European stock markets are set to finish the session in positive territory as dealers are still optimistic that politicians in the US will reach an agreement in relation to the coronavirus relief package.
Europe
The negotiations between Republicans and Democrats are still dragging on, and there isn’t much hope that things will be resolved quickly, but ultimately there is a sense that a deal will be reached in the end. The FTSE 100 has been largely steady for the last few hours, while the DAX 30 and the CAC 40 have handed back some of their earlier gains. In London, mining, oil and gas, house builders, banks and airlines are showing decent gains.
SERGO shares hit a record high today as it posted well-received first half numbers. There was a 6.5% increase in the adjusted first half pre-tax profit to £140.4 million. In the six month period, like-for-like net rental income ticked up by 2%. The vacancy rate crept up from 4% to 5.2%. SEGRO specialise in warehousing that is typically rented out by companies that operate in online shopping – an industry that has seen a surge in demand recently, and appears to have a bright future. The property firm nudged up its interim dividend by 9.5% to 6.9p, and that projects a very positive image.
William Hill (LON:WMH) has been hard by the health crisis as the group were forced to close their high street stores and sporting events were cancelled. Statutory revenue declined by 32% to £554.4 million. The adjusted pre-tax loss was £14.2 million. The group confirmed the adjusted operating profit was £11.8 million, and that exceeded their expectations. Online revenue edged by only 1% but that clearly wasn’t enough to counteract the high street division. The group confirmed that it will not re-open 119 shops, and this move should help cut costs.
Metro Bank (LON:MTRO) shares have taken a hit on the back of its first half pre-tax loss of £240.6 million. Revenue fell by 29% on an annual basis to £153.3 million. The depressed interest rate environment impacted the net interest margin. It fell from 1.62% last year to 1.15%. Metro cautioned the low interest rate climate will have an impact its profitability in the medium term. Like other banks, it expects a jump in defaults as the provision for bad debts surged from £4.4 million in June 2019 to £112 million. The CET1 ratio weakened slightly from 15.6% in December to 14.5%. It is not ideal that the key liquidity ratio cooled, but in the grand scheme of things, it is still strong. The company expects to complete the takeover of RateSetter for £12 million to finalise in the second half. The takeover is a part of the group’s plan to expand but it is a risky strategy to acquire a peer-to-peer lending business in the current environment, as defaults are likely to be an issue for the next few couple of years.
Ferrexpo (LON:FXPO) shares are higher on the session on the back of the first half update. Revenue slipped by 1% to $776 million and profit after tax slipped to $250 million, from $270 million in the same period last year. The interim dividend was held at 6.6 cents. Since the pandemic struck, a huge number of companies have either cut or halted their dividend so Ferrexpo’s decision to keep the policy unchanged makes them attractive to investors seeking an income stream.
US
The sentiment is positive in the US as some optimism is still doing the rounds with respect to the stimulus package. Neither the Democrats nor the Republicans are willing to compromise at the moment, but there is a belief that both sides will reach some sort of agreement in the end. Richard Clarida, the Fed vice chair, said the US economy might return to pre-pandemic levels of activity by the end of 2021. The latest ADP reading was interesting to say the least. Economists were expecting 1.5 million jobs to have been created in July, but the reading came in at 167,000. The June report was revised from 2.36 million to 4.3 million. When you take the two reports together, it paints a positive picture of the labour market. Seeing as some states have paused the re-opening of their economies, future ADP (NASDAQ:ADP) reports are likely to be small.
Nikola (NASDAQ:NKLA) shares are in the red after the company revealed its second quarter numbers last night. The loss per share was 33 cents, which was a big increase from the 6 cents loss per share that was posted in the same period one year ago. The group manufactures hydrogen and electric-powered trucks and it confirmed its supply chain was impacted by the pandemic, but its long term targets will not be impacted. Nikola shares have had a volatile run recently as it often gets lumped in with Tesla, so the news that its second quarter loss has widened has greatly impacted sentiment.
Disney (NYSE:DIS) posted mixed third quarter numbers last night. EPS was 8 cents, and that smashed the loss of 64 cents per share that equity analysts were expecting. The theme park division saw revenue slump by 85%, and the studio business registered a 55% fall in revenue. Disney+, the steaming service now has 60.5 million paid subscribers. When the service was launched at the back end of 2019, the company aimed to have 60-90 million paid subscribers by 2024, so it achieved that target well ahead of schedule. Disney+ subscribers in the US will have the option to watch Mulan for $30, and it will be released in early September.
Beyond Meat's (NASDAQ:BYND) second quarter loss widened to $10.2 million from $9.4 million. Sales jumped by almost 70% to $113.3 million, topping the $99.7 million forecast. The closing of restaurants has greatly impacted the business, but grocery sales jumped by more than 190%. The group spent $5.9 million on repacking goods for grocery stores that were originally tipped for restaurants.
FX
The US dollar index is showing a sizeable loss. On Friday, it fell to its lowest level in over two years. There was a rebound but that ran out of steam and it is possible it will retest the recent low in the next few days.
EURUSD and GBP/USD have been lifted by the drop in the US dollar. The latest services PMI reports from Spain, Italy, France and Germany all showed growth between June and July. It was a similar situation when the UK reading, which came in 56.6, meeting forecasts, and that was an improvement on the 47.1 posted in June.
USD/CAD has fallen to a level last seen in February as the weaker dollar and the rise in the oil price has put pressure on the currency pair.
Commodities
Gold has flown past the $2,000 mark and the weakness in the dollar has boosted the metal. There has also been a bullish run in the silver –it hit a new seven year high. The metals are traded in US dollars so the slide in the greenback has made them relatively cheaper to buy. Precious metals are in high demand these days, partially because government bond yields have been driven lower by the very loose monetary policy held by central banks.
WTI and Brent crude oil hit their highest levels since early March. Last night, the American Petroleum Institute report showed that oil inventories tumbled by 8.6 million barrels, while traders were expecting a fall of only 3 million barrels. The sharp fall in inventories suggests that demand is strong. Todays EIA report, showed that US oil inventories dropped by over 7 million barrels and that was far greater than the 3 million barrel fall that traders were expecting. Gasoline inventories rose by 419,000 barrels but dealers were expecting a draw of 170,000 barrels.
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