EU Rescue Deal Reached, Equities Jump, Ted Baker Rises

A number of ‘frugal’ countries, most notably The Netherlands, were against the original plan of a €500 billion to €250 billion, grant to loan ratio, especially if the grants didn’t have any conditions. It was agreed upon that €390 billion will be issued as grants, and the remaining €360 billion will be dished out as loans. A system will be put in place to help ensure that grants will be used appropriately, but at the moment traders are just focused on the fact that an agreement was reached.

The FTSE 100 is above 6,300 and the DAX 30 hit its highest level in over four and a half months. The bullish mood this morning is also on account of the optimism that is circulating in relation to the progress being made on developing potential Covid-19 vaccines.

Ted Baker, like other companies that have a high street presence, have been hit hard by the lockdown, but the group revealed than online trading has been significantly higher than expected. For the 11 weeks until mid-July, total sales slumped by 50% but e-commerce sales rose by 35%. The online sales equated to 69% of total sales, which is a huge improvement on the 25% it made up last year. The fashion house stated that trading has been ahead of the base case scenario that was mapped out last month, and that it has made a good start on achieving its full year 2023 goals.

TalkTalk shares saw volatility this morning as the company confirmed it achieved a significant improvement in average revenue per user (ARPU) in June and July, which promoted the company to say its expects to see an improvement in APRU for the rest of the year.

The pandemic impacted the business and it expects the cost to be £15 million, as bad debts are likely to be an issue. Stripping out voice usage and the pandemic impact, there would have been no difference between fourth quarter and first quarter ARPU. The group saw a decline in net debt and it expects earnings to remain stable or possibly even grow a little. The stock initially traded higher but it is now in the red.

AO World revealed an employee incentive plan. The scheme is designed to encourage employers to deliver a better service to customers as well as loyalty to the group. Essentially, if the market capitalisation is driven beyond a certain level – 30% higher from Monday’s valuation at the close – 10% of the additional value will be distributed to the employees as a part of the scheme. The measure is likely to boost morale and in turn help the business.

GVC shares are in the red this morning as HMRC announced it is expanding its investigation into its former Turkish online business. The update from the gaming company was short, but it said the UK tax authority is examining any ‘potential corporate offending’ by an entity within the GVC group.

Bloomsbury’s Publishing revealed an 18% rise in 4 month revenue to the end of June. The lockdown helped digital sales surge by over 60%.

The continued weakness in the US dollar has helped GBP/USD. In June, UK public sector net borrowing was £34.8 billion, while economists were expecting £34.3 billion. The May reading was revised to £44.7 billion, from £54.5 billion.

IBM shares pushed higher in post-market trading last night following the release of well-received second quarter results. EPS was $2.18, topping the $2.07 forecast. On a yearly basis, revenue slipped by 5% to $18.12 billion, but that exceeded the $17.72 billion consensus estimate. Gross margin was 48%, up from 45.1% in the first quarter. The cloud and cognitive division registered a 3% rise in revenue to $5.75 billion, and that was fractionally ahead of analysts’ estimates.

Snap is in focus as it will post its second quarter numbers tonight. The first quarter loss was $306 million, which was a slight improvement on the $310 million loss that was posted one year previous. Traders will be keen to see if the loss narrows further. In the first three months, ARPU increased by 20%, while total revenue rose by 44%.

We are expecting the Dow Jones to open 220 points up at 26,900, and the S&P 500 is called up 24 points at 3,275.

By David Madden (Market Analyst at CMC Markets UK)

Stocks Mixed Over Lack of EU Rescue Deal

The original proposal was that €500 billion be distributed as grants, and the remaining €250 billion be issued as loans. A few northern European members, Austria, Denmark, The Netherlands and Sweden, were opposed to such a high proportion of grants being issued. The group have been called the ‘frugal four’, and they are keen for conditions to be attached to the grants.

Talks continued into the early hours of today, and it is understood that some of the ‘frugal’ group are pushing for €390 billion in grants and €360 billion in loans. It was reported that France are keen for €400 billion is grants – so that is where the division lies. Some progress has been made, which is encouraging, and negotiations are expected to carry on this afternoon.

The EU have a track record of a lot of in-house haggling, but in the end a deal is usually struck. Italy and Spain had high debt levels going into the pandemic, and given how hard their economies have been hit on account of the health crisis, their debt is poised to jump. The Mediterranean countries have a higher dependency on tourism, so they will feel the pain of higher debt levels more so than their northern counterparts.

Future, the media company, confirmed the integration of TI Media is going well. Future will repay furlough funds to the government. This not only adds to their public image, but it underlines their financial health. The group are in talks with employees about reducing the size of the workforce. The consensus estimate for the full year adjusted EBITDA is £86.3-£91 million, and firm said it expects earnings to be at the top end of the forecasts. Keep in mind that last year’s figure was £54.5 million.

AstraZeneca shares are higher again on continued optimism in relation to the drug that they are working on with the University of Oxford – it is tipped as a possible Covid-19 vaccine. The Lancet media journal is expected to publish trial data on the drug today.

In terms of index points, BP and Royal Dutch Shell are some of the biggest fallers on the FTSE 100. The underlying oil market is down over 1% as concerns the health crisis will impact demand has hit the energy. It was reported that Japan’s oil imports fell by 14.7% in June, on an annual basis.

According to Righmove, house prices in Great Britain have risen by 2.4% since March. The annual reading was 3.7% growth, its highest growth rate since late 2016. The property portal said that customer enquiries are up 75% when compared with last year. It is clear the reopening of the housing market has unleashed pent up demand. Most of the UK house builders are higher this morning and Berkeley Group and Taylor Wimpey are some of the biggest gainers.

It was reported that Marks and Spencer are to announce hundreds of job cuts this week. One newspaper claimed that Ted Baker will lower its headcount by 500.

British American Tobacco shares have sold off following the downgrade by Jefferies. The bank has lowered its rating to hold from buy, and the price target was cut to 3,000 from 4,800p.

The euro had gained ground against the US dollar and the pound as hopes are growing for the EU to agree on the terms of the €750 billion rescue fund. The talks will continue today. It wouldn’t be a European meeting if it didn’t drag on. The gap between the two sides is narrowing, so currency traders took that as a sign that we are nearing a deal. Last month, German PPI was -1.8% and that was an improvement in the -2.2% registered in May, but economists were expected -1.5%.

IBM will be in focus as it will post its second quarter results tonight. The first quarter update was not well received. Revenue slipped by 3.4% to $17.57 billion, undershooting the $17.62 billion forecast. EPS were $1.84, and that topped the $1.80 estimate. The cloud and cognitive unit saw a 5.5% rise in revenue to $5.24 billion, but that fell short of the $5.30 billion consensus estimate.

We are expecting the Dow Jones to open 51 points lower at 26,620, and the S&P 500 is called down 6 points at 3,218.

By David Madden (Market Analyst at CMC Markets UK)

EU Rescue Fund Remains in Focus, Markets Calm

Not much was achieved at the European meeting on Friday, and that wasn’t exactly a surprise. The €750 billion rescue package was at the centre of the talks, and the original proposal was that €500 billion would be allocated as grants, and that €250 billion be distributed as loans.

The Netherlands, Austria, Sweden and Denmark, expressed opposition to €500 billion being allocated as grants without conditions. There were concerns that funds wouldn’t be used to tackle the health crisis. The countries in question, have been dubbed the ‘frugal four’, and they also called into question the size of the proposed grants, as they would prefer to see a higher percentage of loans.

Talks continued over the weekend. In a bid to win over the ‘frugal four’ it was suggested that €400 billion be dished out as grants rather than €500 billion. It was reported The Netherlands and Austria are pushing for €390 billion in grants, and €360 billion in loans, but nothing has been agreed upon yet. Discussions will continue this afternoon.

It was put forward that a ‘super emergency break’ be included in the package, meaning that any one government could question the use of the funds that are being deployed. Such a move would help ensure that the cash was been used for its appropriate purpose. The sooner the bloc can agree on the terms of the rescue the better for everyone, especially countries like Spain and Italy, which were hard hit by the health crisis, and are rely heavily on tourism.

Stocks in Asia are mixed as the CSI 300 is showing solid gains, the Nikkei 225 is flat, while the Hang Seng has turned positive.

The US posted mixed data on Friday. Building permits for June were 1.24 million, and that was a small increase from the 1.22 million in the previous update. The housing starts reading was 1.18 million, which was a decent jump on the 1.01 million registered in May. The preliminary reading of the University of Michigan consumer sentiment was 73.2 in July, its lowest in three months. The heath situation deteriorated in recent weeks, and a number of states have paused the reopening of their economies. That is probably why consumer sentiment slipped.

The US dollar had a negative run last week and on Wednesday it fell to its lowest level in nearly one month. In the last few months the currency has been a popular flight to quality play, and conversely, when dealers have been in risk-on mode, it has typically suffered. Risk appetite has been a bigger factor in the dollar’s moves lately, than economic indicators.

