Equity markets have come under huge pressure today as there are fears about a second wave of Covid-19 infections. 

Europe

US states like Texas, California and Arizona reported there has been an increase in new infections, which is likely to be a result of the loosening of lockdown restrictions. In recent weeks global equities have enjoyed a rally on the back of the news that economies were reopening, but now dealers are worried the unwinding of the restrictions might trigger a fresh round of cases. As far as the markets are concerned it is a case of two steps forward and one step backwards.

Travel stocks like Carnival, easyJet and BA’s parent, IAG, are some of the biggest fallers on the FTSE 100. The possibility of another round of coronavirus cases has clobbered the beleaguered tourism industry. 

Ocado shares have sold-off on the back of the news it raised just over £1 billion for expansion plans. It collected £657 million by issuing new shares, and £350 million was raised from convertible bonds. These days’ companies are cutting back on capital expenditure, whereas Ocado are planning on taking things up a gear. The lockdowns prompted a surge in demand for Ocado’s services – online grocery shopping, and should there be a second wave of the coronavirus, its demand would jump again. 

TalkTalk shares are in the red even though the company posted respectable preliminary full year figures. The company swung to a statutory profit before tax of £121 million, from a loss of £5 million in the year previous. Efficiencies and cost cutting helped the bottom line. The company continues to grow its fibre customer base as net adds were 605,000, which was a 23% increase on an annual basis. The company cited its high levels of customer service for its low churn rate – it held steady at 1.2%. Average revenue per customer is £24.35, and that was a small dip from £24.98 last year. TalkTalk said it has the capabilities to cut costs further, and the final dividend was kept at 2.5p.

The discount store group, B&M European Value Retail, posted solid preliminary annual figures. Group revenue and profit before tax increased by 16.5% and 3.2% respectively. The final dividend will be 8.1p, a 6.6% increase on the year. Not many companies are upping their dividend in this environment, so B&M are standing out for the right reasons. Discount shops tend to perform well during economic downturns as consumers curtail their outgoings, so B&M’s prospects are positive in the medium-term. The retailer commented that costs have increased, something that has been common as stores typically spend more on health and safety procedures. The stock is in the red today, but last week it hit its highest level since January so it seems like a lot of the positive news was baked into the price.

Unilever plans to merge its Dutch division into its British operation, and the group will be headquartered in the UK. The firm plans to maintain its listings in London, Amsterdam and New York. In addition to that, the stock will remain a constituent of the FTSE 100 as well as the AEX – the Dutch equity benchmark. The plans need to be approved by shareholders, but seeing as the proposal should keep a lot of people happy, it stands a good chance of gaining investors approval.  

Just Eat Takeaway.com shares are lower again after it was announced yesterday they were in talks with Grubhub about a potential tie-up. The story has since progressed, and Just Eat Takeaway.com will acquire Grubhub for $7.3 billion, subject to shareholder approval. Should the deal go-ahead it would create the largest food delivery firm in the world outside of China. Just Eat Takeaway.com are European focused, while Grubhub are US focused, so the two firms complement each other. In the last couple of years Just Eat have been on the acquisition trail – it snapped up Takeaway.com and it bought Deliver Hero’s German operations, so some traders are cautious it might have too much on its plate already.

US

Stocks are lower today as health fears circulate. A number of states who have wound down some of their restrictions, are now seeing a jump in new cases of coronavirus. Traders are dumping stocks for fear that more states will reveal a rise in fresh Covid-19 cases too. The gloomy economic projection from the Fed yesterday is also weighing on sentiment. The US central bank believes the economy will contract by 6.5% this year. Like in Europe, travel stocks such as Royal Caribbean Cruises, Delta Air Lines and United Continental are enduring major losses.

The latest initial jobless claims reading fell from 1.89 million to 1.55 million, the reading has fallen for 10 weeks in a row. The continued claims reading slipped from 21.2 million to 20.9 million – so the jobless rate is still stubbornly high. 

Regeneron Pharmaceuticals said that it has begun human testing on a product that they are hoping will become a Covid-19 treatment. The group will know in approximately one month whether it has the potential to be successful or not. Eli Lilly are also in the race to develop a treatment for Covid-19. Two of its three antibody treatments are in the testing phase, and if they progress from here they might be authorised in September. The other product of theirs is still in the clinical trial stage. Traders will continue to follow the pharma stories, but they are painfully aware the sector is known for its ups and downs when trying to develop a new drug.

Tesla confirmed they have won approval from the Beijing administration to manufacture Model 3 vehicles with cobalt-free batteries in China. The stock is in the red today as it has been caught up in the wider bearish move. It would appear that some traders are locking in profits from yesterday when it topped $1,000 for the first time.   

Grubhub shares are up on the back of the planned merger with Just Eat Takeaway.com.

Amazon are in focus as the EU are planning on filing charges against the tech giant as they have reason to believe the company is using anticompetitive practices against third party sellers that operate on its site. Amazon reject the accusations.

Vroom shares are lower today as the buzz of the IPO yesterday has worn-off. 

FX

The US dollar index has rebounded from its three month low as traders are seeking out currencies that are considered to be lower risk. The greenback has acted as a safe-haven trade from time to time during the pandemic and that is playing out again. The dollar was coming from a low base so the positive move isn’t that impressive.

EUR/USD and GBP/USD have been hit by the upward move in the US dollar. The downward move in the GBP/USD is particularly big, but sterling rallied against the US dollar for 10 straight sessions, so a pullback is not surprising. It was a quiet day in terms of economic reports from Europe. Italian industrial production in April fell by 19% on a monthly basis, which was a considerable improvement on the -28.4% posted in March.

The CMC AUD index is down over 1.2% on account of rising political tensions between Australia and China. Weaker metal prices are a factor too as dealers are avoiding the ‘commodity currencies’. The CMC CAD index is in the red on account of lower energy prices.    

Commodities

Gold is a little higher this afternoon despite the firmer US dollar. The metal is benefitting from the flight to quality play as dealers are keen to extract cash from equities and plough it into lower risk assets. The upward move in gold is small when compared with the major declines in stocks, which might suggest that demand for the asset isn’t that high.

WTI and Brent crude have tumbled for a number of reasons. Fears of new infections, growth concerns and a jump in US oil stockpiles are all hurting the oil market. The possibility of a spike in Covid-19 cases is hanging over the energy, and so is the bleak growth forecasts from the World Bank, the OECD and the Fed. In the past 48 hours the API and EIA reports showed a surge in US inventories, and that might be a signal of low demand.   

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.