Equities Fall Amid Health Fears, Capita Tanks, Gold Pops

Equities Fall Amid Health Fears, Capita Tanks, Gold Pops

CMC Markets  | Mar 06, 2020 05:53

Health fears have ramped up again and traders are running for the hills.

Even though governments along with international bodies have pledged huge sums of money to help combat the health crisis, dealers are still scared. It is as if the more money is thrown at the problem, the more nervous dealers become - the intervention acts as an indication of weakness.

Kier Group (LON:KIE) showed encouraging signs of a turnaround in the business, and the stock soared on the back of the first-half update. The statutory loss declined from £32.5 million to £24.4 million. Operating margin ticked up to 2.5% from 2%, which in turn equated to an 11.4% rise in operating profit to £46.7 million. The group will deploy less capital to non-core areas of the business, and the costs cutting scheme is going well as saving were £23 million in the six month period. The company had a rough ride last year as it revealed a painful annual loss, but the group is taking the right steps to whip itself into shape.

ITV (LON:ITV) shares are in the red following the release of their full-year figures. Total external revenue edged up by 3% to £3.3 billion, but total ITV advertising revenue slipped by 1.5%. The sector as a whole is suffering from changes in advertising patters as the likes of Google (NASDAQ:GOOGL) are snapping away at their market share. The dip in ITV advertising acted as an alarm to traders. The studio division is doing well thankfully, but that is a capital intensive side of the business.

Capita has been undergoing a tough restructuring programme and the company is making progress on that front, but the CEO, Jon Lewis, cautioned the turnaround plan will require more investment that originally thought – this spooked traders. The firms posted a £62.6 million loss before tax, but on an adjusted basis it was a profit of £275 million – which is respectable. Looking ahead to 2020, Capita hopes to register organic revenue growth for the first time in five years.

Commerzbank (DE:CBKG) shares tumbled to an all-time low as the STOXX banking index entered a bear market. There is a risk that bad loans could tick-up in the months to come as the health crisis might hurt the European economy. The negative deposit rate by the ECB is making it harder for Eurozone banks to make money from lending so should the ECB delve further into negative rates, the situation would become worse for banks.

Cineworld shares have tumbled today as traders are worried the business could be hit should the health situation ramp up in the UK. Cinemas run the risk of seeing footfall severely drop if the coronavirus crisis grips the UK the way it has impacted northern Italy. The delay in the release of the new James Bond movie doesn’t help the firm.

Flybe have entered administration as the coronavirus crisis rocked the sector has a whole, and the weaker firms were exposed. Yesterday it was reported the government rejected the struggling firm’s request for a £100 million loan, so it seems as it that was the tipping point for the airline.

Norwegian Airlines were hoping to return to profit in 2020, but the group scrapped that guidance. Others in the sector are in the red today, such as Air France, Ryanair, TUI as well as Lufthansa.

US

The major US indices have handed back some of the massive gains that were racked up last night. Dealers have been rattled by a few warnings from big corporations that the health crisis will hurt their businesses. It is worth noting the S&P 500 has made a series of higher lows since late February so the overall situation isn’t that bad.

The US jobless claims report came in at 216,000, fractionally above estimates. Last week’s reading was 219,000. Yesterday’s ADP (NASDAQ:ADP) employment was respectable as it was 183,000. The mega January number of 291,000 was revised down to a robust 209,000.

US factory orders dropped by 0.5% in January, and that was worse than expected as traders were anticipating a 0.1% fall.

The aviation sector is in under pressure as Southwest Airlines (NYSE:LUV) warned that first-quarter revenue will be hit by up to $300 million on account of the coronavirus crisis. United Continental Holdings said it will cut international flights by 20%.

Zoom Video Communications shares are bucking the trend as they are higher today on the back of well received quarterly results. EPS were 15 cents, which smashed the 7 cents forecast. Revenue was $188.3 million, topping forecasts. The guidance was solid too as first-quarter EPS are tipped to be 10 cents, and analysts were expecting 6 cents. The revenue outlook exceeded predications too.

Hewlett-Packard have rejected Xerox’s takeover offer of $24 per share as they felt it ‘meaningfully undervalues’ the company. Given how the market sentiment is going, Xerox might be better off waiting for a while before making another play for the firm,

FX

GBP/USD as well as EUR/USD have been lifted by the sharp fall in the US dollar. The emergency rate cut by the Federal Reserve during the week has projected an image of weakness for the US economy. Despite the unexpected rate cut of 0.5% on Tuesday, the markets are factoring in a 65% chance of the Fed cutting rates by 0.25% at the meeting later this month.

USD/CAD is higher on the session as ‘the loonie’ is being weighed down by the weaker oil prices. It says a lot about the weakness of the Canadian dollar when the greenback is gaining ground against it today.

Commodities

Brent Crude oil as well as WTI are in the red despite OPEC’s plan to cut production by 1.5 million bpd. The announcement came in late morning and the oil market initially jumped on the news but then dealers started to question the size of the cut. A large reduction in output suggests that demand is tipped to tumble so traders ended up pushing the energy into negative territory. It is believed that Russia are not keen on the output cut so the toing and froing over the potential change in output is likely to drag-on.

Gold has been pushed higher by the risk-off attitude of traders as they are seeking out safe havens. The metal has enjoyed a good run this week on account of the weaker US dollar as well as the uncertainty surrounding stock markets. Should the bullish move continue it might retest the February highs.

"DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.

No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. "

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