It was been a quiet trading session as the much-awaited EU summit to discuss the rescue fund began today.

Europe

It has been proposed that the bloc’s €750 billion rescue package will be divided up as follows, €500 billion in grants and €250 billion in loans. The Netherlands, and a few other nations are against the idea of such a big percentage of the fund being dished out as grants without any conditions. On the other side of the debate, countries like Italy, who have been hard hit by the health crisis, would prefer it if a larger portion of grants were issued. The eurozone was already lagging behind the UK and the US in terms of economic health before the pandemic stuck, so if action isn’t taken quickly, that is likely to add to its problems. The old north-south divide is alive and well in continental Europe. The region has a track record of limping for one crisis to another, but in the end, some sort of compromise is usually reached. The political wrangling is likely to be intense, and dealers are not optimistic about a quick resolution, hence why stocks are showing modest gains.        

Homeserve, the home improvements and emergency repairs business, reaffirmed its positive outlook. The lockdown prompted many people to carry out home improvements and repairs, as they were advised to spend more time at home. The result was that companies like Homeserve saw an increase in demand. Its membership business didn’t see any major drop-off during the pandemic, and its high levels of customer satisfaction should stand to the business. The stock hit a record high today, something not many FTSE 100 companies have boasted recently.

AstraZeneca shares are up on hopes in relation to developing a Covid-19 vaccine. The pharma company is working with the University of Oxford on a drug.

Rio Tinto posted a rise in iron ore shipments. The mega miner said that China’s demand for iron ore continues and that China’s copper concentrate market is still favourable. The recovery in Europe, Japan and the US, is a bit more subdued so in turn mineral demand from those regions hasn’t been as strong as that from China. Capital expenditure for 2021 and 2022 is expected to be roughly $7 billion. Keep in mind that capital expenditure in 2019 was only $5.5 billion, and the group is a little on the bullish side.

Renishaw shares hit the highest level since September 2018. The engineering group expects full year adjusted pre-tax profit to be roughly £50 million, and keep in mind the firm issued a guidance of £45-£55 million in May. Annual revenue is tipped to be around £510 million, and that was an improvement on the £490-£505 million forecast that was issued two months ago. The group incurred restructuring costs of £24 million.

British Airways said it will retire, with immediate effect its entire Boeing 747 jumbo jet fleet. The company is using the downturn in aviation travel as an opportunity to say bye to the ‘queen of the skies’. In the current climate, demand has dropped greatly, so BA may as well concentrate on more modern aircrafts such as the A370 and the A350. Sticking with the airline sector, Hong Kong’s Cathay Pacific announced it expects to post a $1.3 billion first half loss, including impairments. 

Daimler announced that the preliminary second-quarter loss was €1.68 billion, and that was better than the €2.1 billion loss that equity analysts had expected. The group’s liquidity and free cash flow was also better than expected. Mercedes-Benz deliveries in China hit a record level in the quarter, so it is clear that demand in that crucial market is robust. The update from Daimler helped BMW and Aston Martin too.    

BT Group played down the chatter that it is planning on selling its stake in Openreach.

Hollywood Bowl shares are up on the news that Bowling alleys, gyms and casinos can reopen next month. 

FirstGroup shares have jumped today as Prime Minister Johnson is encouraging people who are going back to work to take public transport. Today’s upward move must be put in the context of the 13 days in a row it fell. Go-Ahead Group is a little higher.   

US

The negative move in tech stocks has weighed on the S&P 500, just like it has done on a few occasions recently. Once again, the NASDAQ 100 is underperforming the broader market. Netflix is leading the big tech stocks lower on the back of disappointing earnings.

The preliminary reading of the University of Michigan consumer sentiment report for July slipped to 73.2, a three month low. Some states have paused the reopening of their economies on account of the health crisis, and that is likely to be the reason for the fall in consumer confidence.      

Netflix shares are in the red following the release of its second quarter numbers after the close of trading last night. EPS were $1.59, while the consensus estimate was $1.81. Revenue was $6.15 billion, and that narrowly topped the forecasts. The streaming service confirmed that it added 10.09 million paid subscribers from around the global, and that smashed analysts’ expectations of 8.26 million. It is likely the lockdowns contributed to the stellar subscriber numbers. The weak outlook for the third quarter in terms of new subscribers was a big factor in the stock’s decline. Netflix anticipates to add 2.5 million new subscribers globally, but the consensus estimate was 5.27 million. When you take into consideration the group added in excess of 15 new subscribers in the first quarter, and 10.09 million in the second, the low guidance for the third quarter seems as if the group wants to manage expectations. The revenue forecast is $6.33 billion, and traders were predicting $6.40 billion. The group confirmed that the bulk of its 2020 content schedule will not be disrupted by the health crisis. The shutting down of production will push back some content until the end of 2021.

Blackrock, the asset manager, confirmed that second quarter EPS was $7.85, and that topped the $6.99 forecast. Revenue for the three month period was $3.65 billion, up 4% on an annual basis. At the end of the quarter, assets under management (AuM) stood at $7.32 trillion, up 7% on the year. The investment group said that active equity strategies and iShares fixed income ETFs saw record inflows. 

Business Insider reported that Microsoft will cut roughly 1,000 jobs. There was talk the cuts will be carried out across various regions and sections of the business.         

FX

The US dollar index has given up some of yesterday’s gains. It was been a quiet session today. The mixed economic reports from the US didn’t have much of an impact on the greenback. There is a feeling that traders are playing the wait and see game in relation to the EU recovery fund, even though many people are not holding out much hope that any progress will be made today.

EUR/USD have been helped by the dip in the US dollar. Headline CPI in the eurozone in June ticked up to 0.3% from 0.1% in May. The core reading is deemed to be a better gauge of underlying demand as it removes commodity prices, and the reading slipped from 0.9% in May to 0.8% in June. The EU summit is being closely watched.

GBP/USD is in the red despite the fall in the dollar. Andrew Bailey, the head of the BoE, cautioned about an uneven recovery in the UK economy. The central banker pointed out that the hospitality and entertainment sectors are lagging behind car sales and construction. 

Commodities

The weakness in the US dollar has helped gold. The inverse relationship between the two markets has been one of the biggest influences on the metal recently. The commodity has traditionally attracted safe haven flows. Concerns that countries might have to pause the re-opening of their economies are playing on some traders’ minds. The strained US-China relations is also a little worrying, and for those reasons, gold continues to be popular.

WTI and Brent crude are a touch lower this afternoon as the negative sentiment from yesterday is still hanging around. During the week, OPEC+ announced plans to undo some of the very deep production cuts that were introduced in May,  9.7 million barrel per day (bpd). As of next month, the output cut will be lowered to a 7.7 million bpd cut.        

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