Inflation in the eurozone ticked up in June to 0.3% from 0.1%, but the core reading cooled to 0.1% from 0.3%. The core reading is often deemed to be a better gauge of underlying demand as it removes commodity prices from the measurement. Last week, Christine Lagarde, the head of the ECB, said that inflation is expected to remain low.

In the first week in July, gold hit is highest level since September 2011, but last week it traded sideways. The commodity has a track record of being a safe haven trade, but since the greenback has also become a popular risk-off trade, that has reduced gold’s volatility, due to their inverse relation relationship.

Oil lost a little ground last week as it was announced that OPEC+ will increase their output as of next month. In May, the group cut output by 9.7 million barrels per day (bpd) as a way of propping up the energy market. The ‘historic’ cut helped oil hit a three month high in June. Last week, it was announced the body would ease up on the production cuts to a reduction of 7.7 million bpd as of next month.

The original agreement stipulated that production would be increase in August, and last week that was confirmed. It is worth nothing that oil hasn’t fallen that much from the three month high that was registered in June. By Friday’s close, WTI and Brent crude are only down 2.4% and 1.9% respectively from the June highs.

At 7am (UK time) German PPI will be posted and economists are expecting it to rise from -2.2% in May to -1.6% in June.

EUR/USD – since late June it has been in an uptrend, and if the positive move continues, 1.1495 should be on the radar. If it moves through that level, it could target 1.1570. A break below the 1.1168 area might pave the way for 1.1060, the 200-day moving average, to be targeted.

GBP/USD – has been trading sideways in the past few sessions. A move higher might run into resistance at 1.2698, the 200-day moving average. A move through that level should put 1.2813 on the radar. Should it move lower, it might find support at 1.2418, the 100 day moving average.

EUR/GBP – should the bullish move from late April continue, it could target 0.9239. A break below the 50-day moving average at 0.8983, could put the 0.8800 zone on the radar.

USD/JPY – has been drifting lower for over one month and support could come into play at 106.00. A rebound might run into resistance at 108.37, the 200-day moving average.

FTSE 100 is expected to open 8 points lower at 6,282

DAX 30 is expected to open 5 points higher at 12,924

CAC 40 is expected to open 6 points lower at 5,063

For a look at all of today’s economic events, check out our economic calendar
By David Madden (Market Analyst at CMC Markets UK)

Mixed China Data, ECB in Focus

On the home front, the University of Oxford and AstraZeneca are working together on a potential vaccine, and yesterday there was chatter that things are going in the right direction. Nothing was announced, but it was speculated that there could be confirmation about the progress in the near-term, and that verification might even come today. Equity benchmarks on both sides of the Atlantic enjoyed decent gains, and some hit multi-week highs, while others set multi-month highs.

The pharma angle gave stocks a new lease of life as lately market participants have been fixated on the rate of new cases and the fatality rate. In the past week, we have also heard positive news from Gilead Sciences, Pfizer and BioNTech. Gilead’s, Remdesivir, can reduce the death rate by 62%, so that is being touted as a possible treatment. While two of the four drugs that Pfizer and BioNTech are working on as potential vaccines have been fast-tracked for FDA approval.

The optimism surrounding the drug stories overshadowed the news that China’s relationship with the US and the UK has deteriorated this week. The British government has banned Huawei from its 5G network. President Trump passed legislation that has removed Hong Kong’s special status, so the territory will lose out in terms of tariffs. In addition to that, the US government might seek to target individuals or organisations that are seen to be helping the Chinese government to impose itself on Hong Kong.

The moves by the UK and the US stem from the decision by the Beijing administration to introduce a law that has chipped away at Hong Kong’s autonomy. Traders will be keeping an eye on the situation, but it seems that the Donald doesn’t want to spark a big economic conflict with China, probably because he has an election to fight in November and his approval ratings are not great.

The US economy continues to rebound. The industrial production rate for June increased by 5.4%, and that was a big improvement from the 1.4% that was posted in May. The New York Fed manufacturing index jumped to 17.2 in July, a 14 month high. The reports suggest there is a lot of pent up demand, and that is being released as the economy is reopening. That level of growth is likely to taper off as it is unsustainable.

Overnight, China released a number of economic reports. The yearly GDP reading for the second quarter was 3.2%, and the consensus estimate was 2.5%. In the first quarter, the GDP reading was -6.8%. Retail sales in June were -1.8%, undershooting the 0.3% forecast, while the previous reading was -2.8%. Industrial production last month showed growth of 4.8%, and economists were expecting 4.7%.

The May report was 4.4%. Fixed asset investment fell by 3.1%, and the forecast was -3.3%, keep in mind the last reading was -6.3%. Equity markets in Asia are in the red as there are concerns that spending and investment in China remains weak. Indices in Europe are expected to open a little lower.

The ECB meeting will be in focus today. The refinancing rate and the deposit rate are tipped to hold steady at 0.0% and -0.5% respectively. Last month, the pandemic emergency purchase programme (PEPP) was upped by €600 billion to €1.35 trillion, and the scheme was extended from the end of 2020 until June 2021. The inflation and growth forecasts were trimmed. It is worth noting that there has been an impressive rebound in certain economic indicators, such as services and manufacturing.

In late June, the bond purchases made as a part of the PEPP, cooled to its lowest level since the stimulus package was expanded. That could be a sign the ECB want to rein in the easing programme as the economy is recovering at a quicker rate than initially expected. Even if the central are happy with the economic rebound, they won’t want to spook the markets. They will probably play it safe and state they are monitoring the situation, and that they are ready to act, should they feel it is required. The rate decision will be revealed at 12.45pm (UK time) and the press conference will start at 1.30pm (UK time).

The US dollar index fell to its lowest level in over one month yesterday as dealers dropped the greenback in favour of riskier assets, such as stocks. The euro benefitted from the slide in the greenback and it hit its highest level since March.

Metals were a mixed bag yesterday. Gold had a muted move, but it held above the $1,800 mark. Silver, benefitted from the softer greenback and it hit a new 10 month high. On the other hand, copper lost over 1.5%. The red metal had a great run from late March until now, and it is possible that dealers squared up their books ahead of the Chinese data being reported.

The Fed’s Beige Book was posted last night and almost all of the 12 districts saw an increase in economic activity as lockdown restrictions were eased. The outlook remains very uncertain, especially in light of the fact that some states are undoing the reopening of their economies.

Oil rallied yesterday on the back of the EIA report, it showed that US oil stockpiles dropped by nearly 7.5 million barrels, while the consensus estimate was for a draw of 2.25 million barrels. Gasoline inventories fell by 3.14 million barrels, and that was a larger drop than expected. The readings paint a picture of a US economy that is consuming more energy, hence the positive move in WTI and Brent crude.

At 7am (UK time) the UK labour reports will be released. The claimants count for June is tipped to fall to 250,000 from 528,900 in May. The unemployment rate is anticipated to rise to 4.2% in May, up from 3.9% in April. The average earnings reading that excludes bonuses to expected to fall to 0.5% in May, from 1.7% in April.

French CPI is tipped to slip to 0.1% in June from 0.4% in May. The report will be posted at 7.45am (UK time).

Traders will be keeping an eye on the various economic reports from the US. Initial jobless claims are tipped to fall from 1.31 million to 1.25 million. The continuing claims reading is anticipated to be 17.6 million, and keep in mind the previous reading was 18.06 million. The retail sales report for May was 17.7%, a record reading, and the June level is tipped to cool to 5%. The retail sales report that strips auto-sales is expected to be 5%, and that would be a fall from the 12.4% registered in May. The Philly Fed manufacturing index is tipped to be 20. The reports will be posted at 1.30pm (UK time).

EUR/USD – since late June it has been in an uptrend, and a break above the 1.1400 zone might put 1.1495 on the radar. A break below the 1.1168 area might pave the way for 1.1053, the 200-day moving average, to be targeted.

GBP/USD – has been trading sideways in the past few sessions. A move higher might run into resistance at 1.2694, the 200-day moving average. A move through that level should put 1.2813 on the radar. Should it move lower, it might find support at 1.2424, the 100 day moving average.

EUR/GBP – Monday’s candle has the potential to be a bullish reversal, and if it moves higher it could target 0.9239. A break below the 50-day moving average at 0.8963, could put the 0.8800 zone on the radar.

USD/JPY – has been drifting lower for the last month and support could come into play at 106.00. A rebound might run into resistance at 108.37, the 200-day moving average.

FTSE 100 is expected to open 18 points lower at 6,274

DAX 30 is expected to open 67 points lower at 12,863

CAC 40 is expected to open 19 points lower at 5,089

By David Madden (Market Analyst at CMC Markets UK)

Mood Lifted on Vaccine Hopes, US-China Tensions Tick Up

There is a growing concern that certain parts of the world are going backwards in terms of reopening their economies. Hong Kong has reintroduced some restrictions, and the Australian state of Victoria has paused the reopening of its economy. In the US, Florida reclosed bars and restaurants. Philadelphia will ban large public events until February. European equity markets ended the day in the red. Some traders are concerned we have seen the high water mark as far as reopening the global economy is concerned.

