European equity markets were enjoying a rally earlier today on the back of hopes regarding a vaccine for the coronavirus, but the painful move lower in the US has weighed on indices on this side of the Atlantic. 

Europe

The Centre for Disease Control (CDC) said the US needs to be ready to deliver a Covid-19 vaccine around the country from early November. Dealers took that as a sign the CDC is hopeful that one of the many pharma companies that are trying to develop a drug to tackle the coronavirus could be successful in the few months. Dr Anthony Fauci, a disease specialist, cast doubt that a vaccine will be developed by the end of October, but said it’s not impossible, so that took some of the wind out of the bull’s sails. The sharp falls seen in the US have prompted selling in Europe.

Melroseshares are one of the best performers on the FTSE 100 as the company stated that trading during the summer has been at the upper-end of management’s expectations. The actual numbers for the first half were disappointing, but dealers took encouragement from the relatively upbeat commentary. The company is a turnaround group, whereby it acquires underperforming companies and whips them into shape. The pandemic impacted the company as it had asset writedowns of £179 million. In excess of 70% of the asset writedowns were attributed to the aerospace sector – it’s not surprising that asset values dropped in light of the health emergency. First half revenue and adjusted operating profit dropped by 25% and 89% respectively.

Capita Group has been in focus today on the back of a story that CVC, the private equity firm, is considering launching a takeover bid for the firm. The same newspaper article, claimed that another company might be interested in Capita because of its education business. A few hours into the European trading session, it was reported that CVC is not considering making a play for Capita, but the stock has held onto some of its gains. Year-to-date, the Capita share price has dropped more than 80%, so it is vulnerable in terms of a takeover target. The struggling outsourcing firm is now on the radar, and even if CVC is not keen on making a bid, others might be just because it is in the news. 

At the start of the month, Ocado’s and Marks & Spencer’s partnership began but the service has been suspended due to such high demand levels. No doubt, Ocado will adapt to the new set-up in the months ahead.   

Morgan Stanley downgraded Next to underweight from equal-weight.

US

The NASDAQ 100 so down over 5% as traders are turning their back on tech stocks – which have enjoyed an exceptionally bullish run lately. It appears that profit taking is the name of the game with regards to technology companies, and that has weighed on the S&P 500 and the Dow Jones too  

The labour department changed the way it measures the jobless claims report to give a smoother picture of the situation. The new methodology takes into account seasonal adjustments. The jobless reading fell to 881,000 – the lowest reading since the lockdown was imposed. The federal pandemic unemployment assistance programme, which includes people who do not qualify for the mainstream benefit and the self-employed, came in 759,482, up from 607,808 last week. The continued claims reading metric dropped to 13.25 million, undershooting the 14 million consensus estimate.

The US services data was mixed. The final reading of the services PMI for August was 55, a touch higher than the flash reading. The ISM non-manufacturing update slipped to 56.9 from 58.1 in July.       

Tesla shares are in the red. The stock closed lower in the past two sessions. It was reported that Baillie Gifford, an investment management group, trimmed their stake to below 5%, from 6.32%. The fund decided to cut its shareholding in the auto-maker because the recent bullish move inflated its exposure to the stock.  

Smartsheet shares are offside today in the wake of the earnings miss that was announced last night. The second quarter loss per share was 22 cents, while the consensus estimate was for a loss per share of 16 cents. Revenue jumped by 41% to $91.2 million and that topped the $86.6 million forecast. It is worth noting the stock briefly set an intra-day record high yesterday in advance of the figures, so traders had high hopes ahead of the announcement.

NVIDIA, Intel and Micron are all in the red on the back of the news that China will develop its own semiconductors. The Trump administration is applying pressure to the Chinese government by limiting the access that Chinese companies have to chips, so the Beijing administration is keen to become self-sufficient.

FX

EUR/USD and GBP/USD are in the red because of the push higher in the greenback. The dollar closed up on Tuesday and Wednesday and it is higher again today. Earlier in the week, EUR/USD hit a 28 month high, and the pound hit its highest level versus the dollar since December 2019, so a bit of a pullback is hardly a surprise. The services reports from Spain and Italy were concerning because they showed negative growth – it could be a sign the recovery is running out of steam. The UK services PMI metric for August was 58.8, which was a nice increase on the 56.5 posted in July, but it cooled from the flash reading of 60.1.

The US dollar is also gaining ground versus the Australian dollar and the Canadian dollar as weaker metal and commodity prices are holding back the ‘commodity currencies’.

Commodities

Gold is lower for the second day in a row as the recovery in the US dollar has impacted the metal. The inverse relationship with the greenback has been a common theme in gold’s moves recently. When you take into consideration how far gold has fallen in the past two sessions, it is relatively small when compared with other negative swings it has experienced in the past month.

WTI and Brent crude are in the red as there are demand concerns circulating. It is understood that a large number of refineries in the US are due to be closed for maintenance, and that is playing on traders’ minds. 


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