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Market Outlook: Stocks come off highs, OPEC cut, AstraZeneca, Plus500 & more

Markets are taking a breather
June 8, 2020

German and Chinese data is taking the gloss a little off Friday’s US jobs report, but the overriding sense in stock markets remains one of remarkable optimism. Speaking of which, pubs in England could reopen by 22 June.

Stock markets surged last week and completed Friday by breaking through more important levels after a very strong jobs report from the US. The nonfarm payrolls report showed the US economy added 2.5m jobs in May, after more than 20m were lost the previous. This was taken as a reason to buy stocks as it handsomely beat forecasts of 8m jobs being lost. The S&P 500 is now down just 1 per cent for the year and trades with a forward price-to-earnings ratio of more than 23.  

The report was of course hailed as a signal of American greatness – the biggest comeback in history, according to Donald Trump - and the White House even suggested it meant less support may be needed for the economy: 'There’s no reason to have a major spending bill. The sense of urgent crisis is very greatly dissipated by the report,’ said the president’s economic advisor Stephen Moore. Cue the Federal Reserve this week which need to keep up the ‘whatever it takes’ mantra – does it see concern in the recent rise in Treasury yields that it needs to lean on, or will it take their recovery as a sign of optimism? 

I would like to make three points on this jobs report. One, an unemployment rate of 13.3 per cent is still very, very bad – 18m jobs lost over two months and a continuing weekly claims count on the rise. Two, this was the easy bit as furloughed workers came back to their jobs as soon as they could – this seemed to happen a little quicker than had been expected but was, in itself, not the surprise. The tough part is not the immediate snap back in activity once restrictions lift, but recovery to 2019 levels of employment and productivity, which will take much, much longer. Three, the data itself is flawed. There have been classification errors, so the real rate of unemployment may be much higher, whilst the response rate to the survey was a lot lower than usual.  

Treasury yields and stocks surged – the S&P 500 went above 3200 before closing at 3193, whilst 10-year yields drove to 0.94 per cent. Gold pulled back to its weakest level in a month. Read Chris Dillow's thoughts on the yield curve's warning. 

European stock markets opened lower on Monday, pulling back marginally from Friday’s peaks as Chinese trade data and German industrial production numbers weighed. China’s exports fell 3.3 per cent year-on-year in May, whilst imports declined 16.7 per cent. German industrial plunged 18 per cent last month, the biggest-ever decline.  But there is little sign risk appetite has really slackened. The FTSE 100 looks well supported now above 6400, having closed the all-important March 6th-9th gap. The DAX looks well supported at 12,700.

Company announcements

 

CompanyAnnouncement
AstraZeneca (AZN)

Bloomberg has reported that Astra contacted Gilead (US:GILD) informally last month about a potential merger, but Gilead wasn’t interested in tying up with another big pharma company. Astra’s shares edged down 2 per cent. We remain positive.

Speedy Hire (SDY)

Full year results have been delayed to 23 June as it investigates allegations of “poor financial controls” at the Geason training business. Group revenue in April was 35 per cent lower than a year earlier, improving to a 17 per cent shortfall in the first week of June.

Amigo Holdings (AMGO)

The dumpster fire burns brightly today with news that a surge in customer complaints will cost at least £35m to clear, sparking a large provision and a full-year a dividend cut, while a potential acquirer has pulled out. Chairman Stephan Wilcke has resigned as founder James Benamor seeks to remove the board.

Plus500 (PLUS)

For the fifth time since February, the CFD provider has flagged record levels of platform trading activity, though customers' recent net gains, and uncertainty over Australian regulatory changes and continued market volatility, means internal earnings forecasts are in-line with market consensus. Such concerns keep us doubtful, too.

Oxford Biomedica (OXB)

Has signed a five-year collaboration deal with the Vaccines Manufacturing and Innovation Centre (VMIC). Both organisations are part of the consortium working to scale up Oxford University’s potential coronavirus vaccine.

Hummingbird Resourcces (HUM)

After announcing a major farm-out deal last week, the gold miner has made another big move, buying a new gold project in Guinea for £10m.

Lookers (LOOK)

Lookers auditor Deloitte will resign after notifying the car dealer that its 2019 annual results would not be published by its 30 June deadline, which have already been delayed amid a fraud investigation. Lookers' shares would be suspended from trading from 1 July until the release of its results.

Crude prices gapped higher at the open after OPEC+ agreed to extend the deepest level of production cuts by another month and Saudi Arabia followed this by hiking its July official selling prices by around $6, more than had been expected. A deal among OPEC and allies, confirmed on Saturday, had already been all but announced last week. WTI (Aug) pushed up above $40 but gains have been capped with this agreement being all but fully priced. The question will be whether there is appetite among members to extend cuts again. Those countries that have not complied with quotas in May and June will need to make up the difference in July, August and September. Higher oil prices will encourage US shale producers to reopen taps, whilst it is unclear how well demand is coming back despite lockdown restrictions being lifted around the world.

 

 

Neil Wilson is chief markets analyst at Markets.com