It’s been a positive start for European markets this morning as hopes rise that Europe and the UK is over the peak of the virus and is on a downward track when it comes to the death rate as well as the infection rate. The extent of the rebound in the DAX has seen a rise of more than 20% from its recent lows, taking out the highs of last week in the process.
US markets also got an additional slug of rocket fuel on reports that the US administration was getting ready with another $1.5trn stimulus plan, to be launched in May.
That does not mean that an end to the lockdown is imminent, but it does offer the prospect that it could well last a shorter time than some of the worst-case investor scenarios that saw stock markets plunge during March.
A recession still remains a given; but hopes are rising that it could well be manageable and not turn into a depression, and that is boosting airlines and travel shares this morning, a sector that has so far borne the brunt of the huge sell off since February 21st. Easyjet and British Airways owner International Consolidated Airlines are leading the gainers in the airline sector, while hotels are rallying too.
French hotel chain Accor (PA:ACCP) are posting some decent gains even as it announced that it would laying off 220k of its 300k staff as it struggles to maintain its cash position over the timeframe of the pandemic. CEO Sebastien Bazin has insisted that he fully intends to rehire all of them once the crisis is over, as well as reopening every closed hotel. Accor also said they would be setting up a fund from 25% of its planned dividend to set up a special purpose vehicle to assist its employees while they are furloughed.
Holiday Inn owner Intercontinental Hotel shares are also rebounding strongly in early trading.
Cineworld, whose shares have taken an absolute beating in the last few months, and whose cinemas have all been closed during the lockdown, this morning announced that they would be cutting the dividend in further attempts to save cash. The directors also decided to defer payment of their full salaries and bonuses as they look to preserve the business in the face of challenging financial constraints.
The new and used car market has also faced various challenges over the past 12 months with the coronavirus outbreak the final straw for some struggling businesses.
Inchcape, the global automotive retailer with operations in 32 countries this morning announced that it was cutting the salaries of its board and senior management by 20% as it looks to conserve cash. While the pandemic has shuttered a lot of its global operations, some of its businesses are still trading in 14 markets, albeit at lower than normal levels of activity. The company has also cancelled the final dividend of 17.9p a share.
Travel and leisure stocks are feeling the benefit of the rising optimism that infection rates are on a downward path by rallying for the second day in a row, with Easyjet and IAG (LON:ICAG) leading the gainers. The rebound in oil prices is also generating a lift for the oil majors BP (LON:BP) and Royal Dutch Shell (LON:RDSa).
When news of the hospitalisation of UK Prime Minister Boris Johnson first broke, the pound slid 100 points against the US dollar. It has since stabilised and rebounded; however, the currency is likely to continue to be subject to the vagaries of the Prime Ministers condition, in the fervent hope that he is able to pull through.
The decline in the PM’s health has shone a light on the lack of constitutional clarity around who might step in if the worst was to happen, raising some concerns over the lack of obvious continuity. This isn’t anything new from a constitutional point of view, its always been the norm, as was the case in the 1980’s when the IRA bombed the Grand Hotel in Brighton, injuring and maiming a number of people, including government ministers. The government managed that crisis and they will manage this one.
The Australian dollar is the best performer today reflecting the better environment for risk with the RBA leaving rates unchanged. The health situation in China continues to improve with the country where the outbreak originated reporting no deaths from the virus for the first time since January.
Crude oil prices have started to rebound this morning after selling off late last night as hopes rise that some form of output cut can be agreed on either Thursday or Friday. It still remains highly unlikely that the US will agree to be part of any agreement, however at some point a reduction in output will need to happen if storage capacity starts to run out.
US markets look to continue where they left off later today with the S&P500 set to open at its highest level since mid-March.
In company news Levi Strauss (NYSE:LEVI) is set to update the markets on its latest Q1 numbers. In January the newly floated company posted a Q4 revenue decline of 2%. Gross profits saw a rise of 1%, helped by an improvement in margins. The Americas region was the laggard here while revenues in Europe posted a net increase of 8% on a currency basis.
Over the full year the revenues showed a full year gain of 3%, and expected to see 7% revenue growth in 2020. It goes without saying that target is likely to be scrapped along with its profit range of full year profits of between $1.18c to $1.22c a share. Profits for Q1 are expected to come in at $0.35c a share.
Dow Jones is expected to open 570 points higher at 23,250
S&P500 is expected to open 50 points higher at 2,713
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