European markets nudged up on Monday as the cash opens followed the futures higher and bulls tried to recover last week’s highs. Stocks across Europe finished Friday sharply weaker on US-China fears that eased a bit after the cash markets closed, but still the major indices rose last week. Find out what the latest news from Hong Kong could mean for the bank whose name is forever linked to the territory, HSBC.
On Monday, the FTSE 100 rose over 1 per cent at the open to 6,176, with bulls eyeing Thursday’s peak at 6,234. The DAX also faded later on in the session on Friday to rest on the 61.8 per cent retracement – although Frankfurt is shut for Whit Monday, futures are trading higher. US futures are in the green. The Hang Seng led Asia higher and shot up by more than 3 per cent.
US stocks edged higher on Friday as Donald Trump’s press conference on China was not as bad as feared, albeit the US is to end preferential status for Hong Kong for trade and travel and is ending ties with the WHO. This rally completed a very solid month for Wall Street as both the Dow and S&P 500 finished 4 per cent higher, while the Nasdaq was up almost 7 per cent. Market nerves were calmed as Trump held something back and did not reignite the trade war, but we should nevertheless stress that US-China tensions are expected to deteriorate over the coming months as Trump doubles down ahead of the presidential election. China has responded this morning with comments from the foreign ministry offering the usual non-descript warnings of ‘countermeasures’ and advice to the US to just butt out.
Looking at the economic damage from Covid, today’s focus is the US ISM manufacturing PMI, which is seen rebounding to 43.5 from 41.5. Overnight data showed South Korean exports tumbled 23.7 per cetn in May, which was worse than expected but an improvement on April’s 25 per cent decline. Manufacturing activity in the country declined at the second fastest clip since 2009, marginally improving from April. Japan’s factory activity contracted at the sharpest pace since 2009, the final PMI showed. China’s manufacturing PMI showed a tiny amount of expansion but the damage to global trade from the pandemic left new export orders still in contraction. Remember, PMIs only ask if survey participants think things are better or worse than the previous month, so they give a pretty imperfect snapshot of economic activity in times of crisis. A reading over 50 only tells us things are better than last month – not a high bar to clear. The real hard economic data we want to see will look at the period after lockdown restrictions end.
In FX, the dollar is offered at the start of the trading week with momentum continuing against the greenback. The dollar index is lower, taking a 97 handle and breaking down through the 61.8% retracement of the Covid-inspired rally.
GBPUSD hit 1.24, clearing the 50 per cent retracement at 1.23750. EURUSD advanced as high as 1.1150 running into resistance at this level, the March 27th swing high. The ECB meeting this week is the chief focus for the euro, with most anticipating the central bank to push its PEPP envelope wider by another €500bn whilst the going is good – see our ECB Preview: Welcome to Japan?.
Brexit risks come to the fore again this week as talks resume on Tuesday. The language last week from the UK’s chief negotiator David Frost was not optimistic, saying the EU mandate is not likely to produce a deal. Michel Barnier hit back, telling The Times that the UK has taken ‘three steps back’. The next few days will be crucial to break the deadlock and we will be paying close attention to whether the two sides think that progress has been made this time around.
OPEC may bring its June meeting forward to this Thursday at the request of Algeria, which holds the rotating presidency. Algeria says this is to facilitate crude sales for Saudi Arabia, Iraq and Kuwait. Russia, the key lynchpin of OPEC+, is reported to have no objections.
This may suggest an energy and enthusiasm to get a deal on maintaining deeper cuts for longer. July is currently set to see a gradual tapering of cuts down from 9.7m bpd in May and June, but there has been a lot of chatter that Saudi Arabia is trying to bring Russia around to backing an extension to make the deeper cuts last longer – perhaps for the rest of 2020. Whilst OPEC production hit 20-year lows last month, compliance with the agreed cuts stood at around 75 per cent as Iraq and Nigeria failed to meet targets. Crude prices rebounded sharply in May and are cautiously holding gains ahead of the OPEC+ talks. WTI for August was up at $35.73, although front month contracts have pulled back on Monday.
Headline announcements from UK markets.
| Company | Announcement |
| AstraZeneca (AZN) | Supporting our buy case, ‘Lynparza’ has been recommended for EU marketing authorisation to treat a type of pancreatic cancer. The group's ‘Brilinta’ drug has also received US approval for certain high-risk coronary patients. |
| Associated British Foods (ABF) | The group expects over three-quarters of Primark’s selling space to reopen by mid-June. Trading in stores already reopened has been “reassuring and encouraging”. Second-half cash flow should be “much improved”. Pending a July update, we're neutral. |
| Capital and Counties (CAPC) | The commercial landlord has agreed to acquire a 26 per cent stake in Shafestbury for £450m or 540p a share, equivalent to a 13.9 per cent discount to the closing Shaftesbury share price on Friday. Legal proceedings brought by Samuel Tak Lee against Shaftesbury have also been dropped. However, we think CapCo's growth prospects remain dim. |
| Amigo (AMGO) | The guarantor loan provider has filed an application for an injunction with the High Court against major shareholder Richmond Group, in the hope of preventing it from voting in favour of the resolutions to appoint Sam Wells and Nick Makin as directors and replacing the current board altogether. It is the latest development in a escalating battle between the group and founder James Benamor, via his investment company. |
| Sirius Real Estate (SRE) | The German industrial landlord reported 15 per cent growth in funds from operations over the year to March and achieved 98 per cent of rental collections in April. A final dividend of 1.80c has been recommended, taking the annual total to 3.57c a share. We think the group is well-placed to ride out the current market volatility. |
| Ted Baker (TED) | The clothing retailer slumped into a pre-tax loss of £79.9m in its latest annual results, which cover the period to 25 January 2020. Ted Baker also announced its intention to raise around £95m via a share placing. |
| Petropavlovsk (POG) | The Russia-focussed gold miner has said it is not in formal talks with major shareholder UGC about a merger, after chief executive Pavel Maslovskiy told The Telegraph a tie-up could “definitely happen”. |
| Hollywood Bowl (BOWL) | The bowling operator's pre-tax profits for its six months running to 31 March 2020 fell £1.1m, or 6.7 per cent - the company attributed £0.8m of this fall to the adoption of new accounting standards. Hollywood Bowl laid out a reopening strategy alongside its results, which include the use of alternate lanes. In April, it announced that it had secured headroom on its balance sheet. |
Neil Wilson is chief markets analyst at Markets.com
