European stocks are set to close higher on the session amid the major volatility caused by the coronavirus crisis.
Spain has recently announced a €200 billion stimulus package to combat the health crisis, and we are likely to hear of other rescue packages in the near-term. European leaders are in focus today as they have been carrying out a conference call in relation to the crisis, and traders are hopeful for a robust response to the health emergency.
Despite the renewed optimism in the wider markets, travel stocks such as Ryanair, Carnival (NYSE:CCL) and TUI are in the red. The house builders are incurring larges losses too.
Companies in the hospitality industry have been hit hard by the government’s advice to avoid public places and social contact. Mitchells & Butlers (LON:MAB), JD Wetherspoon, and Restaurant Group are all lower on the day. Cineworld are in the same boat as the group depends on footfall for business, and that is why the group has taken the drastic steps to close their theatres in the US as well as Canada.
Compass Group (LON:CPG) have joined the long list of companies that have warned on profits because of the health crisis. The firm has cautioned that revenue in the first six months will fall by between 25% and 30%, while operating profit will undershot previous expectations by £125-£225 million. Compass reassured the market that it will keep an eye on costs and that its liquidity position is strong, but that didn’t stop traders from dropping the stock.
Dixons Carphone (LON:DC) will integrate the mobile business into the wider group, as all the mobile stores will be closed and those services will be made available in Currys PC World stores as well as online. Given the rise of online shopping, it is prudent to cut back on shop floor space. The stock is trading higher this afternoon.
Ferguson shares have taken a knock as the group couldn’t reaffirm its full-year outlook because of the health crisis. The first-half figures were solid as ongoing revenue and underlying trading profit increased by 4.3% and 4.6% respectively. The interim divided ticked up by 7%. The demerger of the UK business is going well but in relation to listing the US operation, the firm will reassess the investment environment in late spring. It seems that dealers dumped the stock on account of the lack of clarity in relation to the outlook.
US
The Dow Jones fell below 20,000 in early trading, but since then market has surged back into positive territory. Volatility continues to be high as violent swings are still likely. The Federal Reserve said the commercial paper market is ‘under strain’, so that’s why they set up a facility that will help small businesses get access to liquidity.
There is talk the US government are pushing for an $850 billion stimulus package in a bid to combat the health crisis. Steve Mnuchin, Treasury Secretary, said the Trump administration is looking to defer $300 billion in IRS payments, and the government is hoping to get cash - helicopter money, to people as soon as possible.
Fedex will deliver their third-quarter numbers after the close of trading. The stock price has been in decline for over two years. The last quarterly update was disappointing as the group lowered its guidance – the second time it was lowered in three months. The delivery group blamed the loss of the Amazon (NASDAQ:AMZN) contract and higher costs for the weaker outlook. In light of the disruptions caused because of the health crisis, FedEx’s guidance will be in focus.
On the back of the Covid-19 crisis, Amazon have announced plans to hire 100,000 staff in order to keep up with the surge in demand for their products. Hopefully the move from the online retailer should help out people who recently lost their jobs amid the health crisis.
Regeneron Pharmaceuticals’ shares have jumped as the company said it hopes to have a treatment for Covid-19 ready for human testing by early summer. The group brought forward the date for testing, so dealers view that as an extra bullish sign.
FX
The US dollar index is driving higher again as dealers are taking the view the Fed have taken such extreme measures recently in terms of interest rate cuts and quantitative easing, the central bank is probably going to sit tight for a while. The dollar seems to be attracting some safe haven flows.
Sterling has been weak recently, so it didn’t take much of a move in the US dollar to hurt GBP/USD. The latest employment data from the UK didn’t help sterling’s case. The unemployment rate edged up to 3.9% from 3.8%, while average earnings cooled to 3.1% from 3.2%. The metrics are still respectable, but it acted as an incentive for the sterling bears.
EUR/USD’s decline was sped up by the dreadful German ZEW economic sentiment report. The reading was -49.5, and the consensus estimate was -26.4.The reading was the weakest since 2011. We could be in for a few weeks of awful economic indicators from the eurozone.
Commodities
WTI and Brent crude have rebounded slightly in the wake of the major declines seen yesterday. Lately the energy market has been correlated to the stock markets so the drive higher in equities is influencing oil. It is possible that short covering and bargain hunting are factors in oil move today too.
Gold has rebounded as a part of a wider reversal in the metals market. The plunge in the commodity yesterday appears to have attracted a few buyers today. For the time being, the relationship gold has with the greenback and stocks seems to have been suspended, as a rally in the greenback and stocks hasn’t dented the commodity – when usually it would send gold lower.
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