Equity markets are under pressure today on the back of health fears.
Europe
A rise in the number of new Covid-19 cases from a few countries has sparked concerns that we could be in for a second wave of the virus. At the back end of last week traders were already anxious about the health situation due to the number of rising cases in the US. Over the weekend it was announced that a partial lockdown was imposed in Beijing, while Tokyo saw a jump in infections too. In addition to that, some US states saw higher rates also. Dealers were quick to dump stocks today as renewed health worries prompted chatter there could be a second round of the health emergency.
The rise in cases is a result of governments unwinding their lockdown restrictions, so if there is a surge in new cases, governments might need to rethink their policies, which might involve reopening their economies at a slower pace. That being said, all shops in England are now allowed to re-open as the British government has eased up on restrictions. France is due to unwind its lockdown rules at a quicker pace that originally planned.
Bunzl (LON:BNZL) shares have hit their highest level since late February after the company said it expects first half revenue to increase by 6%. Operating margin in the six month period is anticipated to be ‘modestly’ higher on the year. The firm remains cautious in relation to its outlook, but that is not surprising. JPMorgan (NYSE:JPM) upped their price target for the stock to 2,000p from 1,900p.
Cineworld (LON:CINE) have confirmed they will no longer be acquiring Canada’s Cineplex group. The deal was worth $2.1 billion. Cineworld claimed the transaction was called off because Cineplex were in breach of the agreement, but they didn’t go into any detail. The Canadian group denied the allegations, and said that Cineworld’s issue with the proposed deal was related to the impact of the pandemic. The cinema industry has been hit extremely hard by the health crisis as theatres were forced to close, so it is no wonder that Cineworld were keen to back away from the deal. For the entertainment industry these days, it is about survival, not expansion. Cineworld already took on a huge amount of debt in 2018 when it bought Regal Entertainment in the US for $3.6 billion, so had the Cineplex deal made it across the line, it is possible dealers would have felt the group was overstretched in terms of debt. It is possible that legal action might be taken against Cineworld for walking away from the deal.
BP (LON:BP) announced it will endure a number of impairment charges, which will be in the region of $13-$17.5 billion. The charges are in relation to property, plant and equipment. The company previously assumed that average Brent crude prices between 2021 and 2050 would be on average $75, and that was the price used to base capital expenditure and investments off of, but that has now been revised down to roughly $55. The revision equated to an impairment too. Only last week the oil titan revealed plans to cut its global headcount by 15%. BP was already moving towards becoming carbon neutral, so the health crisis is likely to speed up the process. In late April, the oil titan maintained its dividend in the face of weaker oil prices, so now traders will be wondering if the payout will be cut in a bid to conserve cash. Royal Dutch Shell (LON:RDSa) trimmed their dividend, so BP might go down that route.
Metro Bank (LON:MTRO) shares are in the red this afternoon as it was announced they are in exclusive talks to buy RateSetter, but the discussions are in early stages. Should the deal go ahead it would give Metro more exposure to unsecured lending. RateSetter are involved in peer-to-peer lending, as well as car financing. Unsecured lending can be risky in a healthy economic environment, let alone in the current climate. Investor confidence in Metro has been low in recent years as there were major worries about their accounting and risk management practices, so potentially expanding into a risky area of lending might keep traders sceptical of the firm.
US
Stocks are in the red today as worries about the rising number of Covid-19 cases has weighed on sentiment. Multiple US states, including Arizona, Florida, Texas and North Carolina have registered an increase in new Covid-19 cases, hence why equities are in the red.
Airlines and cruise companies are some of the biggest fallers today as the tourism sector is very sensitive to the health crisis – rising Covid-19 cases would probably dent demand for travel and holidays. American Airlines (NASDAQ:AAL), Delta Air Lines (NYSE:DAL) and Carnival Corp (LON:CCL) are all nursing large losses.
Shopify (NYSE:SHOP), the e-commerce platform, has partnered with Walmart (NYSE:WMT). The traditional retailer is keen to ramp up its online presence as the last few months have shown that firms with robust e-commerce capabilities have outperformed.
The New York Fed manufacturing index for June was -0.2, while economists were expecting -29.8. The May reading was -48.5, so there was a sizeable rebound in activity. Keep in mind the April level was -78.2. It is clear the loosening of restrictions has greatly helped in the rebound in economic activity, but it might turn out to be problematic in terms of the health crisis.
FX
GBP/USD and EUR/USD are both showing decent gains this afternoon due to the fall in the US dollar index. Volatility in currencies has been low when compared with stocks. Recently, the dollar has been a popular safe haven trade, but seeing as equities have managed to recoup some of their earlier losses, demand for the dollar has dipped.
It has been a quiet day in terms of economic indicators. Italian CPI swung from 0.1% in April to -0.3% in May. It is likely that weaker commodity prices played a role in the decline, but demand has been falling across the board.
Commodities
Brent Crude and WTI are in the red as traders are turning their back on the oil market over concerns that demand will fall because of a possible second wave of Covid-19 cases. It is clear the reopening of economies has triggered a rise in fresh cases, so there are now worries that a renewed health crisis will hit demand for the energy. China is the largest importer of oil in the world, so now that it is back in the frame in relation to its partial lockdown in Beijing, dealers are afraid that demand will dip.
Gold is a touch lower today, and the recent weakness in the US dollar has assisted the metal. The commodity was showing a larger decline a few hours ago, but that was when the US dollar index was up on the day. The inverse relationship between the two markets has been strong lately. While gold holds above the $1,700 mark, the wider positive trend should remain in place.
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