Yesterday, I noted that policymakers would be forced to chuck even more money at pandemic relief as second waves of cases and a painful and incomplete economic recovery bit. Right on cue, the Federal Reserve announced it would start buying individual corporate bonds, building on the existing purchases of ETFs. The Fed ‘will purchase corporate bonds to create a corporate bond portfolio that is based on a broad, diversified market index of U.S. corporate bonds’, the central bank said.
The Fed is stepping things up after its statement last week left investors more than a little concerned about the pace of recovery. The move suggests that the Fed, as was clear last week, is worried about the economy enduring a protracted downturn. Meanwhile the White House is again said to be mulling a $1tn infrastructure plan to stimulate the economy. The two horsemen of risk sentiment recovery – monetary and fiscal stimulus – riding to the rescue again.
US equities bounced strongly off the lows of the day. The S&P 500 closed up 0.83 per cent at 3,066, a full 100 points above its low of the day. The Dow scrubbed out a 760-point drop to finish up 157 points. European equities closed lower but well off the lows. Things had looked a little dicey as the major indices tested some key support, but the ‘plunge protection team’ arrived right on time. The Vix swung from a high close to 45 to close under 35 – the Fed made clear it’s got this.
Today the major bourses have taken their cue from Wall Street and opened higher. Asian markets rose. The FTSE 100 rose more than 2 per cent to back above 6,200 and test the 100-day line resistance, while European counterparts rose by similar amounts. Ashtead Group rose c15 per cent in early trade after it maintained its dividend despite a halving in profits. The infrastructure stimulus touted by the White House would be a massive boost for the construction equipment company.
UK Company Announcements
| Company | Announcement |
| Greggs (GRG) | The group will reopen around 800 shops for takeaway on Thursday 18 June, in line with its return strategy under which it aims to open the rest of its estate in early July. |
| Cineworld (CINE) | The cinema group will have all of its sites reopened by mid-July, planning first to open its Czech and Slovakian outlets on 26 June. |
| Keller (KLR) | The second quarter Covid-19 impact to date has been less than anticipated although there have been more contract deferrals and cancellations and pricing pressure in North America. The final dividend has been amended from 27.4p to 23.3p, keeping the total 2019 payout level with 2018. |
| De La Rue (DLAR) | The Serious Fraud Office investigation launched in July 2019 looking at the group’s South Sudan business has concluded, and no further action is being taken. |
| RPS (RPS) | Fee revenue decline by 17 per cent year-on-year at constant currencies in April and May. As at 29 May, the group had £77m of net debt – down from £103m two months earlier – £120m of headroom on its committed bank facilities and £20m of cash. |
| Capita (CPI) | Commencing in January, the group has secured a five-year contract with Irish Water to manages its customer contact centre services, with an annual value of €10m. There is an optional two-year extension worth an extra €17m. |
| PureTech Health (PRTC) | Akili, founded by the group, has received clearance from the US Food and Drug Administration (FDA) for ‘EndeavorRx’ as a prescription treatment for children with attention-deficit/hyperactivity disorder (ADHD). |
| Orsted (DK:ORSTED) | After eight years in post, chief executive Henrik Poulsen has resigned “to free up time to pursue other challenges”. He will step down no later than 31 January 2021. The search for his successor has begun. |
| Telecom Plus (TEP) | The utilities firm boosted its full year dividend by 9.6 per cent to 57 pence a share. While the disruption caused by lockdown reduced its net customer base during April and May, this has started to reverse. |
| Eckoh (ECK) | Record total business contracted grew by a tenth to £35.9m in 2020, with pre-tax profits more than doubling to £3.3m. |
| 4imprint (FOUR) | Weekly order counts in May and early June are beginning to recover for the marketing group, now approaching 50 per cent of the 2019 comparative. |
| Warehouse Reit (WHR) | Since the end of March the warehouse landlord has completed or is under offer with 43 lettings and lease renewals across 277,000 square/feet of space, which will generate annual rental income of £1.9m. We continue to rate the group's long-term income potential. |
| easyJet (EZJ) | The airline has now agreed revised dates for the deferred delivery of its 24 new aircraft. These will now arrive from its 2025 to 2027 full years, having earlier been deferred only beyond December 2022. |
Reports circulating close to the market open of North Korea blowing up the inter-Korean liaison office in Kaesong near the border need to be monitored but we have yet not seen any major market response. There are also reports of an ‘incident’, between Chinese and Indian forces on the border later described as a ‘violent face-off’ in which at least three Indian soldiers were killed. So, a little geopolitical shenanigans to add to the mix this morning but thus far nothing overly significant for the market.
Support for risk assets helped lift crude prices, with WTI for August climbing back above $37 around the middle of the range of the consolidation over the past month. Support is holding around $35 but the 200-hour moving average at $37.70.
FX markets remain broadly steady with majors holding within ranges, with risk currencies supported this morning. GBPUSD has bounced firmly off yesterday’s lows at 1.2450 to test the 200-day SMA at 1.2690, which has acted as resistance and the pair has nestled back on the old comfort around 1.2630. EURUSD traded above 1.13 again as the long-term 23.6 per cent level at 1.1230 starts to look like meaningful support to act as a base for the next leg higher.
Chart: FTSE recovery looks to get back into the channel and recover both the old 50 per cent retracement and the 100-day simple moving average, which after last Thursday is starting to act as near-term resistance. Thursday’s cash market opening high at 6,329 needs to be cleared to resume the uptrend.
Chart: SPX tested the old 61.8 per cent retracement and 100-day SMA at 2936, which held. Thursday’s cash opening high at 3,123 needs to be cleared to resume the uptrend.
Neil Wilson is chief markets analyst at Markets.com