In addition to the health concerns, markets also have to contend with rising tensions in regards to China. US Secretary of State, Mike Pompeo, said that China’s territorial claims in the South China Sea are ‘completely unlawful’. The Chinese government claimed the US are intentionally distorting the facts. Yesterday, the UK announced that it will ban Huawei from its 5G network.

The move won’t be immediate, but it will be required to be out of the equation by 2027. China’s international relations have been under strain recently since the introduction of the controversial national security law. It is not a huge surprise that the US and the UK are trying to apply some pressure to the Beijing administration in light of what is going on in relation to Hong Kong.

It is interesting that the Trump administration don’t want to take on China in terms of a trade spat. President Trump is content to keep phase one of the trade deal intact and pick smaller battles. The Donald is facing re-election in November so he probably won’t do anything too drastic between now and then.

Tensions between the US and China have risen again as President Trump signed legislation that will target individuals and companies that are helping the Chinese government tighten its grip on Hong Kong. Chinese government officials could be in the firing line. The US government will end its special status for Hong Kong, so that should apply pressure to the region in terms of tariffs. Stocks in China and Hong Kong are lower.

Moderna, a pharmaceutical company, announced that its potential Covid-19 vaccine delivered a robust immune response in an early stage human trial, and that has helped wider market sentiment. European indices are called higher.

Reporting season in the US kicked off yesterday as JPMorgan, Citigroup and Wells Fargo posted their latest figures. Collectively, the three banks set aside more than $27 billion for bad debt provisions. During the reporting season in April, the major banks set aside $25 billion for credit losses, and as far as this reporting season is concerned, we still have yet to hear from Goldman Sachs, Bank of America and Morgan Stanley. US stocks moved lower initially but the S&P 500 closed at the high of the day – it finished up 1.3%.

The latest UK GDP data showed the economy improved in May, but the rebound wasn’t as impressive as economists were expecting. On a monthly basis, the economy grew by 1.8%, and that was a big difference from the -20.5% registered in April, but the consensus estimate was for growth of 5.5%. The annual reading was even less impressive. The reading for May was -24%, and that was a tiny improvement on April’s -24.5%, and the forecast was -20.4%. The OBR issued a bleak outlook, as the body predicts the budget deficit will be 13-21% of GDP, and the yearly GDP forecast is -12.4%.

The UK CPI rate for June is tipped to fall to 0.4% from 0.5%, and the core reading is anticipated to hold steady at 1.2%. The reports will be posted at 7am (UK time).

The Italian CPI reading will be revealed at 9am (UK time) and economists are expecting it to fall from -0.3% to -0.4% in June.

The New York Fed manufacturing reading is tipped to be 10, and that would be a big improvement from the -0.2 that was posted in June. It is worth nothing the previous reading was the highest in four months. The update will be announced at 1.30pm (UK time).

At 2.15pm (UK time) the US industrial production report for June will be announced. The consensus estimate is 4.4%.

The Bank of Canada is expected to keep rates on hold at 0.25%, and the decision will be released at 3pm (UK time). The press conference will be held one hour later.

The EIA report will be posted at 3.30pm (UK time) and oil stockpiles are tipped to fall by 2.5 million barrels, while gasoline inventories are expected to rise by 1.3 million barrels.

The Beige Book will be announced at 7pm (UK time) and the update should provide us with a flavour of how the US economy is performing.

EUR/USD – since late June it has been in an uptrend, and a break above the 1.1400 zone might put 1.1495 on the radar. A break below the 1.1168 area might pave the way for 1.1051, the 200-day moving average, to be targeted.

GBP/USD – moved lower in the past two sessions and further declines could see it target 1.2427, the 100 day moving average. A move higher might run into resistance at 1.2693, the 200-day moving average. A move through that level should put 1.2813 on the radar.

EUR/GBP – Monday’s candle has the potential to be a bullish reversal, and if it moves higher it could target 0.9239. A break below the 50-day moving average at 0.8957, could put the 0.8800 zone on the radar.

USD/JPY – has been drifting lower for the last month and support could come into play at 106.00. A rebound might run into resistance at 108.37, the 200-day moving average.

FTSE 100 is expected to open 53 points higher at 6,232

DAX 30 is expected to open 150 points higher at 12,847

CAC 40 is expected to open 58 points higher at 5,065

For a look at all of today’s economic events, check out our economic calendar.

By David Madden (Market Analyst at CMC Markets UK)

Ocado Share Price Slips Despite Solid H1 Results

The opening of operations in Paris and Toronto boosted the overseas business. The expansion of the group came at a cost, and that was a contributing factor behind the 36% fall in EBITDA to £19.8 million. The firm is in better shape as it swung from a net debt position of £283.4 million to a cash balance of £196.2 million.

In terms of the guidance, there were no material changes to the previous forecast. The company anticipates a positive outlook for online groceries, but the guidance for retail revenue remains suspended on account of the unpredictable nature of the pandemic. Ocado is planning on capital expenditure of roughly £600 million this year, so it is clearly optimistic about its prospects.

Ocado issued a positive second quarter update in early May. The group said that retail revenue growth was 40.4%, and that was a big improvement on the 10.3% posted in the first quarter. The lockdown acted as a double victory for the firm, as grocery stores across the board experienced a jump in activity as some people decided to stockpile items. The fact the lockdown was driven by health concerns, encouraged some people to go down the route of online shopping. The update in May pushed the Ocado share price higher and it went to a record high in June.

Ocado have not been without there issues, for example, the fire at their operation in Andover was a big factor in the widening of last year’s loss. The full year pre-tax loss was £214.5 million, and that was a big increase on the £44 million loss from the previous year. The fire wasn’t blamed for everything, as the loss at its international solutions unit increased too. The group revenue increased by 9.9% to £1.75 billion as it popularity increased at home and abroad.

The group muddled along for years as it tried to compete with the online division of well-established players such as Tesco. Like any relatively new business, it took its time working on its craft. Ocado tried unsuccessfully to strike up international partnerships for years, but then it relatively quick succession, it brokered deals in France, Canada, the US, Australia and more recently Japan.

It seems to me the more partners Ocado racked up, the easier it was for them to strike up further partnerships. The firm has marked itself out as a specialist in online food delivery, and given the enormous shift to e-commerce in the past few months, Ocado should be in a good position to sign-up more partners.

The Ocado share price is up 60% year-to-date, which has driven up its market capitalisation to more than £15 billion. Keep in the collective market capitalisation of Sainsbury’s, Morrisons and Marks and Spencer is roughly £11 billion. The lofty valuation of Ocado has prompted a few raised eyebrows, so the company has high expectations to live up to.

The stock has been in an uptrend since mid-March and while it holds above its 50-day moving average at 2,001p, the bullish trend should continue.

For a look at all of today’s economic events, check out our economic calendar.

By David Madden (Market Analyst at CMC Markets UK)

Europe Set for Negative Start, US-China Tensions Rise, US Tech Giants Fell

Pfizer and BioNTech are working on four drugs that they are hoping will go on to be coronavirus vaccines, and the FDA put two of the four on a fast track for approval. At the back end of last week, BioNTech said they could receive approval as early as Christmas, but in light of yesterday’s news, it might even be sooner.

European equities closed higher and US stocks got off to a good start on the back of the news. The FDA update carried on nicely from Friday’s news that Remdesivir, the antiviral drug produced by Gilead Sciences, can reduce the fatality rate in coronavirus sufferers by 62%. In the past couple of trading sessions there was a feeling that big pharma stands a chance of taking on the virus.

That being said, many countries are still battling against Covid-19. There were in excess of 60,000 new cases yesterday in the US, while there were 312 deaths. The infection rate remains high, but at least the fatality rate is relatively low. The situation in Florida is getting worse as the growth in the number of new cases was 4.7%, while the seven day average was 4.4%.

Robert Kaplan, the head of the Federal Reserve Bank of Dallas, issued a mixed statement yesterday. The central banker expressed concerns in relation to the infection rate, and he said the Fed might be required to do more should assistance be needed. Mr Kaplan also said the Fed might row back on its stimulus packages should the economy improve.

The NASDAQ 100 set a fresh record high yesterday, a few hours into the trading session. The bullish run didn’t last long as the tech focused index finished down more than 2%, and the S&P 500 closed down nearly 1%. The usual suspects – Apple, Amazon, Netflix, Facebook and Google’s parent, Alphabet – all set all-time highs, but finished lower.

US earnings season will kick-off today as the latest quarterly numbers from JPMorgan, Wells Fargo and Citigroup will be posted. In April, the major banks collectively put aside more than $25 billion for provision for bad debts, the view is that the rate of loan defaults will surge on account of the pandemic.

Last month, the Fed carried out a stress test, and in one extreme scenario, the central bank cautioned that total bad debts provisions could be $700 billion. Dividends will be in focus as the Fed said that pay-outs must be capped at current rates, and there has been speculation that dividends could be cut in an effort to conserve cash.

