Stock markets have rebounded from yesterday’s horrendous declines as traders’ fears have faded.

Europe

A portion of the declines that were seen yesterday have been recouped, but stocks are still massively down since Wednesday’s close. The landscape hasn’t changed in the past 24 hours as there is still a possibility of a second wave of Covid-19 cases as countries reopen their economies. It is possible that yesterday’s move was just a knee-jerk reaction to the reports of rising cases, as traders have become accustomed to falling infection rates. Should it be the case that infection rates rise, but only at a modest level, dealers might hold their nerve, which could facilitate a further recovery.  

In London, it is a broad-based rally as oil, mining banking and retail stocks are higher. The airlines are up too even though IAG, easyJet and Ryanair are taking legal action against the UK government’s policy that entrants to the country must self-isolate for 14 days.       

Games Workshop said it now expects full year sales to be £270 million and profit before tax will be at least £85 million. Keep in mind last year’s annual revenue and pre-tax profit were £256 million and £81.2 million respectively. The group took advantage of various government assistance schemes since the lockdowns were imposed, but today it confirmed it will not be requiring additional aid. Its cash balance stands at £50 million and it has an overdraft facility of £25 million, so it has a healthy liquidity position. Games Workshop has 532 stores and 306 outlets have reopened, the remainder will be reopened in line with local guidelines. To add to the firm’s bullish update, stockbroking firm, Peel Hunt, upped its price target from 6,000p to 8,000p.

Biffa raised approximately £100 million from a share placing. Last week the group said it was considering raising capital as it wanted to be in a better position to take advantage of potential opportunities when things return to normal. The company was in a reasonably comfortable position in terms of financing before the funds were raised, so the placing has made it even more robust.   

Mitchells & Butlers has secured financing that should see them through the next 18 months. It struck a deal with its banks which will give it access to £250 million. The existing £150 million credit line was extended, and an extra £100 million was put in place – the financing is in place until the end of 2021. The pub group has committed not to return money to shareholders or repay debt between now and September 2021 as a part of the financing deal. Traders are taking the view the company can ride out the lockdown, hence why the stock is higher today.   

Informa said there has been a return to some activity in China, and it is optimistic that major brand events will take place next month. The subscriptions business has helped pick up the slack from the events division. The US is its largest market, but sadly it believes there is a slim chance of events taking place before September. A number of the events that were due to take place this year have been switched to digital, while others have been postponed until 2021. In regards to events that couldn’t take place this year, the demand from clients for rebates has been very low, which suggests they are happy to push things back until next year.

Pearson shares have jumped on the back of the news that Cevian Capital, an investment company has acquired a 5.4% stake in the publisher. Pearson’s CEO, John Fallon, will step down this year, but the group has yet to find a successor. Cevian believes a new management team will be able to realise the potential of the company’s assets. Pearson were already focusing on digital products and services before the pandemic, so its prospects are positive.  

Primark, which is owned by Associated British Foods, will reopen 153 stores in England on Monday as non-essential retail shops will be allowed to resume trading. The fashion house has no online division so the lockdown has been particularly painful for the group. Currys PC World, a subsidiary of Dixons Carphone, will reopen stores next week too.

US

Stocks have pulled back some of the ground that was lost yesterday. The bulls have moved in and picked up relatively cheap stocks, but that is not to say that we will not have another round of selling as the health risk to reopening the economy still remains. Airlines and cruise operators have seen a lot of volatility recently and today is no different. American Airlines, United Continental, Carnival Corp and Royal Caribbean Cruises are all showing decent gains, which is in stark contrast to the large losses they suffered yesterday.  

Lululemon shares are in the red as the first-quarter numbers disappointed. Store closures impacted sales badly as total revenue fell by 17% to $651.9 million, undershooting the $688.4 million forecast. Online sales surged by 125%, but that wasn’t enough to offset the disruption of store closures. Things are starting to go back to normal as 295 of the firm’s 489 shops have reopened. The retailer experienced higher costs in relation to distribution, so gross margin slipped from 53.9% to 51.3%. EPS were 22 cents, narrowly missing forecasts.  

Adobe reported their second quarter numbers last night. EPS jumped by over 33% to $2.45, and that topped the consensus estimate of $2.32. Revenue for the period increased by 14% to $3.13 billion, which slightly undershot forecasts. The surge in remote working recently helped the software company.     

FX

The US dollar index was initially down on the day as it had pulled back from yesterday’s major rally, but it turned around, and it is now up on the day. US stocks have given up some of their gains, and with that dealers are seeking out the perceived safety of the greenback.   

The positive move in the greenback has hurt EUR/USD. The final reading of the French CPI rate for May was 0.4%, and that was an increase on the 0.2% from the preliminary reading. The eurozone industrial production update for April was -17.1%, which was a fall from the -11.9% posted in March.

GBP/USD is down on the day due to the firmer dollar. The dreadful economic updates from the UK have put pressure on sterling too. In April, British GDP contracted by 19% on a monthly basis – a record decline. Services output fell by 19%, while construction output fell by just over 40%. The readings underline the economic suffering caused by the lockdown.

Commodities

Gold has had a reversal of fortune as the pullback in the greenback has driven up the metal. The inverse relationship between the two markets was playing out today, but gold is still higher despite the rebound in the dollar. Ordinarily, the commodity would have surged yesterday, but the jump in the US dollar pushed it lower. Copper, silver plus palladium are enjoying positive runs too.

WTI and Brent crude have rebounded too as dealers are less fearful today. A mixture of short covering and bargain hunting has helped the energy market. Oil had a big rally in May, and much of that was fuelled by the news that economies were reopening. The possibility of renewed health fears in relation to a loosening of restrictions is likely to be an issue for oil in the near-term.  

 

 


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