Equity markets in Europe are sharply lower this afternoon as health concerns have taken centre stage again. 

Europe

The rising number cases in countries like the UK, Spain and Italy has chipped away at market confidence. The lack of a coordinated and robust response from the EU has left some traders worried too. Individual governments have revealed rescue plans recently, but without an overarching programme from the EU, there is a feeling there isn’t a huge amount of solidarity doing the rounds.

The FTSE 100 is underperforming against its eurozone equivalents as the surge in the pound has put extra pressure on the British equity benchmark – a firmer pound dents overseas revenue for constituents. The painful fall in oil has sent BP and Royal Dutch Shell shares down in excess of 9%. Weaker copper prices has hit mining firms. All the banks are in the red, and nearly all of the airlines are lower too. Supermarkets are largely higher, with Sainsbury’s outperforming – it’s up 0.9%.

Next shares have tumbled after the group has taken the decision to close its warehouse and online operation as employees feel they should be at home on account of the health crisis. This will be a blow to the firm as some companies have seen an uptick in their e-commerce units because of lockdowns. Not long ago the fashion house said it could withstand a 25% fall in annual revenue and still be in a comfortable position in terms of liquidity.  

SSE are in good shape but they cautioned about the economic uncertainty because of the health crisis. The group has £1.5 billion in credit facilities, and it still intends to pay out a dividend plus RPI inflation. The fact it still plans to make a cash payout to shareholders underlines their confidence – lately many companies are cancelling or postponing dividends.

Balfour Beatty are going down the cost cutting route in a bid to conserve cash. Outgoings will be reduced, the final dividend has been postponed and the directors will take a pay cut of 20%. The move by senior management shows the market they are taking the situation seriously. The firm didn’t issue a forecast but it said it is in a ‘strong’ financial position.

Royal Mail warned about ‘significant’ uncertainty ahead, so there will be no final dividend, and no guidance was issued. The goals that were previously set out will take longer to achieve too. Despite its cautious behaviour, the group is in a solid position from a liquidity point of view, and at the moment, that is what traders deem to be important.  

The house building sector has taken a knock in recent weeks as traders felt that demand for house might cool on account of the major uncertainty caused by the health emergency. The industry is likely to come under additional pressure now that banks will be offering fewer mortgage products on account of ‘mortgage repayment holidays’ being offered to some clients. The government has recommended that people don’t move property unless you are well into the process. It is likely the housing market will see a decline in activity in the months ahead, and that is putting pressure on stocks like Rightmove, Vistry, Redrow and Barratt Developments.

Rightmove issued an update today regarding the health crisis. No guidance was issued and the final dividend was cancelled. The property website suggested it would carefully consider the timing of the reinstatement of the share buyback programme – in light of the current climate the firm might not restart the scheme until late this year or perhaps 2021.

Meggitt reassured the market by confirming they are in a healthy ‘financial position’, but the group decided to cancel its final dividend of 11.95p.        

US

The mood on Wall Street is bearish but it is worth noting the US markets had a very good run the last few days. Law makers are still expected to pass the huge rescue package today – the deal is said to be worth in excess of $2 trillion. The growing rate of confirmed cases and deaths in the US is starting to creep into traders’ psyches. The bullish move we witnessed during the week was fuelled on the hope of a massive stimulus scheme, so once the package has been finalised, we might see the bears step up their action.  

The personal consumption data from the US was respectable as it held steady at 0.2%, meeting forecasts. The personal income reading was 0.6%, topping the 0.4% consensus estimate. The core PCE reading edged up to 1.8%.

Lululemon shares are in the red after the company warned that its saw a sharp fall in sales at the start of March on account of the pandemic. The group has had to close its stores in the US and Europe. The company posted well received EPS and revenue but that took a back seat to the most recent sales data.

Gap issued a classic Covid-19 related update whereby it scrapped its guidance and suspended its dividend.

FX

The CMC JPY index is up more than 1.3% as traders flock to assets that are deemed to be safe havens – the yen is a popular safe haven play.

USD/CAD was given a lift by the surprise move by the Bank of Canada to cut interest rates to 0.25% from 0.75%. An emergency rate cut of 0.5% has become common place in these testing times. The BoC also revealed plans to kick off a C$5 billion per week government bond buying scheme. The currency pair is now back below the pre-BoC announcement mark.

GBP/USD slipped in the wake of the news that Prime Minister Johnson has tested positive for Covid-19. It is believed that his symptoms are mild and Mr Johnson will remain at the helm. Yesterday the pound soared past the $1.2000 mark, and today that trend continues as the pound is bullish against the euro too.

Commodities

Brent crude has fallen to a level last seen in 2003, and WTI is close to the March lows, and should that level be taken out, it would be on par also with a price last seen in the early 2000s. In recent days there has been a lot of chatter that demand for oil is going to be hit severely in the months ahead, hence by dealers are dumping the energy. The bitter price-war between Saudi Arabia and Russia is hurting oil too.

Gold is lower today as the short-lived rebound in the US dollar acted as a good excuse to lock in profits. Earlier this week it was announced that three refineries in Switzerland were closed on account of lockdowns, and the spurred on buying in the metal as supply fears took hold. Despite the move lower today, the metal is on track to register its best weekly gain since 2008.     

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