Corporate PR is not something that worries traders regularly. Sometimes bad press is bad for the stock – look at Facebook and Cambridge Analytica. Sometimes the optics are just a bit galling for some of us. Take HSBC, which saw fit to promote overtly anti-Brexit propaganda with its ‘We Are Not an Island’ ad campaign. Now, along with Standard Chartered, it is backing controversial national security in Hong Kong that will destroy freedom in the territory supposedly enshrined by the 1984 Sino-British joint declaration. It’s in tough spot of course – most of its revenues come from Greater China. It needs Beijing on side, but equally it should probably take a moment to put its political views in context next time. Shares are down a third YTD and have halved in the last two years. Read Alex Newman's take on HSBC from earlier this week.
Meanwhile stimulus everywhere is supporting equity market gains. Germany has agreed a €130bn stimulus package to reinvigorate its economy, while Australia has unveiled its fourth, A$680m programme, aimed at boosting the construction sector. The European Central Bank (ECB) will today likely stretch its pandemic asset purchase programme by another €500bn. See our ECB preview here.
Stocks roared higher on Wednesday, with all the major indices marking another day of progress, but the rally has paused and stocks are off slightly ahead of the ECB meeting and US jobless numbers today. The FTSE 100 closed above 6380 as bulls drive it back to the March 6th close at 6462. The DAX moved aggressively off its 200-day moving average and has support at 12,400 despite a slight pullback today. The S&P 500 rose 1.4 per cent to clear 3100 and moved close to the 78.6 per cent retracement level. It now trades with a forward PE of 22.60. The Dow rallied another 500 points, or 2 per cent, before running into resistance on the 200-day moving average around 23,365 on the futures after the cash close. The Nasdaq is only a few points from its all-time high. Find out why companies editor Mark Robinson thinks this has been the classic irrational rally in markets in this week's Taking Stock column.
UK Company announcements
| Company | Announcement |
| Fevertree (FEVR) | The tonic group’s on-trade sales have been hit by lockdowns, but off-trade has been strong. Management said Fevertree’s asset light model supported its financial position. FY2019 net cash was £128m. Hold. |
| HSBC (HSBA) | The lender has backed China’s proposed national security law for Hong Kong. The move – framed as an act of support for the city state’s economic recovery – could either be seen as a messy compromise to an intractable dilemma, or a definitive siding with Beijing. |
| Dechra Pharmaceuticals (DPH) | The veterinary products group has announced an £133m (gross) placing of 5.1m shares at 2,600p each, representing 5 per cent of its share capital – aiming to maintain a prudent balance sheet and retain flexibility. The full-year outlook is broadly in line with management’s expectations. Hold. |
| Helical (HLCL) | The office development group and landlord, which grew its EPRA net asset value by 6 per cent during the year to March, has now completed the development cycle that began in 2011 but Covid-19 has delayed the letting recently of completed schemes Kaleidoscope, London EC1 and Trinity, Manchester. That is likely to have an impact ion earnings this year, management said. |
| Pennon (PNN) | With the sale of Viridor due to complete in the summer, the leftover water and wastewater operations saw revenue remain flat at £637m in the year to 31 March. Unveiling its dividend policy for the next five years, the annual payout will increase by 2 per cent above CPIH inflation. |
| Renewi (RWI) | The waste-to-products business narrowed its statutory pre-tax loss to €59m in the year to 31 March, but remained weighted down by €120m in exceptional charges. It is guiding to a potential €20m hit to operating profit and cash in the first quarter of the current financial year. |
| Young & Co (YNGA) | The pub operator plans to open all venues by 3 August and is aiming to run these with one metre social distancing, warning that the two metres guided by the government will render 70 per cent of pubs and restaurants unviable and add 1m in job losses. Young's secured record full-year revenues of £312m - this came despite previous warnings over a tough following act from a bumper 2018. |
| Hummingbird Resources (HUM) | The gold miner has signed a deal with a company part-owned by its chief executive to farm-out the Dugbe project in Liberia for $2m (£1.6m), under which ARX Resources will spend $10m in exploration and put together a definitive feasibility study. |
| Impax Asset Management (IPX) | Evidence is building that Covid-19 will bring both consumer preferences and government regulation more in line with "the requirements of sustainable development", according to the specialist fund manager. Judging by strong recent inflows, investors are on board too. |
| IG Group (IGG) | The online trading firm has posted yet another upgrade to its forecasts for its 31 May-end financial year. Fourth quarter net trading revenue is now expected to hit £259m, a rise of 120 per cent year-on-year. |
| Intermediate Capital (ICP) | Full-year results reveal a spike in net unrealised losses in the debt investor's own portfolio. An increase in expected default rates in the group's CLO investments - which we recently warned could be an issue - also helps explain the group's share price decline this morning. |
| Euromoney Institutional Investor (ERM) | Operating profit dropped by 11 per cent in the first half to £41.1m compared to the same period last year. The group has retained its asset management business following a review in April. |
Although we are seeing a mild pullback at the European open this morning, the dislocation between markets and the real economy is frankly unsustainable. On that front we have the weekly US jobs number today – we're looking at continuing claims as the more important number as a gauge of how swiftly the US economy is getting going again. Continuing claims are seen at 20m, down from 21m last week. Hiring should be exceeding firing now, but it will be a long slog back to where things were. Riots and curfews in big metropolitan areas don’t help.
