Stocks are showing decent gains as we approach the close of business. 

Europe

The bullish sentiment is largely being fuelled by the belief the Trump administration is looking to set aside an extra $1 trillion for infrastructure spending. The scheme would see funds being poured into roads, rail and 5G. The chatter of the stimulus package comes less than one day after the Fed announced they will start purchasing individual corporate bonds, so today the bulls are firmly in control. The number of new Covid-19 cases as a result of economies being reopened is still an issue, but for now it has taken a back seat to the talk of Trump’s infrastructure plans.  

Ashtead shares briefly hit a record high today following a well-received set of full year numbers. The company proposed a final dividend of 33.5p, bringing the full year payout to 40.65p, which was fractionally higher on the year. The unaudited fourth quarter numbers showed that statutory profit before tax slumped by 52%, so it was a pleasant surprise the final dividend of 33.5p was maintained. In the current environment it has been common for companies to trim or even halt their dividends so the news from Ashtead makes it stand out for the right reasons. Fund managers that place a high importance on income are likely to seek out stocks like Ashtead on account of its dividend policy. Despite having a difficult time in the last few months of the year, the company posted a 9% increase in full year revenue and cash flow surged by 115% to £792 million – a record level.

Cineworld confirmed they will start to reopen some theatres later this month. Cinemas in central Europe will reopen in June, while cinemas in the UK and the US will reopen on 10 July. Traders welcomed the news as it is a sign the company is returning to normality. Looking ahead to future earnings updates, the group is likely to see higher costs as healthy and safety will be a priority for the firm. Ticket sales will probably be well below the pre-pandemic level as social distancing policies will be in place, so seats might be left empty.

Speaking of getting back to normal life, Greggs confirmed that 800 stores will be open for takeaway-only on Thursday, while the remainder of the outlets will be reopened in early July. The bakery group has used the pandemic as motivation to ramp up its click and collect, and delivery services. Initially, the services will be introduced to 19 stores this week, and the aim is to roll it out across other shops. The health crisis has changed consumer habits and it is encouraging to see that Greggs is adapting to the environment.    

US

Stocks are soaring in the US thanks to the talk that Mr Trump is looking to spend an extra $1 trillion on infrastructure. In the past few days there have been concerns about the number of new Covid-19 cases in various US states, so the sudden chatter of a huge increase in infrastructure spending acts as a nice distraction for the American public and traders. The US economy has been clobbered by the lockdown so a very loose fiscal policy should help cushion the blow of the health crisis.

The advance US retail sales report for May was 17.7%, a record. The reading smashed the 8.4% consensus estimate. The previous update was revised from -16.4% to -14.7%. The sharp rebound in activity is a clear sign that consumers are willing to spend. From a practical point of view, the re-opening of shops would have played a big role too. Stocks such as Gap, Kohl’s, Urban Outfitters and Macy’s are showing decent gains.

Exxon Mobil, Chevron and Occidental are up on the day due to a positive move in the underlying energy market.  

Jerome Powell, the head of the Fed, cautioned about the timing and the strength of the recovery. The central banker also said the corporate bond buying scheme would be tapered if the market function improved. Mr Powell was speaking before the Senate Banking Committee.

FX

The US dollar index is up 0.5% as the record retail sales numbers prompted buying.

GBP/USDinitially built on yesterday’s gains but it has since turned negative due to the bullish move in the US dollar. The UK claimant count for May was 528,900, while economists were expecting 400,000. Keep in mind the April reading was 1.03 million, it was revised up from 856,000. The adjusted claims reading was pushed up to 7.8% from 6.3%, and that metric is probably the best reflection of the jobless rate in the UK. The unemployment rate for April held steady at 3.9%, undershooting the 4.7% consensus estimate. It would seem the furlough scheme is distorting the unemployment rate, and it could be autumn before we have a more accurate picture of the labour market.

EUR/GBP been hit by the comments from Ursula von der Leyen, the head of the EU commission, who expressed a willingness to reach an agreement with the UK in relation to a post transition period deal.  

EUR/USD has been pushed into the red on account of the solid US retail sales reading – the figure sparked buying in the greenback. For much of the day the currency pair saw low volatility, but the US retail data changed that.  The final reading of German CPI for May was 0.5%, which was unchanged from the preliminary report. The April level was 0.8%, so it is clear there has been a big drop in demand, but that is partially down to weaker commodity prices too. The German ZEW economic sentiment survey for June was 63.4, and that was an improvement on the 51 posted in May.

Commodities

Gold is down today as traders are in risk-on mode, and the firmer US dollar is hurting the metal too. The commodity usually comes under some selling pressure when stocks are driving higher so that is playing out today. The rally in the US dollar is weighing on the commodity as the inverse relationship between the two markets has been strong recently. In the past few sessions, gold’s price has seen a series of lower highs, but while it holds above the $1,700 mark, the broader bullish trend is likely to stay intact.

WTI and Brent crude are showing decent gains today on the back of the International Energy Agency’s forecast – the body now predicts that in 2020 oil’s demand will be 91.7 million barrels per day (BPD). Keep in mind the forecast in May was for 91.2 million bpd. The revision to the outlook is relatively small but it is symbolic nonetheless. The wider risk-on sentiment in relation to the chatter that President Trump is going to launch a $1 trillion infrastructure package has added to the positive move, as that should assist demand.     

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