European stocks were steady near the flatline on a quiet Friday session with the US market closed for the Independence Day holiday. Stocks rallied in the prior session after a bumper US jobs report showed 4.8m jobs were created in June. Despite this, as detailed yesterday, the unemployment rate remains very high at more than 11 per cent, the more up-to-date weekly initial and continuing claims numbers are not improving quickly enough, and the recent spike in cases means several states are re-imposing lockdown restrictions, which will hamper jobs growth in July.
Risk assets gained more support as the Chinese services PMI rose to a 10-year high at 58.4 – the usual caveats about diffusion indices apply, as to the usual caveats about any data out of China, but it’s solidly encouraging for markets. Australian retail sales bounced back almost 17 per cent. The number of cases in the US continues to surge – more than 55k in a single day the latest total, with the governor of Texas now mandating the wearing of face masks. Speaking of China - are we heading into a second cold war, this time between the US and China - listen in to this week's Investment Hour podcast for more.
Major indices continue to track around the middle of the June range, though thanks to a decent run this week are now moving towards the upper end of the range having tapped the lower end last week. The S&P 500 cleared the 61.8 per cent retracement yesterday but closed well off its highs, while the Dow is struggling to hold the 50 per cent level. In Europe the FTSE 100 is holding above the 50 per cent level, while the DAX is facing resistance today at the 78.6 per cent level. After a strong week and with the US shut, it might be a quiet session today. Scratch that - with pubs about to reopen and with every trader planning their weekend engagements, it will be a very quiet one in London.
Anyone arriving in England from a number of countries including Spain, France, Germany and Italy won’t need to self-isolate from July 10th, whilst the government is also easing international travel restrictions. A full list of countries that people can arrive from without self-quarantining will be published today. Relaxing the draconian quarantine rules and allowing more ‘non-essential’ travel should come as a shot in the arm for many beaten up travel & leisure stocks, but there’s a long way to go to restore confidence and get people travelling as much as they did last year. It will take years to get air passenger numbers back to 2019 levels.
Pub and restaurant stocks have taken a beating during the pandemic, but investors may be able to raise a glass come Saturday as the various inns and hostelries reopen because share prices have recovered remarkably well. Marston’s has risen threefold from its March low, while JD Wetherspoon and Mitchells & Butlers have both more than doubled in that time. Mine’s a quadruple whisky.
UK Company Announcements
| Rio Tinto (RIO) | The major Oyu Tolgoi underground project has lost around 8 per cent of its copper reserves under a mine plan redesign. The 21-29 month delay and 20 per cent higher budget remain. |
| CMC Markets (CMCX) | Shares in the CFD platform provider are flying once again after management said net operating income is likely to exceed even the highest analyst forecast of £255.5m this year. Given that the current financial year is only three months old, this suggests momentum is here to stay. |
| Rank Group (RNK) | Mecca bingo clubs will open from tomorrow, the gambling operator announced, with 35 sites opening initially in England with a further 30 due to open through July and August. Revenues have been at 60 per cent of pre-pandemic levels. |
| Fuller Smith & Turner (FSTA) | The pub group delayed its results release for a second time, with auditor Grant Thornton requiring additional time to complete its processes. As the hospitality sector prepares to open up, Fullers will open 27 pubs tomorrow and have 80 per cent of its pubs and hotels open by the close of July |
| Numis Corporation (NUM) | Capital raisings for larger corporate clients including ASOS, Beazley, Ocado, and Unite pushed third quarter revenues "materially ahead" of each of the first two quarters, while equities trading remains robust - further evidence that the investment bank is having a good crisis. |
| Draper Esprit (GROW) | When the tech-focused venture capital firm published full-year results on Monday, CEO Martin Davis cautioned that Zynga's $1.85bn purchase of Draper portfolio company was conditional on regulatory clearance. That has arrived, meaning £39m in cash is heading the way of the fund in the coming days, with shares in Zynga subject to a 6 month lock-up. |
| Land Securities (LAND) | Just 60 per cent of the landlord's rent was collected in June, while like-for-like sales in its stores in the final two weeks of the month were just 80 per cent of last year's figures, despite the apparent pent-up demand. A pledge to reinstate the dividend at the interim stage has caused a bump in the shares this morning, nonetheless. |
| Manolete Partners (MANO) | Investors bid up the shares this morning, after the fast-growing insolvency litigation financier posted a 38 per cent leap in post-tax profits. The caseload continues to grow, though operating cash flow continues to lag reported profits. |
* For those interested in trading individual stocks, read our day trading specialist Michael Taylor's weekly columns - this week he is taking a closer look at Anglo American. *
Oil (WTI-Aug) drifted higher to the top of the Jun 8th peak around $40.70 where it’s pulled back to the $40 round number. The move higher has been steadily losing momentum and failure at the $40.70 area suggests perhaps the progression of the double top into a head and shoulders reversal pattern.
In FX, the pound’s bounce ran out of steam and the euro has come back to its anchor. GBPUSD rallied strongly out of the channel but hit resistance at 1.2520 and has consolidated in a very narrow range around 1.2470. As markets opened in Europe the pair slipped this range and started a move lower – it could retrace towards the round number support at 1.24. Meanwhile EURUSD has come back to 1.1230, the anchor point for the whole of June. This is the 23.6% retracement of the 2014-2016 top-to-bottom rout. As the bullish flag pattern nears completion, we should expect a breakout soon – the swing highs around 1.14-1.15 offering the main resistance.
Neil Wilson is chief markets analyst at Markets.com
