of higher testing rates. The big test will come if fatality rates start to edge up again, and evidence of this could well start to manifest itself over the course of the next couple of weeks. These gains in the travel sector could also be vulnerable in the event more European countries get added to quarantine lists with speculation that France could well be next, later this week. IAG shares are amongst the bigger gainers despite the threat of industrial action over the airline’s actions with respect to its cabin crew.
Cineworld shares have jumped sharply after a US judge overturned the rules that dictated the release of how films are released in the US. Since the 1950’s Hollywood had a monopoly on how films could be produced, exhibited and distributed. These rules allowed the Hollywood studios to limit the number of films local cinemas could show in any geographic area. The ending of this rule now allows US cinemas much more flexibility on the types of films they can show, and where they show them.
Six years after its much-heralded IPO, AA shares have struggled to make any sort of headway sinking slowly lower from their 2015 highs, over concerns about the long-term sustainability of the business model, and its high levels of debt.
Reports that management were in talks with private equity firms with respect to a possible rescue saw the shares rise sharply on Friday, and they’ve moved higher again today, in an irony which is probably not lost on a lot of its beleaguered shareholders, who have seen the shares lose over 60% of their value since the highs in March last year.
It was these very same private equity firms all those years ago that saddled the business with the very same debt that is currently weighing the business down, and which is at the nub of the current problems. Shareholders will no doubt be hoping that any new solution is better than the last one, as investors look to front run a possible bid.
The pandemic certainly hasn’t helped with the AA’s problems, as subscription and insurance revenues have come under pressure, however cash flow is positive when the debt is stripped out which suggests the scope for a deal is probably there.
Transport provider Go Ahead Group shares have had a solid session after the weekend confirmation from the Department of Transport of another 8-week funding package of £218.4m for the provision of local bus services. Go Ahead also runs the Thameslink and Southern Rail network services by way its Govia subsidiary.
In more positive news for the travel industry Carnival confirmed that it plans to restart its European cruise ship operation AIDA on the 6th September, though in a minor setback, some other destinations will have to wait until 30th September due to difficulty obtaining relevant travel safeguards, from the various authorities.
US markets opened modestly higher today, with one eye on the ongoing political shenanigans on Capitol Hill, and the hope that the executive orders signed by the US President late on Friday are likely to be a starting point for further stimulus measures, as opposed to an end point.
MGM Resorts shares have jumped sharply on the open after InterActive Corp paid around $1bn to purchase a 12% stake in the business, which appears to be a bet that on-line gaming will become a much higher percentage of the brands core earnings. It’s certainly a risky move given that MGM also generates a lot of its revenue from its Las Vegas real estate, as well as operations in Macau, and these have taken a heavy hit from the coronavirus pandemic shutdowns.
Berkshire Hathaway shares are also higher after reporting results that beat expectations.
The latest Q2 numbers from Marriot International, SeaWorld and Royal Caribbean have laid bare the damage the last three months have done to the business of these US travel and leisure giants.
Marriott International who a few years ago also bought Starwood hotels, saw losses come in at $0.64c a share, its first loss in over 9 years as revenues collapsed. Revenue per room fell by 84% over the quarter, pulling total revenues down 72% to $1.46bn, and while occupancy rates are starting to rise again in the greater China region, they are still below the same levels they were a year ago.
SeaWorld Entertainments also saw revenues slide sharply as a result of the closure of its theme parks, as losses came in at -$1.68c a share, well above expectations of -$0.97c a share. Revenues fell to $18m from $406m in the same quarter last year, and while 9 of its 12 theme parks have reopened it is highly unlikely that the company will be able to get anywhere close to the over 6m visitors it normally sees on a year on year basis.
Cruise ship operator Royal Caribbean completed a hat-trick of woe for the travel and leisure sector, with a Q2 loss of -$6.13 a share loss, equating to a net loss of $1.6bn, compared to a profit of $2.25c a year ago. Revenues came in at a $175.6m, compared to $2.81bn for the same period. Bookings for 2021 are trending well, with 60% of them in the form of new bookings. The company currently has about $4.1bn in cash and liquidity, however the company is burning through cash at around $250m a month.
It’s been pretty much a non-event for currency markets today with little in the way of overall direction. The pound is slightly firmer ahead of what is likely to be a big data week, starting with tomorrow’s unemployment data, where we could well see a decline in the July claimant count rate as more businesses reopened during the month. Of course, the offset to that could well be some businesses calling time on some of their workers on a realisation that a return to normal is highly unlikely in the medium term.
The Canadian dollar is also doing well on the back of a firmer oil price.
Crude oil prices have also received a lift from reports that Iraq is looking to cut output further, while Saudi Aramco, painted an optimistic picture of oil demand despite a 73% plunge in profits in Q2.
Gold prices have stabilised a touch after the steep fall on Friday which resulted in a possible bearish key day reversal. They could well slip further in the short term, if the US dollar continues its recent rebound, and we get slight rebound in yields. Gold prices are also probably due a little bit of a pullback, after what has been a decent nine weeks of gains.