It was a mixed day for commodities yesterday. The slide in the US dollar helped gold. Silver, copper and palladium were also helped by the move in the greenback, and the overall feel-good factor helped the industrial metals too. Oil on the other hand lost ground as there was talk that OPEC+ are looking to taper off the steep production cuts that were introduced in May. Last month WTI and Brent crude hit three month highs, but they failed to retest those levels since, because of the pausing of the reopening of economies.

Overnight, China posted its trade data for June. Imports were 2.7%, and economists were expecting -10%, keep in mind the May reading was -16.7%. Exports came in at 0.5%, and the consensus estimate was -1.5%, while the May reading was -3.3%. The rebound in imports and exports points to a turnaround in the global economy. It is possible the positive exports reading was largely because of Western government’s demand for personal protective equipment.

Rising tensions between the US and China in relation to Beijing’s territorial claims in the South China Sea has weighed on sentiment. Hong Kong is reintroducing tougher restrictions and a rise in coronavirus cases in Victoria, Australia, has impacted the mood too. Stocks in Asia are in the red, and European markets are called lower.

At 7am (UK time) the UK will release a number of economic reports. The GDP reading for May on an annual basis is tipped to be -20.4% and that would be an improvement on the -24.5% posted in April. The monthly reading is expected to be 5.5%, and keep in mind the April reading was -20.4%. UK industrial output, manufacturing output and construction output are expected to be 6%, 8% and 14.5% respectively.

At the same time, the final reading of German CPI for June will be posted and the consensus estimate is 0.8%.

The German ZEW economic sentiment report for July is tipped to be 60, and that would be a dip from the 63.4 recorded in June. It will be released at 10am (UK time).

Eurozone industrial production will be announced at 10am (UK time) and the May reading on a monthly basis is tipped to be 15%, and that would be a huge rebound from the -17.1% posted in April.

US headline CPI is expected to rebound to 0.6% from 0.1% in May. The core reading is tipped to be 1.1% and that would be a fall from the 1.2% that was posted in May.

EUR/USD – since late June it has been in an uptrend, and a break above the 1.1400 zone might put 1.1495 on the radar. A break below the 1.1168 area might pave the way for 1.1049, the 200-day moving average, to be targeted.

GBP/USD – has been in an uptrend recently, and should the positive move continue, it might target 1.2690, the 200-day moving average. A move through that level should put 1.2813 on the radar. Thursday’s candle has the potential to be a gravestone doji, and a move lower could see it target 1.2432, the 100 day moving average. A drop below 1.2251, might bring 1.2076 into play.

EUR/GBP – yesterday’s daily candle has the potential to be a bullish reversal, and if it moves higher it could see it target 0.9067 or 0.9239. A break below the 50-day moving average at 0.8949, could put the 0.8800 zone on the radar.

USD/JPY – has been drifting lower for the last month and support could come into play at 106.00. A rebound might run into resistance at 108.37, the 200-day moving average.

FTSE 100 is expected to open 78 points lower at 6,098

DAX 30 is expected to open 239 points lower at 12,560

CAC 40 is expected to open 91 points lower at 4,965

By David Madden (Market Analyst at CMC Markets UK) 

Healthy Start for Europe, G4S Jumps

Even though the pandemic is getting worse, stocks in Asia drove higher and the feel-good factor spilled over to this part of the world. At the back end of last week, it was reported that Gilead Sciences’, Remdesivir – a potential treatment for Covid-19 – reduced the fatality rate in patients by 62%.

BioNTech, who is working with Pfizer on a potential vaccine for the coronavirus, said they are hoping to get approval for the drug by Christmas. It seems that optimism surrounding the drug stories has overshadowed the fact that yesterday was another record day in terms of new cases, according to the WHO.

Germany’s economy minister stated the country is over the worst of the economic pain and that there should be positive growth from the third quarter onwards. The update wasn’t exactly new news as there has been a significant rebound in services, manufacturing, and industrial production in recent months, but it’s nice to hear a positive message all the same.

The bullish mood has helped the tourism sector as Ryanair, easyJet, International Consolidated Airlines, Carnival and InterContinental Hotel Group are all higher. The dip in the oil market has helped the stocks. These companies have endured a rough ride recently as tourism is very sensitive to the perceptions about the health crisis.

G4S shares are in demand this morning as the company predicts that first half earnings will significantly top analysts’ forecasts. The interim results will be brought forward to the week commencing the 20th July. The consensus estimate is for profit before interest, tax and amortisation of £159 million. Keep in mind the metric last year was £212 million.

Big Yellow Group, the self-storage facility company, acquired a site in Wapping, London, for £18.6 million. The site is adjacent to one of its existing facilities, and the group is hoping to have a 125,000 square foot self-storage facility and 150 residential units across both sites. The fact the company is expanding its operation amid a pandemic, suggests that it is confident in its outlook.

The aviation industry has been rocked by the health crisis, but that hasn’t stopped Wizz Air from expanding its business. Today, the low-cost airline confirmed that it will launch its Abu Dhabi operation on 1 October. The company recommenced flights in May, and in recent months it was quick to point out that it has one of the strongest balance sheets in the sector.

Oil is in the red as there is talk that Saudi Arabia are keen to lift output. In April, OPEC+ announced that it would be cutting production by 9.7 million barrels per day in the facing of falling demand. The record production cuts, combined with the reopening of economies helped oil hit a three month high last month. Now we are seeing some weakness in the energy market as there is chatter about reversing the steep production cuts.

Volatility in the currency market has been low. EUR/USD has been given a little lift by the continued weakness in the greenback. Sterling is lower versus the euro and the pound.

Gold, silver and copper have extended their gains from last week. The softer US dollar has assisted the metals.

Pepsi Co will be in focus today as it will release its second quarter figures. The first quarter update was well-received. EPS were $1.07, and that topped the $1.03 forecast. Revenue increased by 7.7% to $13.88 billion, while equity analysts were expecting $13.21 billion. The group benefited from people bulk buying soft drinks and snacks on the run-up to the lockdowns so that helped revenue. Not surprisingly, the guidance was pulled. The closure of bars, restaurants, cinemas, theatres, and sporting venues is likely to impact the second quarter numbers.

We are expecting the Dow Jones to open 107 points higher at 26,182, and the S&P 500 is called up 10 points at 3,195.

For a look at all of today’s economic events, check out our economic calendar.

By David Madden (Market Analyst at CMC Markets UK)

Traders in Risk-on Mode as Stocks and Metals Rise

The drug in question has been tipped as a potential treatment for the coronavirus for several months, and the findings from the latest study boosted market sentiment. BioNTech and Pfizer are working on a potential vaccine for Covid-19, and at the back end of last week, BioNTech announced that it is possible that its drug might receive approval from the FDA by December.

The pandemic will continue to dominate the headlines. On Sunday, the WHO said that another record was set for the number of daily cases. For the fourth day in a row, the US registered over 60,000 new cases. Countries like India and Mexico are seeing a rise in the number of new cases too.

Overnight, stock markets in Asia pushed higher despite the deteriorating health situation. This week US earnings season will kick-off and tomorrow big banks such as JPMorgan, Wells Fargo and Citigroup will reveal their numbers.

The latest jobs data from Canada showed that the economy is turning around. The unemployment rate fell from 13.7% in May to 12.3% in June, which was encouraging to see, but it is worth noting that economists were expecting a reading of 12%. The employment change reading showed that 952,900 jobs were added last month, and that comfortably topped the 700,000 consensus estimate. The May update showed that nearly 290,000 jobs were created, so last month’s report was a big improvement.

The finer details of the update showed that 488,100 full-time jobs were added, while 464,800 part-time jobs were created. Average wages fell to 6.8% from 9.96%, and that was likely down to the return of lower-income earners back to the jobs market. Typically, a decrease in earnings would be seen as negative as workers who earn less typically spend less, but in these circumstances, it could be seen as positive as it is a sign that more people are going back to work.

Demand at the factory level in the US continues to be weak as the headline PPI remained at -0.8% in June, while economists were expecting it to rebound to -0.2%. The core reading, which strips out commodity prices, fell to 0.1% from 0.3%. The core report is considered to be a better reflection of underlying demand. PPI is often a front-runner for CPI, because if demand at the factory level is falling, it will probably fall at the consumer level too. The headline CPI rate is currently 0.1%, and in the months ahead it is likely to remain under pressure.

The US dollar index fell on Friday as traders turned their backs on the currency as they were in risk-on mode. In the past few months, the greenback has acted as a flight-to-quality play, and it typically slides when dealers are keen to take on more risk.

Metals performed well last week. Gold hit a level last seen in September 2011, silver hit a 10-month high, and copper reached a level last seen in April 2019. The weaker greenback was a factor in the positive run in the metals market. Copper is often seen as a good proxy for demand, so its rally suggests the traders are banking on a continuation in the rebound of the global economy.

