European stock markets are higher as traders are optimistic that lockdowns could be loosened. 

Europe

Some countries have reopened small parts of their respective economies, and there is a general feeling in the markets that we are likely to see more of this in the months ahead. Traders are also bullish on stocks due to a report that showed some progress had been made in relation to a possible treatment for Covid-19. It is understood that Gilead Science’s antiviral drug, Remdesivir, showed ‘positive data’ in a trial. There has been some back and forth in relation to the drug in question, but for now the sentiment seems to be positive. The FTSE 100 and the DAX 30 both hit levels last seen in early March.

Standard Chartered shares are in demand this afternoon as the bank expressed a relatively optimistic outlook in its first quarter update. The finance house has a large exposure to the Far East, and in relation to the Covid-19 crisis in China, the company has seen some ‘encouraging signs’ with regards the recovery, and that has set the tone for the stock price today. It wasn’t all good news in the report, as the bank’s credit impairments exploded to $962 million, from $78 million last year. In the three month period, underlying profit dipped to $1.22 billion, a fall of 12%. Net interest income fell by 4.2% to $1.84 billion, as the net interest margin rate ticked lower to 1 52%. The bank predicts that net interest income will tumble by a further $600 million in 2020, as all the various rate cuts seen since the health emergency will squeeze lending margins.

Barclays revealed their first quarter figures today too, and the medium term outlook was a little on the optimistic side. Given the massive economic uncertainty at the moment, the bank said it will be ‘difficult’ to achieve its target of a return on tangible equity above 9% this year, but it believes the target of 10% is still right over time. The fact the bank has kept its wider guidance has lifted confidence in the company. Like many of its peers, Barclays is expecting a jump in loan defaults – it has set aside £2.1 billion for bad debt. Quarterly pre-tax profit dropped by 38% to £923 million, while traders were expecting £1.27 billion. The chaos in the financial markets recently helped the group as its income from trading fixed income, currencies, and commodities jumped by 106%. The bank suspended its dividend last month in accordance with the PRA guidance, but it will review it and other capital return policies at the end of the year.

Next admitted they underestimated how severe the drop off in sales would be on account of the pandemic. The fashion house said the decline in sales was ‘faster and steeper’ than anticipated. In light of the revelation, the group is now factoring in a fall in sales in the first half as well as the second half. Its liquidity position is robust as it has arranged to waive covenants on a credit facility, and it can access the Covid Corporate Finance Facility – but it has no plans to tap into that source of funding. As a way of holding onto cash, the group has halted its dividend as well as the share buyback scheme. Next’s online operation is slowly but surely reopening – which sends out a positive image. The stock is now up 3%, after being in the red.    

The aviation industry has been crippled by the pandemic, with many airlines having to essentially halt all operations. International Consolidated Airlines Group (IAG) swung to a first quarter loss of €535 million, while revenue dropped by 13%. IAG is the owner of British Airways – who said as many as 12,000 jobs could be cut.    

Dixons Carphone shares have surged after the company confirmed that UK and Ireland online sales in the five weeks until late April soared by 166%. The group has seen a jump in demand for gaming technology plus home office equipment as a result of the lockdown. The company’s strong online performance has been soften the blow of the closure of its stores - the company is preparing for drive-through shops.

US

The mood on Wall Street is bullish thanks to the optimism surrounding a possible treatment for Covid-19. By-and-large, traders have reacted well to the various earnings reports, even though some of them were not too impressive. The Fed meeting this evening is in focus too. Traders will be paying close attention to the language used, and they will be listening out for the possibility of any extra stimulus measures.

The US economy contracted by 4.8% in the first quarter, according to the advance GDP reading. Economists were expecting -4%. The pending home sales report for March showed a 20.8% plunge.  These days it seems the markets are immune to dreadful economic reports.

Alphabet is the parent company of Google, and the stock is higher today, even though last night’s first quarter figures were mixed. EPS came in at $9.87, undershooting forecasts. Revenue grew by 13% to $41.16 billion, and that topped the $40.29 billion consensus estimate. In advance of the report, some traders were expecting to see a big fall in revenue growth as there were concerns that companies will pull their advertising from Google on account of the colossal economic uncertainty caused by the coronavirus. Revenue from the ‘Other’ division, which includes Pixel phones and cloud products rose by 22% on the year. In the months ahead, the Cloud business might pick up the slack, should Google’s advertising revenue taper off.

Gilead Sciences’ shares have rallied today on the back of a report there has been ‘positive data’ from one of its studies, where its antiviral drug, Remdesivir, is being tested as a possible treatment for Covid-19. Dealers are clearly excited by the update, but is worth noting, there can be a lot of ups and downs when trying to deliver a new recognised treatment, and it is a long way from that point. The company will post their first quarter numbers tomorrow.

Boeing revealed dreadful first quarter figures. The loss per share was $1.70, exceeding the $1.61 loss per share that equity analysts were predicting. Revenue dropped by 26% to $16.91 billion, and the consensus estimate was $17.3 billion. The outlook for the company is bleak as aircraft demand is likely to be low in the short-to-medium term. The group will cut back on production. In addition to that, it will reduce its headcount by 10%.  

FX

The US dollar continues to be weak and that has lifted GBP/USD and EUR/USD. The preliminary reading of Germany CPI for April was 0.8%, which was a big drop from the 1.3% posted in March. Economists were expecting 0.5%, so in that regard, the fall wasn’t too bad.  This week the greenback has been drifting lower as it is no longer attracting safe haven flows.

The CMC AUD index and the CMC CAD index are both up 0.3% today, thanks to the positive move in the metals as well as the oil market. The Australian dollar and the Canadian dollar are deemed to be risk-on currencies, which ties in with the slide in the greenback.

Commodities

The risk-on attitude of traders has prompted them to drop gold, hence why the metal is lower today. Gold’s appeal has diminished recently as some countries are easing their lockdown restrictions, and in turn dealers are unwinding their gold position so they can take on more risk by buying stocks.  

WTI and Brent crude have been jolted higher by two energy inventory reports in the past day. A short while ago, the EIA update showed that US oil stockpiles grew by 8.99 million barrels, but the consensus estimate was for an increase of more than 11 million barrels. Gasoline inventories fell by 3.66 million barrels, which caught traders by surprise as they were anticipating a rise of nearly 2.5 million barrels. Last night, the API inventory report also showed that US oil stockpiles expanded by less than expected.   

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