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News

Stocks tumble as risk-off sentiment prevails, Aveva jumps

CMC Markets

Stock markets are deep in the red as traders decided to book some profits from the gains that were racked up recently. 

Europe

Yesterday, the World Bank forecasted the global economy will contract by 5.2% in 2020, which would be the largest contraction since the second world war. In the past few weeks stocks have been broadly pushing higher as governments have been slowly unwinding their lockdown restrictions. Dealers shrugged off the terrible economic indicators that were released recently as they just focused on the reopening of economies, but now it seems they are facing up to the harsh reality of the situation. In London, it is a broad-based sell-off as the mining, oil, banking, airline, hospitality and house building sectors have all lost ground.     

Aveva shares have bucked the wider negative trend thanks to its solid full year figures. Profit before tax surged by 97% to £92 million. The group is experiencing some disruption caused by the downturn and it expects that will persist, especially in the first half of the new financial year. Costing cutting plans were revealed, which should save £50-£60 million. The firm said it has not furloughed any workers nor has it trimmed the headcount, in addition to that, it has no plans to use the government-backed financing programme. It is clear the company is in good health as it can operate like this in the current environment. The final dividend of 29p per share was maintained - these days’ firms that keep their cash pay-outs steady stand out for the right reasons.

British American Tobacco’s first half update was a little disappointing, hence the dip in the stock price. The firm lowered its full year revenue growth forecast from 3-5% to 1-3%, as the impact of the coronavirus crisis has hit a number of its markets, such as Bangladesh, Malaysia and Vietnam. The longer than expected lockdowns in countries like Argentina and Mexico have adversely impacted the group. Despite the damaged caused by Covid-19, the company is still committed to its dividend policy of 65% of its adjusted diluted EPS. BAT is making progress towards its target of £5 billion in new category revenue, but now they aim to achieve it in 2025, while the previous forecast was for 2023- 2024.  

Bellway’s sales took a hit on account of the lockdowns. Between August 2019 and May 2020, the company sold 6,721 homes, while in the same period one year ago it sold 7,674 houses, which equates to a drop of 12.4%. The group halted work at its construction sites and its sales centres on account of the pandemic. Things are getting back to normal as all remaining sales centres in England reopened on 1 June, but the company cautioned that sales are likely to be ‘constrained’ until all the lockdown restrictions have been eased. Expansion plans have been curtailed. In light of the current climate no guidance was issued.   

US

Equities are in the red after posting strong gains last night. US stocks have enjoyed a very bullish run recently but now dealers are content to lock in some profits. Airlines such as Delta, United Continental and American are all down over 5%. The cruise operators have been hit hard too. Norwegian Cruise Line Holdings is the worst of the bad bunch as it is down over 6%. It has been a big reversal of fortune for tourism stocks as they have performed very well recently. The JOLTS report showed there were 5.04 million job openings in April, which topped the 5 million forecast.  

Macy’s confirmed that sales at reopened stores have been better than expected. The group issued its preliminary first quarter results, and it expects the first quarter loss per share to be $2.03, and keep in mind the previous guidance was for a loss per share of over $2.80. In terms of revenue, it is tipped to be $3.02 billion – which would be a big fall from the $5.5 billion posted in the same period last year. Yesterday it was revealed the company raised $4.5 billion in financing as a means of keeping the business ticking along. The stock is now in the red but it was higher earlier.

Tiffany said that progress has been made in relation to their planned merger with LVMH. The jeweller posted disappointing first quarter results but there were some encouraging signs from the business in China, so that caught traders’ attention. Same store sales in the three month period dropped by 44%, while it swung to a loss per share of 53 cents. The company is viewing the rebound in activity in China as a blue print for its stores in the rest of the world.   

FX

The CMC AUD is down nearly 0.9% due to tensions between Australia and China. The political situation has been brewing for a while now, and yesterday the Chinese education ministry said that Chinese students might want to reconsider studying in Australia on account of the current political relationship between the two nations. China is a major export destination for Australian goods, hence the fall in the Aussie.

EUR/USD has been assisted by the weakness in the US dollar. Earlier in the session the greenback attracted some flight to quality flows, but that didn’t last long, and it has reverted to the bearish trend that it has been in for over one week. First quarter eurozone GDP was revised to -3.6% from -3.8%. GBP/USD is flat on the day despite the dip in the dollar.

Commodities

Gold have been pushed above the $1,700 mark as traders are seeking out the perceived safety of the metal. Historically, gold has outperformed when stocks slump as traders channel their funds into the metal as it is considered to be lower risk. On Friday, it dropped to its lowest level in over one month, but while it holds above the $1,700 mark, the outlook should remain positive.

Brent crude and WTI are lower for a second day in a row as a mixture of oversupply worries and demand concerns are weighing on the energy market. Yesterday it was revealed that Saudi Arabia, the UAE and Kuwait will not have their own voluntary production cuts, and that is still hanging over the commodity. The dire economic prediction from the World Bank has prompted demand woes too. The bearish move in oil ties in with the wider risk-off sentiment.  

 

 


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