Oil gained ground on Friday as the overall sense of optimism boosted the energy market. The Baker Hughes report showed the number of active oil rigs in the US fell by four to 181, its lowest since 2009. The rig count is falling but it is falling at a slower pace. The number of active gasoline rigs in the US fell by one to 75, matching its lowest level on record. One report over the weekend claimed that Saudi Arabia are keen to raise production and retreat from the record production cuts that were announced in April.

Andrew Bailey, the governor of the Bank of England, will take part in a webinar at 4.30pm (UK time).

EUR/USD

Since early May it has been in an uptrend, but it has been trading sideways recently. If it holds above the 1.1168 zone, it could target 1.1495. A break below the 1.1168 area might pave the way for 1.1049, the 200-day moving average, to be targeted.

GBP/USD

Since late June it has been in an uptrend, and should the positive move continue, it might target 1.2690, the 200-day moving average. A move through that level should put 1.2813 on the radar. Thursday’s candle has the potential to be a gravestone doji, and a move lower could see it target 1.2436, the 100 day moving average. A drop below 1.2251, might bring 1.2076 into play.

EUR/GBP

Last Tuesday’s daily candle was a bearish reversal, and if it moves lower it might find support at 0.8881, the 100-day moving average. A retaking of 0.9067 could see it target 0.9239.

USD/JPY

The USD/JPY been drifting lower for the last month and support could come into play at 106.00. A rebound might run into resistance at 108.37, the 200-day moving average.

FTSE 100 is expected to open 55 points higher at 6,150

DAX 30 is expected to open 151 points higher at 12,784

CAC 40 is expected to open 55 points higher at 5,025

By David Madden (Market Analyst at CMC Markets UK)   

Health Concerns Hammer Stocks, Dollar Jumps 

Europe

Traders in Europe are paying close attention to developments in the US. According to Reuters, 42 of the 50 states in the US registered an increase in the number of new cases yesterday, so that is influencing sentiment on this side of the Atlantic.

Grafton Group shares are in demand today as the company confirmed that trading in June was better than expected. The group, like its peers, remarked on the pent up demand as a result of the lockdown. Revenue last month increased by 11.4% to £247.8 million. It is worth noting the company made an acquisition last July, so the numbers were a bit misleading, but nonetheless, demand was robust.

The pandemic had a negative impact on the business as revenue for the six month period fell by over 19% to £1.06 billion, but traders are focused on the rebound in activity since things have gone back to normal. Grafton is in a strong position in terms of liquidity as it has access to £658 million, so there are no concerns on that front. No guidance was issued on account of the uncertainty. In April, it was announced that directors would be taking a pay cut, and because of the strong trading last month, the cut has been reversed, and that is a sign the company is over the worst of the crisis.

Rolls Royce shares had a volatile start to the trading session on the back of its first half update. The engineering giant has been hit hard by the pandemic as air travel has been severely impacted, so in turn demand for aircraft engines has tumbled. In May, the group announced plans to cut up to 9,000 jobs from its workforce of 52,000. At the back end of last week, the group said it was exploring its options in regards to strengthening its balance sheet, and traders took that as a sign that even more restructuring plans would be mapped out.

This morning, the group said it cut costs in the first half by £300 million, and it will cut costs by another £700 million by the end of the year. Its pro-forma liquidity position stands at £8.1 billion. The stock initially traded higher as dealers were encouraged by the cost cutting plans, but the positive move didn’t last long. Traders latched onto the fact that cash outflow was £3 billion in the first half and that an additional £1 billion would flow out in the rest of the year. Looking further down the track, the company expects cash consumption to significantly reduce. Rolls Royce is targeting free cash flow of at least £750 million in 2022.

Vistry, the housebuilder, saw a doff-off in completions in the first half as the lockdown disrupted activity, but demand is respectable and the order book is healthy. In terms of forward sales, including partnerships, the group has £1.26 billion worth of work in the pipeline, and that has taken the light off the underperformance in the first half.

Revenue from house building in the six month period was £344 million, and that was a big fall from the £854 million registered last year. The fall in revenue from the partnership’s unit was less severe. Efficiencies from integration are improving at a faster rate than expected. The net debt position was cut to £355 million from £476 million in May. The sizeable fall in debt should take some pressure off the company in terms of interest rate payments.

Persimmon issued an update covering the first six months of the year. It was similar to that from Vistry, whereby there was a fall in the number of houses it completed, but the order book is robust. Revenue in the six month period was £1.19 billion, which was a 32% fall on the year. Average selling prices ticked by 3.7% to £225,050. The order book is up 15% on the year at £1.86 billion. The economic climate is uncertain, but the housebuilder confirmed that cancellations are at historic lows.

The housebuilding sector as a whole is higher today on the back of yesterday’s announcement from Rishi Sunak, the Chancellor of the Exchequer, the stamp duty threshold will be lifted from £125,000 to £500,000.

SAP shares hit a record high as its preliminary second quarter results were well-received. Revenue increased by 2% to €7.64 billion. Operating profit rose by 7% to €1.96 billion. The group confirmed that full-year earnings will be €8.1-€8.7 billion.

Boohoo shares are back in fashion after a torrid few days. The group is still carrying out an investigation into its UK supply chain. There has been an allegation that the group was connected to a supplier who paid its staff below the minimum wage, something Boohoo has denied.

US

The S&P 500 is showing a loss of over 1% as the health crisis is hanging over sentiment on Wall Street. Lately, the tech sector has been booming, but even the NASDAQ 100 is 0.35% lower this afternoon.

The initial jobless claims reading fell from 1.41 million to 1.31 million. It has dropped for 14 weeks in a row. The continuing claims update came in at 18.06 million, and that was a fall from the previous reading of 18.76 million. It is clear that the labour market in the US is improving, but the pace of progress is slow. Several US states have either paused or reversed the reopening of their economies so that is likely to hold back the jobs market.

Walgreens Boots Alliance shares are in the red as the third quarter EPS was 83 cents, while equity analysts were expecting $1.19. Revenue was slightly higher on the year as it was $34.63 billion, fractionally topping forecasts. Same store sales in the US increased by 3%, and traders were anticipating a decline of 0.2%. The UK business suffered amid the lockdown even though stores remained open as it was deemed an essential service. The group is cutting costs on account of the economic environment. Boots will cut 4,000 jobs.

Carnival Corp shares are up today as it was announced that its Germany subsidiary, AIDA, will recommence three cruises from August. The business has to restart from somewhere, and even if that is a low point, but at least it projects a positive message.

The recent rally in Chinese stocks has spilled over to the US, as stocks like NetEaseJD.Com and Alibaba have listings in New York too. Recently, the China Securities Journal published a bullish article about domestic equities, and the positive sentiment is still doing the rounds.

Bed Bad & Beyond shares have tumbled on the back of the latest quarterly update. Revenue fell by 49% to $1.31 billion, undershooting the $1.39 billion forecast. The loss per share narrowed to $1.96, but equity analysts were predicting a loss per share of $1.22. The company plans to close roughly a fifth of its namesake stores over the next two years.

It was reported that Wells Fargo is planning on cutting jobs, the group will post its latest quarterly numbers next week.

FX

The US dollar index fell to its lowest level in nearly one month in this session, but it has since rebounded as traders are in risk-off mode. EUR/USD is down today on account of the move in the greenback. The latest trade data from Germany showed that imports and exports in May increased by 3.5% and 9% respectively. Both readings showed huge rebounds on the month, but the levels missed economists’ forecasts of 12% and 13.8% respectively.

GBP/USD was higher earlier, but the turnaround in the greenback hit the currency pair. Political uncertainty exists in regards to the UK’s post-transition period relationship with the EU, but the pound has been gaining ground this week. According to a report from the FX options market, there has been an increase in the number of bullish trades on GBP/USD.

Commodities

Gold is just about above the $1,800 mark. Yesterday the metal hit its highest level since September 2011 and it remains in its uptrend. The commodity has been popular lately as it attracted safe-haven flows but that isn’t the case today on account of the upward move in the dollar. European and most US equity markets haven’t retested their June highs as health fears continue to circulate, and that has helped gold in the past month.

Oil prices are in the red today as fears that US demand will dwindle on account of the pandemic has impacted the energy market. The EIA report yesterday showed that gasoline inventories in the US fell by over 4.8 million barrels, a sign that people were driving more. The finer details showed that areas where lockdown restrictions were reintroduced, saw a fall in consumption, so traders are mindful of that today.

For a look at all of today’s economic events, check out our economic calendar.

By David Madden (Market Analyst at CMC Markets UK)

Europe Set to Rebound, US Jobs Data on Radar

Traders in this part of the world continue to monitor the situation in the US, where the majority of states continue to see the number of new Covid-19 cases increase. As of yesterday, the number of confirmed cases in the US exceeded 3 million. On Tuesday, the WHO cautioned there could be an increase in the fatality rate as there has been a rise in infections, but the death rate so far has lagged.

