Europe
Equity markets are deep in the red this afternoon as health concerns are weighing on sentiment. Yesterday’s update from Dr. Anthony Fauci, a health advisor to the U.S. government, spooked traders as he described the increase in COVID-19 cases in some U.S. states as ’disturbing.’ The statement comes as certain U.S. states, such as California, have seen an increase in the infection rate, which is a result of loosening lockdown restrictions. The medical expert wasn’t extremely pessimistic as he added there might not be a need for a total lockdown. As of July 4, the UK will relax its social distancing policy from two metres to one metre, in addition to that, there some lockdown restrictions will be eased, too. This should provide assistance to the UK economy, but there are worries we will see an increase in the infection rate in the months ahead.
Earlier today it was announced the U.S. is considering introducing tariffs on $3.1 billion worth of goods from the EU and the UK. It would appear that President Donald Trump is picking a trade fight with Europe in an effort to distract U.S. citizens from the domestic health situation.
The IMF now predicts the global economy will contract by 4.9% in 2020. In April, the body projected a 3% fall in global growth. The negative revision to the outlook wasn’t a shock since the organiization recently said its forecast will be reduced.
Premier Foods PLC (LON:PFD) shares have bucked the wider negative trend on the back of its solid preliminary annual results. Revenue and adjusted pre-tax profit increased by 2.8% and 6%, respectively. The group was given a boost during the lockdown as certain consumers decided to stockpile goods, while some people started baking more. Premier confirmed that it anticipates to top current expectations in relation to revenue and profits. The firm previously planned to save £5 million over the next two years and now it feels that it will exceed the target. Trading in the new financial year has been robust as revenue in the first quarter is expected to be roughly 20% higher on the year.
Petrofac (LON:PFC) shares have sold off today after the oil services firm said the major decline in the oil price seen in recent months has impacted their business in terms of being awarded contracts. The news is not a shock seeing as it is very common for energy firms to curtail their spending when there is a downturn in the underlying oil market. Conversely, a higher oil price usually sparks an increase in spending by oil groups, so Petrofac will have to weather the storm. The group is adjusting to the new environment as it is to cut costs by $125 million this year and up to $200 million will be cut next year. The guidance in relation to revenue and profit margins remains suspended.
Crest Nicholson (LON:CRST) posted poor first half numbers and the outlook was weak too, hence why the stock is in the red. Adjusted profit before tax in the six month period slumped to £4.5 million, a drop of 93% on the year. The company now expects full year adjusted pre-tax profit to be between £35 million and £45 million. Keep in mind that last year’s profit was over £120 million, so it would be a considerable fall. The house builder cited the pandemic and Brexit for the disappointing performance. That seems like a weak excuse seeing as many of its peers, such as Taylor Wimpey (LON:TW), Persimmon (LON:PSN) and Bellway didn’t undergo such as sizeable fall in earnings.
Wirecard's (DE:WDIG) scandal continues as the authorities in Germany have issued an arrest warrant for the former COO, Jan Marsalek. The former CEO, Markus Braun, has been released on bail. He was arrested on suspicion of fraud. The company has been in the spotlight lately as there are questions over the existence of a €1.9 billion cash balance.
Dean Finch has resigned as CEO of National Express and he will take the top job at Persimmon.
Lufthansa (DE:LHAG) shares are in the red as it is understood the airline has drawn up a plan B in case the shareholders don’t back the €9 billion rescue package offered by the German government. The vote will be held tomorrow.
U.S.
The major indices are lower as traders are worried by the warning from Fauci. In certain U.S. states, the number of new infections has been rising recently, so the situation has been bubbling away in the background, but the remarks from Fauci has made dealers sit up and take notice. The possibility of a trade spat with the EU and the UK hasn’t helped sentiment either. In the past 48 hours, Trump said the U.S.-China trade deal was intact. It seems that he is now directing has attention to Europe, possibly for political gain. He wants to be seen as if he is standing up for the U.S.
A story circulated yesterday that Dell (NYSE:DELL) is weighing up its options in relation to VMware (BE:VMWa). Dell has an 81% holding in VMware, and there is talk that Dell might look to acquire the other 19% that it doesn’t own, or perhaps it might seek to sell off the 81% stake. Both stocks are trading higher.
Carnival (NYSE:CCL) shares are lower following the downgrade of its debt to ‘junk’ status by S&P. The ratings agency feels that demand for cruises will remain weak on account of the COVID-19 crisis. The reduction in the credit rating could spark other ratings agencies to follow suit.
FX
The U.S. dollar continues to benefit from safe haven plays, and that is what is going on today. The currency has pulled back a large portion of the ground it lost yesterday when traders were in risk-on mode. GBP/USD plus EUR/USD have been hit by the positive move in the greenback. It was a quiet day in terms of economic data in Europe and the U.S. The German IFO business climate reading for June was 86.2, which was a decent improvement from the 79.7 posted in May.
Commodities
Gold registered a new seven-year high in this session but it has since retreated, and now it is broadly flat on the day. Given the risk-off sentiment doing the rounds, you’d expect gold to be higher today, but because the greenback is acting as a safe-haven play these days, it seems to be holding the metal back. The asset is in an uptrend and a break above $1,780 might pave the way for $1,800 to be tested.
WTI and Brent crude saw a jump in volatility on the back of the EIA report being announced. U.S. oil stockpiles increased by 1.44 million barrels, while traders were only anticipating a build of 850,000 barrels. Gasoline stockpiles fell by 1.67 million barrels, a larger decline than expected. The oil price has tumbled on health concerns, as demand might be hit.