Equity benchmarks in Europe are largely showing modest losses as the pandemic and US political wrangling over the $1 trillion stimulus package are in focus. 

Europe

Lately there has been increased chatter of another wave of the coronavirus, and that is chipping away at sentiment. Governments have a far better handle on the pandemic now than they did in spring, but it seems as if economies can only be re-opened to a certain level before the infection rate becomes an issue again. It is a case of two steps forward, and one set backwards. Stocks haven’t tumbled too much as there are hopes the US government will publish a $1 trillion stimulus package in the next few days. As always with politics, a certain amount of arguing and negotiating can be expected, so talks between Republicans and Democrats are likely to drag on. There is a sense that a deal will be achieved in the end, but we will probably have to wait a while for it to be agreed upon. 

Games Workshop shares have set another record high thanks to the well-received annual figures. Revenue was £269.7 million, and pre-tax profit was £89.4 million. Last month the group issued a forecast that revenue would be £270 million, and that pre-tax profit would be at least £85 million. The final dividend was 30p. To add to the bullish mood, the stockbroking firm, Peel Hunt, upped their price target for the stock from 8,000p to 9,500p.

Reckitt Benckiser, producer of many well-known consumer brands such as Dettol, saw a surge in demand for cleaning products due to the health crisis. That helped first half group revenue increase by nearly 12% to £6.9 billion. It was revealed that demand for Dettol hand sanitiser jumped by 340%. For the group, adjusted EPS from operations was 166.5p, which was a 14.5% rise on the year. The interim dividend was 73p, unchanged on the year. Today, Reckitt said it expects to exceed the forecast that was issued in April. The share price has had a muted reaction to the positive update, but it is work noting the stock reached a three year high last week, so dealers were clearly anticipating a bullish update from the group.

Taylor Wimpey, Berkeley Group and Barratt Developments are showing decent gains on a report the government is considering extending the time frame of the help-to-buy scheme as construction work was impacted by the pandemic.   

The food and drink business has been one of the hardest hit by the pandemic, especially those that rely on footfall on the high street. Greggs falls into that category. The bakery group is probably best known for its sausage rolls registered a first half pre-tax loss of over £65 million, which was a big difference form the £36.7 million profit that was posted last year. The company took its time with regards the reopening of stores as they wanted to ensure that health and safety standards are high. Since stores have reopened, business has been good and the group said that its latest weekly sales were 72% of the 2019 level.

Yesterday Fresnillo shares hit their highest level in over 13 months on the back of the bullish run in silver and gold – the company is the largest silver miner in the world. The stock is lower today as the silver prices have cooled. Fresnillo posted respectable first half figures today, earnings rose by over 50% to almost $470 million.

Greencore shares are higher on the news it will sell its molasses business for roughly £15.6 million, and the proceeds will be used to beef up the balance sheet. Third quarter revenue dropped by 34%

US

Stocks are in the red as traders in the US are preparing themselves for a drawn-out political fight in relation to the stimulus package. If there was a view that another stimulus scheme wasn’t going to be reached, equities would probably be much lower, but the modest losses reflects the back and forth between the two political sides. 

McDonald’s second quarter numbers were not well-received. EPS was 66 cents, which undershot the 74 cents forecast. Revenue tumbled by 30% to $3.77 billion, but that was marginally ahead of the $3.68 billion consensus estimate. Global comparable restaurant sales dropped by 23.9%, and equity analysts were expecting a fall of 22.8%.  

3M shares are in the red today as the company posted second quarter earnings of $1.78, and that missed the $1.80 consensus estimate. The company saw a jump in demand for respirators and masks on account of the pandemic, but there was a drop in demand for industrial and office goods. The US is the largest market for the company and revenue in the unit fell by 12.7%. Asia-Pacific, is the second largest market for the firm, and sales fell by 8.5%. In the quarter, cost savings of $400 were achieved in a bid to conserve outgoings because of the health crisis.    

FX

The dollar index is a little higher on the session. Yesterday, it dropped to its lowest level in over two years before recovering a little. The Federal Reserve’s two day meeting begins today, and the interest rate announcement will be made tomorrow. Dealers are expecting the US central bank to pledge that rates will stay very low for the next few years, and that has put pressure on the greenback lately.

EUR/USD is in the red as traders have booked their profit from yesterday’s positive move – where it hit a level last seen in September 2018. The euro has been a big benefactor from the demise in the US dollar, which may well prove to be a problem for the eurozone as it tries to rebound from the pandemic. The euro area was in a weaker position than the US economy before the health crisis, so the euro’s strength could hold it back.

GBP/USD hit its highest level since early March as the pound is stronger across the board. The UK CBI realised sales report for July was 4, and that was a huge improvement on the -37 that was registered in June. The update was the highest reading since April 2019, and it points to large pent-up demand.   

Commodities

Gold eked out yet another record high before retreating. The rebound in the US dollar played a role in the metal’s move lower. The commodity is listed in dollars so the upward move in the currency makes it relatively more expensive to buy. It is worth noting, the aggressive slide in the dollar lately was one of the reasons why the metal rallied. Given gold’s terrific run in recent weeks, it’s hardly surprising that it is in the red this afternoon. Should the pullback be aggressive, it might retest $1,900. 

Brent crude and WTI are a little lower this afternoon as the wider mood in the markets is a touch downbeat. Oil is typically seen as a good barometer for global demand and at the momentum the outlook isn’t too optimistic. The increase in Covid-19 cases around the global has prompted some fears that countries will re-impose certain restrictions – this is already the case in Hong Kong – and that would not bode well for demand.     

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