US-China tensions were doing the rounds yesterday. The decision by the Chinese government to introduce the national security law in regards to Hong Kong has sparked criticism from many countries around the world as it chips away at the principal of ‘one country two systems’.

Yesterday there was speculation the US government would hit back at Beijing by potentially undermining the Hong Kong Dollar (HKD) peg. It wasn’t that long ago that President Trump reiterated that the US-China trade deal was intact, so going after the HKD might be a useful tactic. The US leader might be hesitant about taking a very tough stance against the Beijing administration given that he’s not doing well in the polls and the Presidential election is in November.

The mini-budget from Rishi Sunak, the UK’s Chancellor of the Exchequer, made big political headlines yesterday, but it didn’t have a significant impact on the markets. Mr Sunak revealed £30 billion worth of schemes that are aimed at providing assistance to the UK economy. The furlough scheme will come to an end in October and £9 billion will be allocated to job retention. There will be a temporary cut to VAT for the tourism and hospitality sector.

In addition to that, there have been incentives offered for dining out too – the combined stimulus is worth £4.5 billion. Providing help to the battered hospitality sector is a sensible move, but people in the UK might be cautious about socialising given what has happened in places like Melbourne and the US in relation to a rise in new cases. As expected, the stamp duty threshold was upped to £500,000 from £125,000. One could argue that this tactic might not be as fruitful as the government are hoping as some people are likely to be cautious about purchasing a property on account of the huge economic uncertainty.

The health crisis in the US remained in focus. Oklahoma, California and Tennessee all posted a record daily rise in the number of new cases. States like Florida and Arizona continue to see higher case numbers too. Despite the pandemic, US equity benchmarks closed higher as the tech sector continued its bullish run. Amazon, Apple and Netflix all set new record highs. Raphael Bostic, the head of the Federal Reserve of Atlanta, said that some of the fiscal support programmes might need to be extended.

Overnight, China posted its CPI data for June and the level was 2.5%, while economists were expecting 2.5%. Keep in mind the May reading was 2.4%. The PPI metric was -3%, and the consensus estimate was -3.2%, while the previous update was -3.7%. The improvement in the PPI rate might bring about higher CPI in the months ahead. Stocks in Asia are up on the session, and European markets are being called higher too.

The US dollar came under pressure yesterday. It was a quiet day in terms of economic data so the move wasn’t influenced by economic indicators. Lately the greenback has been a popular safe haven for traders, it was showing losses during the day when European indices were in the red, and when US stocks were flickering between positive and negative territory.

Gold was given a hand by the slide in the US dollar. The metal topped $1,800, and it was the first time since September 2011 that it traded above that mark. The commodity is still popular with certain traders as there are concerns that a second wave of Covid-19 could be on the cards. The metal’s positive move is being partly fuelled by the belief that central banks will maintain very loose monetary policy. Some people are afraid an inflation rise is in the pipeline, so that is influencing gold too.

At 7am (UK time) Germany will post its trade data for May, and the imports and exports are tipped to be 12% and 13.8% respectively.

The US initial jobless claims is anticipated to fall from 1.42 million to 1.37 million. The metric has fallen for the past 13 weeks in a row. The continuing claims reading is tipped to drop from 19.29 million to 18.95 million. Keep in mind that last week’s reading actually ticked up. The reports will be posted at 1.30pm (UK time).

A eurogroup video conference meeting will be held today and traders will be listening out for any potential progress being made in relation to the region’s recovery fund.

EUR/USD – since early May it has been in an uptrend, but it has been trading sideways recently. If it holds above the 1.1168 zone, it could target 1.1495. A break below the 1.1168 area might pave the way for 1.1042, the 200 day moving average, to be targeted.

GBP/USD – since late June it has been in an uptrend, and should the positive move continue, it might target 1.2687, the 200-day moving average. A move through that level should put 1.2812 on the radar. A drop below 1.2251, might bring 1.2076 into play.

EUR/GBP – Tuesday’s daily candle has the potential to be a bearish reversal, and if it moves lower it might find support at 0.8935, the 50-day moving average. A retaking of 0.9067 could see it target 0.9239.

USD/JPY – has been drifting lower for the last month and support could come into play at 106.00. A rebound might run into resistance at 108.37, the 200-day moving average.

FTSE 100 is expected to open 34 points higher at 6,190

DAX 30 is expected to open 153 points higher at 12,647

CAC 40 is expected to open 46 points higher at 5,027

For a look at all of today’s economic events, check out our economic calendar.

By David Madden (Market Analyst at CMC Markets UK)

Health Woes Linger, Rishi Sunak in Focus

The bullish move that was seen at the start of the week was triggered by an editorial in the China Securities Journal. The article talked about the possibility of a bullish run in Chinese equities, and in turn there was a surge in domestic stocks, and that paved the way for the upward move in world stock markets on Monday.

One could argue the rally was essentially manufactured by the article in question, hence why the feel good factor didn’t last too long. By the close of play yesterday, the FTSE 100, DAX 30 and the CAC 40 had handed back nearly all the gains that were made on Monday. Yesterday’s move was more about a correction rather than a sharp change in outlook.

US indices got off to a less volatile start yesterday. The tech sector continued to be popular and it helped the S&P 500 turn positive in early trading. Stocks such as Apple, Facebook, Amazon and Netflix all posted record highs, and in turn the NASDAQ 100 set a new all-time high. The bullish move ran out of steam and the S&P 500 and the NASDAQ 100 closed down 1.08% and 0.75% respectively. Raphael Bostic, the head of the Atlanta Federal Reserve Bank cautioned the rebound in the US economy might be levelling off.

Equity markets in Asia are mixed as stocks in China and Hong Kong are showing modest gains, while the Nikkei 225 is in the red. The WHO said it wouldn’t be surprised if the death rate started to rise as Covid-19 cases increased in June.

Rishi Sunak, the Chancellor of the Exchequer, will be in focus today as his is tipped to unveil various schemes that are aimed at aiding the economy. Some of the programmes have already been announced. Last week, Prime Minister Johnson, revealed a £5 billion infrastructure plan.

There is talk about more funds being allocated to schools too. It is believed that £3 billion will be earmarked for a green investment package – which will include energy efficiency schemes and the creation of jobs. The house building sector could be in for a boost as there is talk the stamp duty threshold will be raised from £125,000 to £500,000. Changes might be introduced to the furlough scheme and VAT might be alerted too.

The European Commission (EC) downgraded its outlook for the EU and the eurozone. The group revised its forecasts because its felt European countries reopened their economies at a slower rate than initially predicted. The EC is now forecasting the EU and the currency area will contract by 8.3% and 8.7% respectively in 2020, while the previous forecasts were -7.4% and -7.7%.

The scale of the revision isn’t huge, but a negative revision is important from a psychological point of view. The news from the EC echoed that of the IMF, who in June predicted the global economy would shrink by 4.9% this year, while their previous prediction was -3%. The IMF are very bearish on the eurozone as they feel it will contract by 10.2% in 2020.

The CMC GBP index rallied yesterday as the UK’s and the EU’s chief negotiators had dinner at Downing Street. Britain’s David Frost entertained Michel Barnier and no doubt the conversation included topics such as trade and fishing rights. Sterling pushed higher during the day as dealers took the view that some progress should be made. The UK and the EU have both expressed a desire to strike a deal, but differences remain.

At 3.30pm (UK time) the EIA report will be posted and US oil stockpiles are tipped to fall by 3.2 million barrels, while gasoline inventories are anticipated to remain unchanged.

EUR/USD – since early May it has been in an uptrend, but it has been trading sideways recently. If it holds above the 1.1168 zone, it could target 1.1495. A break below the 1.1168 area might pave the way for 1.1042, the 200 day moving average, to be targeted.

GBP/USD – since late June it has been in an uptrend, and should the positive move continue, it might target 1.2686, the 200-day moving average. A move through that level should put 1.2812 on the radar. A drop below 1.2251, might bring 1.2076 into play.

EUR/GBP – yesterday’s daily candle has the potential to be a bearish reversal, and if it moves lower it might find support at 0.8930, the 50-day moving average. A retaking of 0.9067 could see it target 0.9239.

USD/JPY – has been drifting lower for the last month and support could come into play at 106.00. A rebound might run into resistance at 108.38, the 200-day moving average.

FTSE 100 is expected to open 34 points lower at 6,155

DAX 30 is expected to open 46 points lower at 12,570

CAC 40 is expected to open 25 points lower at 5,018

For a look at all of today’s economic events, check out our economic calendar.

By David Madden (Market Analyst at CMC Markets UK)

Europe and US Join in on China’s Rally, Home Builders Jump

Europe

A securities journal that is controlled by the Chinese government ran a front-page editorial which mapped out the prospect of a bullish run in stocks, and that triggered buying in domestic equities. The CSI 300, rallied over 5%, and it closed at its highest level since 2015. The positive mood from China influenced dealers in this part of the world, even though the health crisis is still a major worry. On Saturday, the WHO claimed there was over 212,000 new cases of Covid-19, a new daily record. The Beijing authorities can’t talk up their own market forever, so it is likely in the next few days, the pandemic will be back in centre-stage as far as traders are concerned.