The ECB meeting today will also help guide our view of how bad things are in Europe as we focus on the new staff projections. The ECB has detailed three scenarios for GDP in 2020 relating to the damage wrought by the pandemic: mild -5 per cent, medium –8 per cent and severe –12 per cent. Christine Lagarde said last week that the “economic contraction likely between medium and severe scenarios”, adding: “It is very hard to forecast how badly the economy has been affected.” Indeed there is actually no way of really know how badly Q2 went. We have various sources estimating pretty seismic falls; INSEE says French GDP will contract by 20 per cent in the second quarter. Estimates for Germany suggest a roughly 10 per cent decline. The inflation projections will also be closely watched after HICP inflation in May slipped to its weakest in 4 years and outright deflation was recorded in 12 of the 19 members of the euro. Markets will also be keen to see what the ECB Governing Council makes of this development three years after Draghi declared the war on deflation won. Aside from the economy and inflation, the market is happily expecting an increase to PEPP of €500bn.
The FTSE quarterly rebalancing has been confirmed with Avast, GVC Holdings, Homeserve and Kingfisher entering the FTSE 100, and Carnival, Centrica, EasyJet and Meggitt dropping into the FTSE 250. EasyJet and Carnival have really taken a beating since the pandemic hit and longer term their business models are a problem if people don’t go on cruises, or if you enforce social distancing on planes. Centrica has had a rough old time of things as its UK customer base has shrunk drastically, whilst earlier this year the company booked a number of one-off impairment charges relating to its oil & gas assets and nuclear power plant stake – a process it has since put on hold. Its main appeal of course was a steady income from a traditionally iron-cast dividend, which it has suspended.
Entering the FTSE 250 | Exiting the FTSE 250 |
888 Holdings AO World BB Healthcare Trust Calisen Carnival Centrica Civitas Social Housing EasyJet JLEN Environmental Assets Group Liontrust Asset Management Meggitt Oxford Biomedica Scottish American Investment | Avast (promoted) Bakkavor Group Elementis Forterra GVC Holdings (promoted) Homeserve (promoted) Hyve Group JPMorgan Indian Inv Trust Kingfisher (promoted) Marstons Mccarthy & Stone Senior Stagecoach Group |
In FX, he dollar has regained a little ground against major peers. GBPUSD failed to make the move stick above 1.26 to take out the Apr double top level and is now looking to test support around the 1.25 round number and the 23.6% retracement at 1.2510. EURUSD has eased off the 3-month highs struck yesterday but looks well supported for the time being at 1.12 - the ECB meeting today will deliver the usual volatility so watch out.
Oil has pulled back amid uncertainty over the OPEC+ meeting. Price dropped sharply yesterday before paring losses as it looked like the meeting would not take place today because of a dispute over compliance. Now we understand Russia and Saudi Arabia have agreed between themselves to extend the deepest level of cuts by another month, meaning the tapering from 9.7m bpd to 7.7m bpd will take place in August. But they want non-compliant countries to play ball this time and over-comply going forward to make up for it. Whilst I think OPEC and Russia can just about keep the cuts on track, there are clear signs that this deal is a huge ask for many within OPEC and may unravel over the summer if prices hold up. Russian energy minister Novak was on the wires this morning saying oversupply was down to 7m bpd in May and could move to deficit of 3-5m bpd in July.
Chart: Dow runs into 200-day simple moving average
Neil Wilson is chief markets analyst at Markets.com
