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.
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.
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.
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.
By David Madden (Market Analyst at CMC Markets UK)