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Positive Start For Europe, Gold Surges Above $2k, Metro Bank Posts £240m Loss

Published 05/08/2020, 09:44
Updated 03/08/2021, 16:15

While US markets continue to break records with another record high for the Nasdaq, as well as a record close for the NYSE FANG+ Index, markets elsewhere have struggled to keep up as concerns grow about the resilience of the ongoing economic rebound.

Asia markets have been mixed after the latest China Caixin services PMI fell back more than expected in July, coming in at 54.1, down from June’s 58.4, with the Nikkei 225 struggling to make much headway.

European markets, on the other hand appear to have had a much more ebullient start to trading, with earnings once again taking centre stage, as well as a gold price that has broken above the totemic $2,000 an ounce for the first time ever.

The rip through $2,000 an ounce has been prompted by further declines in US 2 and 5 year yields which are trading at new record lows below 0.2%, thus making the yellow metal much more attractive in terms of a longer term investment.

The latest services PMI numbers for Spain, Italy, France and Germany have also pointed to a continued recovery in economic activity across the region, despite concerns about rising infection rates in Spain and France.

All of the indicators showed a move into expansion territory of 51.9, 51.6, 57.3 and 55.6 respectively. The lacklustre nature of the rebound in Spain and Italy remains a concern given their greater reliance on tourism, and the recent quarantines imposed on Spain in particular.

The UK services PMI is expected to show a similarly robust recovery, as shops and other services continued to reopen in July.

Metro Bank's (LON:MTRO) woes continued this morning after the bank posted a whopping £240.6m statutory loss in its first half. £109m of that was as a result of the impact of Covid-19. Underlying revenues fell by 29% to £153.3m, while the bank’s net interest margin fell from 1.62% to 1.19%.

The bank said it expected to complete its £12m RateSetter acquisition in the second half of this year, with the bank insisting that its strategic plan for 2024 targets is still appropriate. Given the nature of today’s losses, yesterday’s acquisition of the peer to peer lender remains a high risk strategy at a time, when the risk of these sorts of loans going sour is probably higher than in normal times. While the price tag on the deal may well have been a low one, the overall cost of the deal could be much higher, if a lot of these loans go bad in the coming years.

The widespread closures of its high street betting shops saw William Hill (LON:WMH) take a £82m hit in respect of coronavirus in its first half interim results this morning, sending it into the red to the tune of £14.2m. Net revenues declined 32% to £554.4m, as the improvement in its online business wasn’t enough to offset the hit to its revenues from the closure of its store network, as well as the suspension of sporting events. The company said it would not be reopening 119 shops as a result of the Covid shutdown.

International online saw growth of 17%, while its expansion in the US has helped expand its market share there to 29%. On another positive note management said they would be repaying the £24.5m received from the government as part of the coronavirus retention scheme.

Legal and General (LON:LGEN) latest first half numbers showed the company post a profit which was 4% above estimates, but was still well down on the year before. Operating profits came in at £946m, despite Covid impacts of £129m, however profits after tax fell to £290m, down from £874m a year before.

Of all L&G’s business divisions, there was some nervousness about the US life assurance business due to the prevalence of the virus there, which could result in higher claims than elsewhere, and this appears to be weighing on the share price in early trading.

Big box warehouse and logistics provider Segro (LON:SGRO) appears to have weathered the coronavirus storm quite well after reporting a rise in first half adjusted pre-tax profit to £140.4m, a rise of 6.5% from the same period a year ago. The growth in on-line retail appears to have created huge demand in the logistics sector. The company increased its dividend to 6.9p from 6.3p, pushing the shares up to a new record high, in early trade this morning.

Coca Cola HBC (LON:CCH), the strategic bottling partner for Coca Cola, reported a 9.2% fall in first half volumes, as a result of the various lockdowns across Europe. This resulted in net sales revenues falling 15.5% to €2.83bn, while operating expenses rose as a result of Covid-19 mitigation measures. Operating profits came in at €203m a fall of 29.8%.

The difficulties for Germany’s banks continued this morning after Commerzbank (DE:CBKG), Germany’s second biggest bank painted a rather mixed outlook in the wake of the bank’s exposure to the fallout over Wirecard. In terms of the overall business, the bank managed to generate a profit for Q2. Revenues rose to €2.3bn from €2.1bn a year ago, generating an operating profit of €205m, with the bank managing to lower its cost base to €1.53bn, which has helped the shares move higher on the day.

As a result of the banks’ exposure to Wirecard the bank has set aside its goal of achieving a full year profit, making a provision of €469m in respect of non-performing loans and other bad debts. For the full year the bank expects to have to set aside as much as €1.5bn.

BMW (MI:BMW) shares are lower after posting a €666m loss for Q2, its first loss since 2009, as car sales took a huge hit as a result of Covid-19.

US markets look set to continue their outperformance this morning with the Nasdaq set to open at another record peak, with the S&P500 set to open above 3,320 and its highest level since 21st February.

Today’s focus on the data front will be on the latest July ADP payrolls report, however it isn’t clear how useful it will be with respect to the jobs picture in July given that in the second half of the month we saw rolling shutdowns across the sunbelt states in particular in response to the rising infection and death rates. Expectations are for 1.2m jobs to be added, down from 2.37m in June.

Disney's (NYSE:DIS) latest results showed the company slumped to a $4.7bn loss in its latest Q3 numbers with revenues sliding by 42% from a year ago, as consumers stayed away from its hotels and theme parks, and where they were open footfall was much lower.

On the streaming side the picture was more positive with 60.5m subscribers for Disney+. In an attempt to boost subscriber numbers in this area Disney has decided to release Mulan straight to its streaming platform in order to boost revenues and subscribers there. This will be a huge blow to the large cinema chains who were hoping that the release of titles such as this would get punters through their doors

If Disney adopt the same policy with respect to the new Avatar and Star Wars films, the cinema sector could well struggle to survive, especially given that facemasks have now become mandatory in the UK. Cineworld shares are lower in London trade, while AMC in the US could also come under pressure in early US trade.

Disclaimer: CMC Markets is an execution-only service 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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