Join our community of smart investors

Market Outlook: Equities rally ahead of Wall Street’s earnings, G4S, Quiz & more

Blue chips are in demand in early trading
July 13, 2020

A positive start to the week for global equities reflected a strong finish on Wall Street on Friday and an unwillingness to get bogged down by record global daily case numbers. A surge in the futures overnight translated into +1 per cent gains for European cash equity markets as they opened, although the immediate move was to retreat off the highs made by the futures. 

Whilst indices have chopped around the Jun-Jul ranges, there are divergences in the performance: the DAX is close to its June high, the FTSE 100 has only retraced 38.2 per cent. Meanwhile futures show the S&P 500 is set to open at 3200, just 40 points from its post-March highs, whilst the Dow has only retraced 50 per cent. These discrepancies reflect index composition as much as anything else – what to watch out for this week will be whether the S&P 500 or the DAX break free or move back towards the middle of their ranges. 

UK Company Announcements

G4S (GFS)

If approved by a judge this week, a ‘deferred prosecution agreement’ will see G4S pay a £38.5m fine for the electronic tagging scandal – discounted by 40 per cent to reflect its cooperation – plus £5.9m to cover the Serious Fraud Office’s costs. G4S also expects its adjusted operating profit for the six months to 30 June will be “significantly above” market consensus of £159m.

Quiz (QUIZ)

Following last week's news that Boohoo (BOO) planned to launch a review into allegations over working practices in its supply chain, fast fashion retailer Quiz has said it is "extremely concerned" by reports made in The Times that allege non-compliance with National Living Wage requirements in a factory making its products in Leicester. Management said it is investigating the reports.

Novacyt (NCYT)

The six months to June were "transformational", with revenues soaring more than 900 per cent after the diagnostics group launched one of the world's first molecular tests for Covid-19.

Helical (HLCL)

The 50:50 joint venture between Helical and AshbyCapital has announced that it has secured a £140m facility to finance the development of 33 Charterhouse Street from Allianz. The facility has a four-year term, with the option to extend to a fifth year and the first planned drawdown is the third quarter of this year.

The WHO said over 230k new cases were recorded in 24hrs, a record. The US recorded over 70k cases but increasingly investors are shrugging off these headlines as it’s felt the country won’t lockdown in the same way again. Nevertheless, the spike in Covid cases has slowed reopening in several states and this could translate into a negative rate of change in some of the economic data which could be a problem for bulls. It’s a big week for data, not least the start of the Q2 earnings season on Wall Street (see Friday’s Earnings season previews, recovery signs & EU summit: the week ahead). As summarised in the note, the high frequency economic data should continue to point to recovery however it will be the rate of change that matters more – is the recovery gaining momentum or are the easy wins behind us? 

Tesla stock surged another 10 per cent on Friday to rise above $1,500. The company is likely to report a fourth straight quarterly profit on July 22nd, which would clear the way for it to enter the S&P 500, and may explain the recent rally as funds have decided they will need to own some of it. 

In commodities, gold continues to consolidate on the $1,800 level and with the bullish flag in play it could retrace further before the near-term pullback is complete, with the longer-term support on the trend line coming in around $1788. Speculative net long positioning rose, whilst inflows into gold funds continue to surge. Find out whether Alex Hamer thinks gold is still worth buying at $1,800. 

Crude oil continues to battle with the trend line as it tries to recover the bullish bias after last week’s sharp sell-off. Coming up this week is the U.S. Energy Information Administration (EIA) drilling report (Jul 13th) and OPEC monthly oil market report (July 14th). Speculative net positioning has barely changed in the last week, according to the CFTC COT report, with net longs at 535k vs 543k the prior week.

 

In FX, the dollar bounced a little of its lows in early trade with the dollar index making a bottom at 96.35 and pushing back up to 96.50. Sentiment for the dollar is a bit softer due to the risk-on trade, which is lifting major peers to drift higher. GBPUSD may have made a near-term top around 1.2670 but remains supported by the bullish channel.

 

Neil Wilson is chief markets analyst at Markets.com