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News

Europe rallies while US is muted, Boohoo pops, gold rises

CMC Markets

Equity markets in Europe are set to finish the day in positive territory as traders are hoping that governments will continue to loosen their lockdown restrictions.

Europe

The reopening of economies has been a common theme across the markets in recent weeks, and it’s the reason why stocks have been bullish recently. Optimism in relation to a possible Covid-19 vaccine is circulating too. AstraZeneca said the results of the first vaccine trail completed with the University of Oxford should be available very soon. The growing standoff between the US and China hasn’t had a major impact on the European indices, but if dealers are mindful the situation could get ugly very quickly.    

EasyJet shares are up for a third day in a row as the company predicted that capacity in the fourth quarter of 2020 will be 30% of the capacity posted in the final quarter of last year. Admittedly, that is a very low forecast, but at least it is progress, because it wasn’t that long ago there was chatter the global airline sector could remain grounded for a prolonged period. The low cost carrier is keen to cut expenses and it will lower its headcount by up to 30%. Covid-19 has thrown a huge spanner in the works of the company in terms of operations plus expansion. By the end of 2021, its fleet will be roughly 302 aircraft, while the original forecast was for 353 aircraft.  

Cineworld shares have surged today after the company said it hopes to reopen its cinemas across all its regions in July. A tough new health and safety policy will be introduced as a way of protecting the staff as well as the customers. The group has been under pressure since the coronavirus kicked-in, as theatres were forced to close. Thanks to fresh funding the company will be able to get through the remainder of 2020 even in the unlikely event that cinemas don’t reopen in this calendar year. Cineworld have agreed to an extra $110 million in liquidity from a revolving credit facility. A waiver has been granted in relation to covenants on a credit facility for June 2020, and more headroom has been granted for the December 2020 covenant. Cineworld is due to access $25 million from a US government backed scheme, in addition to that, I might be able to access $45 million a from a UK assistance programme.   

Boohoo is still in fashion as the company acquired the remaining 34% stake in Pretty Little Things for £270 million – which will be funded through a combination of cash and shares. Boohoo bought a 66% shareholding in the group three years ago, so now it owns all the company. The expansion plans come not long after ShadowFall – a hedge fund – issued a report claiming the company gave a false impression of its cash flow position. Boohoo have denied the allegations, and traders are clearly on the side of the online clothing company as the stock has hit an all-time high.   

Daily Mail and General Trust posted a 22% fall in first half adjusted operating profit to £65 million. Revenue for the six month period was £690 million – which was zero growth when compared with the same period last year. In April, revenue dropped by 23%, and that highlights the chaos caused by the health crisis. Despite the poor performance last month, the firm nudged up the interim dividend by 3% to 7.5p. In terms of liquidity, the company is in good shape. The cash position is £361 million, while it has access to £380 million from a banking facility. In an effort to curtail its outgoings, the company cut costs by £8 million. It seems strange the group slightly raised its dividend while at the same time it’s lowering its costs.

Rolls Royce shares are in the red as it was reported that AKO Capital dumped almost 97 million in the company. The engineering giant have been under huge pressure due to the negative ripple out effect because of the travel bans – airlines have been deferring or scrapping their aircraft orders.

US

The mood on Wall Street is muted as the major indices are only showing small gains. US states are gradually reopening sections of their economies, which has boosted sentiment greatly in recent weeks, but it appears the rising tensions with China is acting as a cap to further gains. &nbsp   

The US economy contracted by 5% in the first quarter, and keep in mind the advanced reading showed a decline of only 4.8%. The jobless claims report was 2.12 million, bringing the total since the pandemic set in to over 40 million, but today’s level was the eight consecutive weekly fall, so it seems to be easing on that front. It is possible the reopening of economies has helped temper the jobless claims reports recently. Pending homes sales slumped by 21.8% in April, missing the -15% forecast.  

It is understood that American Airlines are looking to cut their management and administration staff headcount by 30%. The industry as a whole has been clobbered by the pandemic, so it is not surprising the airline is seeking to cut costs.

Abercrombie & Fitch shares are in the red after the group posted a larger-than-expected first quarter loss. In the three month period, the loss per share was $3.29, while the consensus estimate was for a loss of $1.39. Revenue dropped by 33% on an annual basis to $485.4 million, missing analysts’ forecasts. The reopening of economies is having a positive effect on the firm as roughly 50% of its global stores are open, so traders will be keen to see if that trend continues.

President Trump is expected to sign an executive order which will increase pressure on Twitter, Facebook and Google in relation to how news is shared. The Federal Trade Commission will be able to go after platforms that intentionally engage in ‘deceptive’ behaviour. New rules are likely to be drafted in relation to how social media companies remove content from their platforms. The move from Mr Trump comes a few days after Twitter fact-checked his tweets, so it appears the social media titan has angered the US leader.  

FX

A reversal of fortune for the US dollar index has pushed upGBP/USDplus EUR/USD. The greenback was up on the day earlier in the session, but it began to slide around midday, and the economic reports from the US added to the dollar’s woes.

Michael Saunders of the Bank of England, said the bank doesn’t have much wiggle room in terms of monetary policy, so he suggested it’s best to be not overly aggressive when it comes to tackling the health crisis. The commentary is sensible seeing as the markets have become too dependent on responses from central banks. Besides, the more the BoE gives in to the markets, the more dealers will rely on its actions.

The CMC EUR index is up 0.15% on the session even though divisions remain among EU members in relation to the €750 billion rescue plan – whereby €500 billion will be dished out as grants.

Commodities

WTI and Brent crude drifted lower this afternoon as there are some concerns over Russia’s commitment to keep the ‘historic’ productions cuts in place. Adding to the pressure on oil was yesterday’s API report which showed that US stockpiles jumped by 8.7 million barrels. Today’s EIA update showed that US oil stockpiles jumped by 7.92 million barrels, while the consensus estimate was for a decline of 2.17 million barrels.

Gold is higher on the session on due to a dip in the US dollar and concerns about the US-China situation. The inverse relationship between the greenback and the metal is working in the commodity’s favour today. Dealers who are worried about a potential spat between the two largest economies in the world are buying into gold.  

 


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