European equity markets have handed back some of yesterday’s gains, while US politicians have yet to reach a compromise with regards to the Covid-19 stimulus package.
President Trump threatened to act alone in relation to a stimulus plan because the democrats wouldn’t bend. Mr Trump is known to be hot-headed but at the same time, he has form when it comes to making idle threats. The US government’s relationship with China is under pressure as Washington DC is moving towards banning WeChat and TikTok apps – both are Chinese owned.
The Bank of England kept rates on hold at 0.1% and the asset purchase facility was left at £745 billion – both were in line with forecasts. There was a positive revision to the 2020 GDP forecast, and the 2020 and 2021 unemployment rate forecasts were revised higher too, and this helped the pound. The FTSE 100 is underperforming because of sterling’s strength.
Internationally-exposed companies like GlaxoSmithKline, Unilever and Diageo are lower this session. Commodity stocks like Rio Tinto, Glencore, Royal Dutch Shell and BP are in the red also. Aviva postponed its dividend amid the health crisis but today it declared an interim dividend of 6p. By pressing ahead with the pay-out it projects a positive image, as it signals that the worst of the crisis is over. It looks as if the company will focus on its core markets, the UK, Ireland and Canada, while other assets in Asia for example could be put up for sale. The first half operating profit slipped by 12% to £1.22 billion and net premiums dropped by 4% to £13.22 billion.
Glencore shares are in the red as the company halted its dividend. The mining titan will focus on paying off loans. The net debt position is above their target of $10-16 billion, and the company is aiming to have it below the $16 billion mark by the end of the year. The company isn’t strapped for cash, it just wants to be sensible and focus on cutting its debt exposure. The first half loss attributable to shareholders was $2.6 billion, and that was largely down to the impairment of $3.2 billion – the slump in commodity prices on account of the pandemic. Adjusted EBITA, which removes one-off costs, slipped by 11% to $4.83 billion. The group’s market division had a strong performance as adjusted EBIT doubled to $2 billion. Glencore now predicts that full year adjusted EBIT at the marketing department will be at the upper end of the $2.2-$3.2 billion guidance.
ITV also scrapped their dividend on account of the current climate. The health crisis has had a very negative impact on the group as TV production was halted, sporting events were cancelled and advertisers cut their budgets. In the first half, total advertising revenue fell by 21%, and it tumbled by 43% in the second quarter. Broadcast revenue fell by 17% to £824 million. Adjusted EBITA for the first half declined by 50% to £165 million. Things are improving in terms of TV production, and demand for its back catalogue of programmes has been strong. The company is making good progress on its cost cutting plans as it has saved £51 million of the £60 million it intends to cut. It plans to make another £25-£30 million in permanent cost savings by 2022. Between December 2019 and June 2020, the total liquidity position increased by 10% to £1.21 million.
It was reported that JD Weatherspoon will cut between 110 jobs and 130 jobs at its head office – which employs more than 400. The pub trade has been rocked by the pandemic so the group is keen to cut costs.
Hammerson (LON:HMSO) shares have sold off after the group revealed the finer details of its rights issue plan and its asset disposal plan. It’s aiming to raise £552 million from a rights issue and it hopes to sell its stake in Via Outlet for £274 million. A few days ago the group confirmed the basic plan, and today the details were announced. First half net rental income was just over £87 million, which was a 44% drop on the year.
US
The S&P 500 is showing a modest gain as there were some encouraging signs from the US labour market. The initial jobless claims reading dropped from 1.43 million to 1.18 million, and economists were anticipating a reading of 1.41 million. The continuing claims update slipped from 16.95 million to 16.1 million. It seems the jobs market is improving, but seeing as some states have re-introduced certain restrictions, that might impact the number of people returning to work.
Novavax (NASDAQ:NVAX) shares are in demand after the pharma company revealed that its potential vaccine for Covid-19 produced encouraging results from the initial trial. The drug produces neutralising antibodies, and medical experts believe that is required to tackle the coronavirus.
Costco (NASDAQ:COST), the wholesale retailer, revealed that July same-store sales (SSS) jumped by 13.2%, which comfortably exceeded the consensus estimate. The June SSS metric showed 12% growth, so the sales momentum is strong. Online retail sales in July surged by 75%. The pandemic prompted a surge in online sales and it will be interesting to see if the e-commerce side of the business can continue to grow from here.
Hilton (LON:HFG) announced a second quarter loss of 61 cents per share, and that was far worse than the 31 cents per share loss that equity analysts were expecting. The lockdowns had a brutal impact on the hotel industry, and the company confirmed that quarterly RevPAR sank by 81%. The reopening of economies has greatly helped the industry, and as of late July, 96% of the group’s hotels are open.
FX
GBP/USD has been given a boost by the Bank of England update this morning. Monetary policy was kept on hold, but the bank’s growth projection was revised higher for 2020. The UK economy is expected to contract by 9.5%, while in May the bank predicated it would shrink by 14%. The new forecast for unemployment this year is 7.5%, down from 8% in May. In 2021, the jobless rate is expected to be 6%, and that was also an improvement on the May prediction of 7%. Andrew Bailey, the head of the BoE, refused to rule out negative rates, but it seems more like he is covering himself, rather than a desire to bring rates below zero.
EUR/USD is in the red as the dollar index is up on the session. It was been a quiet day in terms of economic data from the eurozone. Earlier in the session, the dollar index briefly dropped to its lowest level in over two years, but it is a little higher now.
Commodities
Gold has set yet another record high. It is even more impressive that the metal has moved higher again even though the dollar is firmer – a large portion of gold’s gains recently was attributed to the weakness in the dollar. The depressed state of government bond yields has prompted a jump in gold’s popularity. Silver has set another seven year high too.
WTI and Brent crude are higher this afternoon as the inventory reports from earlier in the week are still playing on traders’ minds. The American Petroleum Institute report showed that US inventories dropped by 8.6 million barrels, and the Energy Information Administration update revealed that US stockpiles fell by over 7 million barrels. The updates point to higher demand.
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