Even though we saw a strong session for US markets, that enthusiasm only partially carried over into the Asia session, with some modest gains in the face of a solid rebound in crude oil prices. The stabilisation in prices for oil producing countries offers a welcome respite in the face of recent concerns about the recent uncontrolled sell off.

The rebound in oil prices was helped on its way by some hawkish rhetoric from President Trump, who in the face of persistent Iranian harassment of US shipping, instructed the US Navy to sink on sight any Iranian boats that continue to do that.

The rebound in Asia markets has been tempered a little by some weak economic data from South Korea and Australia, with the latest snapshot of the South Korean economy showing a contraction of 1.4% in Q1, its worst number since 2008.

In further signs that the pandemic slowdown is really hurting the services sector, the latest flash PMI number from Australia showed another big slump in April, from March’s 38.5, to a record low of 19.6.

This gave us an early indication that however bad the March numbers were, April is going to be even worse, and that unless we see some relaxation of lockdown rules in May, these low activity readings could continue for some time to come. This in turn will exert further pressure on politicians to look at other ways of trying to keep their various economies ticking over, lest the lockdown causes more problems, that it is looking to resolve.

This morning’s April flash PMI’s for France and Germany merely serve to reinforce the conundrum and political risk, with Germany already looking at relaxing some of its more onerous lockdown measures.

The latest flash manufacturing and services numbers from France show that manufacturing slowed from 43.2 to 31.5, however services absolutely cratered to a new eye wateringly record low of 10.4. Even taking the view that these PMI numbers offer little in the way of meaningful economic insight, 10.4 is still a shockingly bad number, and a new global record for any country ever.  

In Germany the flash services PMI didn’t come in much better sliding to 15.9, also a record low, while manufacturing slowed from 45.4 to 34.4.

Markets here in Europe initially got off to a modestly positive start, however the really poor PMI numbers have taken some of the air out of the early positivity, with the early gains slipping away

On the earnings front, having seen US banks take large provisions last week, European banks are following suit, with Credit Suisse this morning, following in the footsteps of Italian lender UniCredit yesterday, by announcing that it was setting aside Q1 provisions of CHF568m, well above expectations. The company also set aside mark to market losses of $147m in fixed income. On the plus side the bank saw profits rise by 75%, helped by a 139% rise in fixed income revenue in its Asia division. The main trading operations also fared well, with a strong performance in its equities division.

This is the elephant in the room for European Banks, which the Swiss banks aside, are in a much weaker position than their US and UK counterparts, having not dealt sufficiently with their bad loans from the eurozone debt crisis, now having to contend with another huge economic hit coming their way.  

This is why today’s EU summit of European finance ministers is so important in the context of an EU €1trn corona recovery fund to help address the crisis unfolding across the bloc. If today’s flash PMIs can’t shake EU leaders out of their obstinacy it’s difficult to know what will.

The meeting is being touted as yet another last chance saloon opportunity for the EU to show that it can coalesce around a plan that shows solidarity with its weaker members, particularly Italy and Spain as the worst affected by the pandemic. The disagreements amongst other things revolve around the disbursements of loans or grants, with the more fiscally conservative members pushing back against the idea of grants without certain conditions attached.  The ECB has already announced a relaxation in its collateral rules saying it will now accept junk rated debt.  

During the financial crisis the luxury sector was by and large able to hold up quite well, in the face of the collapse in economic activity however like most other business, it has also fallen victim to the virus with French fashion house Hermes reporting a 6.5% drop in Q1 revenue to €1.51bn. In Q2 the company has said that Q2 sales are likely to be similarly affected, though on the plus side business in mainland China has seen sales rise sharply in the wake of the relaxation of the lockdown there.   

The performance of the Unilever share price in recent months has been fairly disappointing given its position as a purveyor of a wider range of consumer food and staples. At the end of last year, the company blamed challenging conditions in its South Asia markets, as well as West Africa for its underperformance.

This morning the company withdrew its guidance for 2020, with Q1 sales coming in flat, on turnover of €12.4bn. Today’s update was a mixed affair, with strong performances from sales in its personal care and home division outperforming, as sales of Domestos and Cif flew off the shelves, with sales rising 2.4%.

Food and refreshment acted as a drag, declining 1.7%, with ice cream seeing the largest volume decline, not altogether surprising given that we’re coming out of winter, so this is likely to be a temporary phenomenon.   

Across all of its regions the Asia region saw the biggest declines, led by China, while the Americas saw sales growth of 4.6%. This is unlikely to be repeated in Q2 with the lockdown likely to have a similar affect to the one that hit Asia sales in Q1. In welcome news for shareholder s the company said it would be paying the dividend of 36p a share.  

The effective shuttering of the housing market by the UK government has hit all sectors of the UK economy quite hard, bringing to a halt a host of construction projects, including house building. In March, Taylor Wimpey announced that they would be closing most of their sites, and today the company has set out a timetable for a phased restart of operations from 4th May, subject to government guidance.  

In today’s trading update the company said that the order book has continued to increase and while sales have been impacted, the total value of the order book at £2.67bn, while the company has a cash position of £836m, which includes the full drawdown of the RCF. Total completions in the 16 weeks to 19 April were 2,271, down from 2,644 from the same week a year ago.

The company didn’t offer any guidance but the growth in the order book would appear to show that demand for houses is still there, in spite of the lockdown.

Vistry Group, previously known as Bovis Homes, has also outlined plans to reopen some of its sites, from the 27th April, subject to government guidance

Meggitt, a key supplier to the aerospace and defence industry this morning announced that its latest Q1 numbers were ahead of expectations with a 5% rise in group revenue, largely driven by a 15% rise in defence.

The impact of Covid-19 has prompted a scaling back in its civil aerospace division and as such the company has taken actions to reduce cash and cost expenditure, including reducing salaries of senior board members by 20%. The company also declined to offer any guidance on the outlook.

In its latest production report Anglo American said it continued to see strong performance in Brazil, and its Chile operations, however output overall was down across the board compared to a year ago with the biggest drops being seen in copper, down 9%.

The company also said it would be mining significantly fewer diamonds this year than last year, due to the impact of Covid-19, with a 7% decline expected.

US markets look set to slip back after their gains from yesterday on the back of some really poor flash PMI numbers, from Asia and Europe.

The latest US weekly jobless claims are unlikely to offer any respite to the huge numbers of job losses seen in the last four weeks. The hope is that we’ve seen the high-water mark and it is to be hoped that the number of job losses in the US economy could well start to level off. Expectations are for another 4.5m claims. With an unemployment rate likely to surge well above 10% at next month’s payrolls report, US officials will be hoping that the claims numbers start to slow in the coming weeks.

The ability to adapt to a changing economic environment is a hallmark of all good companies and while Domino’s Pizza has lost the takeaway option from its business model it is still able to fulfil the delivery part of that operation, as more people order from home. Today’s Q1 numbers should see whether the home delivery option, with its limited menu options, has helped offset the exclusion of its takeaway model. There are likely to be higher costs from the increased number delivery journeys. Nonetheless the company should be able to ride out the current uncertainty much better than some of its peers given its already resilient business model.          

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