The UK house builders are enjoying a positive move today as it is believed the government will change the stamp duty rules in a bid to encourage activity in the sector. Under the existing scheme, if you purchase a property in England or Northern Ireland worth more than £125,000, you incur stamp duty, unless you are a first time buyer. There is talk the threshold could be raised to £500,000, and it might last for up to six months. There is talk that Rishi Sunak, the Chancellor of the Exchequer, will reveal the plans on Wednesday, with the intention of it being a part of the Autumn budget. Redrow, Vistry and Persimmon shares are in demand today.

Sticking with the house builders topic, Barratt Developments, confirmed that annual completions tumbled by over 29% to 12,604. Average selling prices were a touch higher at £280,000. The lockdown was blamed for the drop-off, but it in starting the new financial year with ‘cautious optimism’, as the full year order book stands at 14,326, up from 11,419 last year. The company has over £300 million in cash, it has access to £700 million in a credit facility, and it is eligible to tap into the Covid Corporate Financing Facility, so it is well positioned to work its way through its busy order book.

Rolls Royce shares clawed back some of the ground it lost on Friday when it announced it was reviewing potential options to strengthen its balance sheet. The engineering giant was already in a weakened position in advance of the pandemic on account of the issues in relation to the Trent 1000 engines.

The company supplies aircraft engines so the travel bans and the bleak outlook for the aviation industry compounded the firm’s problems. At its update in April, the group confirmed its liquidity position stood at £6.7 billion – which was a result of two rounds of financing. The group is clearly comfortable in terms of liquidity, and it seems like some restructuring is in the pipeline. Keep in mind, it warned about cutting 9,000 jobs in May.

DS Smith shares are in the red today as Jefferies downgraded the stock to hold from buy, and cut the price target to 310p from 350p. Last week the company posted a 5% increase in adjusted pre-tax profit, but it cautioned it was too soon to return to paying dividends.

Antonio Horta-Osorio, the CEO of Lloyds, will step down in June 2021. Mr Horta-Osorio has been in the top job for a decade. Under his leadership he turned the group around from a bank which was reeling from the credit crisis, and part-nationalised, to a fully private firm and a dividend payer.

Boohoo shares have fallen out of fashion after it was reported that one of its suppliers paid its staff poorly and the working conditions were substandard too. The group has become very popular recently as its fast fashion strategy combined with its online only model has been a hit with younger consumers.

The much-awaited ‘Super Saturday’ didn’t seem to be that super, as the re-opening of pubs and restaurants wasn’t the big deal that some people were predicting. Restaurant Group and Mitchells & Butlers are in the red.

US

The mood on Wall Street is positive as the US economy continues to rebound. The final reading of the services PMI report for June was 47.9, and keep in mind the May reading was 37.5. The ISM non-manufacturing reading was 57.1 – its highest level since February.

It was reported that Uber has acquired Postmates, the food delivery group, for $2.65 billion. Uber Eats is a direct competitor of the company but it is believed the two businesses will remain separate. There might be a merger of back-end technology. Last month merger talks between Uber and Grubhub fell apart due to antitrust issues, but the latter teamed up with Europe’s Just Eat.

Dominion Resources shares are in the red after it was announced the company has agreed to sell off its gas storage and transition network to Berkshire Hathaway, Warren Buffett’s, investment vehicle, for $4 billion. Mr Buffet’s firm will take on $5.7 billion of the group’s debt too, so the transaction comes to nearly $10 billion. In other news, Dominion and Duke Energy scrapped their plans for the Atlantic Coast pipeline project on account of rising costs.

Amazon shares have topped $3,000 for the first time as the tech giant asserted its dominance during the lockdown. It had the edge retailers that were forced to close.

FX

The risk-on sentiment of traders as weighed on the US dollar. In the past few months, the greenback has become a popular safe-haven play, and given the surge in equities today, we are seeing dealers dump the US dollar. The currency received a nice boost towards the end of last week on the back of the better-than-expected jobs report form the US. Today, currency traders are less interested in the recovery in the US economy, as they are fixated on the overall risk-on mood.

EUR/USD and GBP/USD have been helped by the negative move in the greenback. The UK construction PMI reading for June was 55.3 – it’s highest in nearly two years. The eurozone retail sales update for May was 17.8%, and that was a big improvement from the -12.8% in April.

Commodities

Gold has been nudged up by the dip in the drop in US dollar. The commodity’s inverse relationship with the dollar is working in its favour today. The metal has a history of attracting safe haven funds, but seeing as dealers are keen to take on more risk today, it is likely that gold’s positive move is almost exclusively down to the weakness in the dollar.

The optimism that is doing the rounds in relation to stocks seems to be influencing oil traders too. Equity markets and energy products have broadly moved in tandem in the past couple of months and it seems the lack of nerves in stocks has helped sentiment in WTI and Brent crude. The stark news from the WHO over the weekend that there was a new record set of new Covid-19 cases has been shrugged off by equity and energy traders alike.

For a look at all of today’s economic events, check out our economic calendar.

By David Madden (Market Analyst at CMC Markets UK)

Rally in Asia Bodes Well for Europe

The 4 July holiday in the US fell on a Saturday this year, so it was a public holiday on Friday and the US market was closed.

Volatility was low in the first hours of the European trading session, and trading volumes were down sharply when compared with the rest of the week. Health woes chipped away at market sentiment on this side of the Atlantic. On Friday, it was revealed that US states such as Arizona and California saw a jump in the number of new cases. It is likely that traders in Europe took the view the health situation in the US would deteriorate as Americans enjoyed their long weekend.

According to the WHO, on 4 July over 212,000 new Covid-19 cases were registered – a daily record. The US, Brazil and India were the largest contributors to the tally. The US’s reading on Saturday was over 53,000, which was a retreat from Friday’s level of more than 57,000. Some hard hit US states such as Florida are experiencing a drop-off in the rate of new cases, which is probably down to a pausing of the reopening of its economy. As of yesterday, 34 states saw an increase in new cases on the week.

Stocks in mainland China and Hong Kong are showing impressive gains. There has been a jump in trading volumes in China, and European equity benchmarks are tipped to open higher as a result.

The latest services data from China and Europe point to a continuation in the rebound in activity. The Caixin survey of Chinese services for June was 58.4, its highest in ten years. Keep in mind the February reading was 26.5, so there has been a colossal turnaround. The services PMI reports for Spain, Italy, France, Germany and the UK were 50.2, 46.4, 50.7, 47.3, and 47.1 respectively.

The Spanish and French updates showed positive growth, and all the readings were major improvements on the May levels – which were in the high 20s or low 30s. It is clear that things are improving from an economic point of view, but the health situation could be a different story. There have been local lockdowns in Leicester, Melbourne, and in parts of Spain too. There are concerns that this sort of thing could become common.

Christine Lagarde, the European Central Bank president, warned that prices in the currency bloc might remain under pressure for the next two years, before seeing a turnaround. The central banker took part in a webinar on Saturday, and predicted that digitalisation will speed up, and that companies will cut their supply chains too.

It was reported the Bank of England chief, Andrew Bailey, wrote to UK banks and said that negative interest rates are an option the group is considering. Such a move would put pressure on lending margins, which are already squeezed. Interest rates are at historic lows, but consumers are actually paying down credit card debt, so would negative rates actually spark higher demand?

Over the weekend, pubs and restaurants in England were allowed to reopen. The event was referred to as ‘Super Saturday’ and it was a continuation of life returning to normal. The UK economy has come a long way in the past few months, and with more businesses reopening the economic rebound should continue, but there are concerns the infection rate could jump. Images of packed streets in places like London’s Soho will probably add weight to the argument that the capital could be in for a rise in Covid-19 cases.

German factory orders will be posted at 7am (UK time) and the May reading is expected to be 15%, and that would be massive rebound from the -25.8% registered in April.

The UK construction PMI report for June is expected to be 47, up from 28.9 in May. It will be announced at 9.30am (UK time).

At 10am (UK time), eurozone retail sales will be released and the consensus estimate is 15%. Keep in mind the May reading was -11.7%.

The final reading of US services PMI for June is expected to be 47, and that would be a slight improvement from the flash report’s 46.6. The report will be published at 2.45pm (UK time). Shortly afterwards, the ISM non-manufacturing report will be announced, and economists are predicting 50, which would be an improvement on the 45.4 registered in May.

EUR/USD

Since early May the EUR/USD has been in an uptrend, but it has been trading sideways recently. If it holds above the 1.1168 zone, it could target 1.1495. A break below the 1.1168 area might pave the way for 1.1038, the 200 day moving average, to be targeted.

GBP/USD

For more than three weeks the GBP/USD has been in a downtrend and if the bearish move continues, it might hit 1.2163. A move higher from here might see it target 1.2683, the 200-day moving average.

EUR/GBP

Has been in an uptrend for over two months and if it holds above 0.9000, it might target 0.9239. A move lower might find support at 0.8924, the 50-day moving average.

USD/JPY

Has been drifting lower for the last month and support could come into play at 106.00. A rebound might run into resistance at 108.38, the 200-day moving average.

FTSE 100 is expected to open 73 points higher at 6,230

DAX 30 is expected to open 244 points higher at 12,772

CAC 40 is expected to open 90 points higher at 5,097

For a look at all of today’s economic events, check out our economic calendar.

By David Madden (Market Analyst at CMC Markets UK)

Health Concerns Hurts Sentiment, Royal Dutch Reveals Writedown 

Similar things are happening elsewhere, Leicester will enter a local lockdown, and parts of Melbourne will see restrictions being reintroduced. There are some concerns that localised lockdowns will become a regular occurrence.

Beijing has warned that it will retaliate against the US, if the Trump administration strip Hong Kong of its special status – treat it the same as mainland China. Last week, President Trump confirmed the US-China trade deal was intact, but that could change in light of the political developments.

China’s manufacturing PMI report for June was 50.9, an improvement on the May reading, and that has assisted copper prices, but that hasn’t translated into higher prices for mining stocks. BHP Group, Rio Tinto and Anglo American are all lower.

Royal Dutch Shell said it expects to incur an impairment charge of between $15 billion and $22 billion in the second quarter, the results will be published in late July. The write-down is because the energy titan revised its assumed prices for oil and gas – the benchmarks it uses for valuing assets. For 2020, 2021 and 2022 it is now factoring in an oil price of $35, $40 and $50, while the company previously assumed an on oil price of $60 for 2020-2022.

Gas prices have been revised too. The long term refining profit margin forecast was cut by 30% too. The move by Royal Dutch echoes that of BP, as it announced earlier this month that it will writedown up to $17.5 billion – largely because it revised down its assumed price for oil. Royal Dutch Shell’s gearing position is tipped to increase by 3% on account of the impairments. The downward move in the Royal Dutch Shell share price has been relatively small, so it seems that dealers were not surprised by the announcement.

Smiths Group shares are higher this morning after the company revealed a restructuring plan that would bring about savings of £70 million from FY2022 onwards. Traders welcomed the proactive stance the firm is taking.  The restructuring programme should help the company achieve its operating margins target of 18-22%. In the ten months until the end of May, underlying revenue from a continuing basis increased by 2%. Operations are going on at all its 75 manufacturing sites, but it warned of higher costs, but the cost cutting plans should offset that.

Redrow shares are in the red on the back of a trading update. In the year to the end of June, the house builder completed 4,032 homes, and that was a big fall from the 6,443 in the previous year. Full year revenue is tipped to be £1.34 billion, which would be a 36% fall on an annual basis. The lockdown was blamed for the huge fall in completions. On the bright side, the order book is at a record level of £1.42 billion, up from £1.02 billion, and roughly 70% of the order book is contracted in terms of revenue. The group cautioned that the outlook is uncertain, but trading has been upbeat since it went back to business.   

InterContinental Hotels Group said it expects comparable revenue per available room (REVPAR) to be about 75% down on the year, and for the first half, it is tipped to be 52% lower. The company is taking action in light of the current environment, and it is on track to reduce costs by $150 million.

Cineworld now plan to re-open their UK and US cinemas on 31 July, which would be later than the original date of 10 July, but the stock is up this morning nonetheless.

GBP/USD is in the red on the back of the weaker than expected UK GDP data. The final reading of UK first quarter GDP on a quarterly basis was -2.2%, while the initial level was -2%. The firmer US dollar is a factor too.

EUR/USD has been impacted by the rise in the US dollar. Eurozone CPI ticked up to 0.3% in June from 0.1% in May. The core reading, which is deemed to be a better gauge of demand slipped from 0.9% to 0.8%.

Micron shares gained ground in post-market trading last night on the back of the well-received third quarter figures. The spike in working from home has seen the demand for data centre chips surge, so that has helped Micron greatly. Revenue jumped by 13.8% to $5.44 billion, while the consensus estimate was $5.31. EPS came in at 82 cents, topping the 77 cents consensus estimate. The company issued a bullish forecast too as it anticipates fourth quarter revenue to be $5.75-$6.25 billion, and the mid-point of equity analysts’ forecasts was $5.84 billion.

Last night Wells Fargo confirmed that it will have a new dividend policy when it reports its second quarter numbers in July. Traders took the view that a new dividend policy was just a way of saying that it will be cut. In April, the bank set aside $3.1 billion for bad loan provisions, but it has warned that the next provision will be ‘substantially higher’ than the previous one.

We are expecting the Dow Jones to open 70 points lower at 25,525, and the S&P 500 is called down 4 points at 3,049.

For a look at all of today’s economic events, check out our economic calendar.

By David Madden (Market Analyst at CMC Markets UK) 

Choppy Trading in Europe, Carnival Seeks Credit

Then again, the US’s situation is far worse in comparison with here, so perhaps it won’t come to that. Prime Minister Johnson said that now is not the time to step back in relation to the economy. Mr Johnson wants to double down on spending on technology, infrastructure and education. Like other governments, the strategy is to throw money at the problem.

Grainger confirmed that it has issued a £350 million bond at a coupon rate of 3% for 10 years. The funds will be used to pay down a £200 million bank facility as well has increase its housing stock. The property specialist raised £187 million in February from an equity offering. In today’s update, Grainger also said that business has been performing well since it released its half year figures last month. In May, 96% of rents were collected on time, which was a slight improvement on April and March’s readings, which were 94% and 95% respectively. Occupancy rates held steady at 97%.

Carnival has announced term loans of $1.86 billion and €800 million. The debt instruments will have maturities of five years. The $1.86 billion tranche will be issued at 96% of its face value and the interest on it will be adjusted LIBOR, with a 1% floor, plus 7.5%. The €800 million will also be issued at 96% of its face value, and the interest will be ERUIBOR, with 0% floor, plus 7.5%. The cash raised will be used for general corporate purposes, such as paying down other debts.

Hunting, a supplier to the energy industry, issued a downbeat trading update. In light of the sharp fall in the oil market in March, the company said that most of its businesses in the second quarter saw a decline in activity. Titan, the group’s energy services division, saw a 40% fall in first half revenue on an annual basis. As a reaction to what has gone on in the oil and gas sector, the company cut its headcount by 25% and the restructuring will be completed this month. Cost savings has been in the region of $60 million. The capital expenditure budget has been cut by 50%.

Wirecard shares have soared today on chatter that Worldline, the French payments group, might seek to buy parts of the struggling company. Trading in Wirecard shares has been choppy recently as the company filed for insolvency last week.

British Airways, which is a part of the International Consolidated Airlines Group, announced in April it will cut up to 12,000 jobs. It was reported over the weekend that 350 pilots will be let go, and 300 will be added to a pool for re-hiring, if or when business picks up again.

Last year, Prime Minister Johnson, said all of the UK would have superfast broadband by 2025, but BT Group feel that target will be difficult to achieve. The pandemic has set the process back and there are concerns about Huawei too, as the company will play a role in the UK’s 5G network, but things might change in relation to The West’s relationship with China.

BP will offload its petrochemicals business to Ineos for $5 billion. The oil titan has achieved its $15 billion disinvestment plan one year ahead of schedule.

Barclays raised its price target for Unilever to 4,370p, from 4,310p.

EUR/USD and GBP/USD have been given a lift by the pullback in the US dollar. The greenback pushed up at the end of last week as it attracted risk-off flows. UK consumers are keen to pay down debt as the Bank of England consumer credit report showed that £4.59 billion debt was paid down in May. UK mortgage lending last month was £1.2 billion, which was a big improvement from the £292,000 posted in April.

On Friday, Facebook shares tumbled as a number of companies said they would halt their paid advertising on social media platforms, and some of those firms specifically mentioned Facebook. Recently a number of anti-racist bodies have claimed that Facebook has not done enough to root out content that could be considered to be hateful, so the organisations have called for a boycott of the social media giant.

Major corporations such as Verizon and Unilever have decided to stop advertising on Facebook. The issue is gaining momentum so more firms will probably also turn their back on social media platforms. Twitter is likely to be in the spotlight too.

Micron Technology will be in focus as it will release its third quarter numbers tonight after the close of trading in the US. The group’s second quarter numbers were well received as EPS were 45 cents, topping the 37 cents forecast. Revenue for the three month period was $4.8 billion, exceeding the $4.69 billion consensus estimate.

In May, the company raised its guidance. It now expects third quarter revenue to be $5.2-$5.4 billion, up from between $4.6 billion and $5.2 billion. The group expects EPS to be 75-80 cents. There has been an increase in demand for data centre space due to the surge in working-from-home. Server chips have seen a rise in popularity as retailers have been ramping up their – e-commerce exposure.

We are expecting the Dow Jones to open 135 points higher at 25,150, and the S&P 500 is called up 14 points at 3,023.

By David Madden (Market Analyst at CMC Markets UK)