The euro is at a 4-month high as EU leaders continue to talk after 3 days of meetings in Brussels in an effort to get agreement on a rescue package for countries hardest hit by the pandemic. The 'frugal four' are holding out and have a new ally in Finland, so make that the Frugal Five Get the EU into Trouble, if there is ever a book written about it. Hungary and Poland are also unhappy about tying aid to the rule of law. Hungarian Prime Minister Viktor Orban pointedly blamed the ‘Dutch guy’, meaning Dutch PM Rutte, and threatened to veto rule of law of conditionality.
EU Council President Charles Michel is touting a new deal with €390bn in grants, after the Frugal Five proposed a €700bn fund split equally between loans and grants which fell well short of what most other countries are hoping for. This is already down from the €500bn first imagined by Macron and Merkel.
Clearly cohesion is weak, but the EU is usually capable of working out a fudge of sorts. Talks are due to start again later today at 4pm Brussels time with early indications that the ‘frugals’ are prepared to accept the €390bn idea. The biggest hurdles are the size of grants and the conditions attached to the money.
The euro has made fresh highs above 1.14, with the move to 1.14670 this morning the highest since EURUSD has printed since March. With the euro marking a 4-month high it looks like traders are expecting some kind of deal is done, even if it falls short of the original plan. As noted last week, this not an ordinary summit – what’s being talked about is mutual debt issuance for the first time. A deal would mark a breakthrough for the EU and show that the bloc can respond to an era-defining crisis with one voice. Failure today is not the end of the road by any means, but it could produce a negative reaction in Euro-area sovereign debt, European equities and the euro.
European equities were softer on the open on Monday as the bailout fund talks loomed, with the major indices edging almost 1 per cent lower to retest the lower end of last week’s ranges. The FTSE 100 tested the 50 per cent retrace of the June range at 6220. US equities finished mixed on Friday as the S&P 500 and Nasdaq rose a touch and Dow fell slightly. Chinese equities bounced but Asia was otherwise fairly flat.
UK Company Announcements
| GlaxoSmithKline (GSK) | A tie-up with CureVac will see the two groups work together on up to five mRNA-based vaccines and monoclonal antibodies. GSK will make a £130m equity investment in CureVac, and an upfront payment of £104m. Read our recent tip on GlaxoSmithKline. |
| Premier Oil (PMO) | After agreeing a new deal for BP’s North Sea assets, Premier will try and raise $210m (£167m) from shareholders. The oil and gas company also needs its creditors to back a maturity extension this month. |
| SThree (STEM) | Contrasting a sharper decline from its fellow recruiters, gross profit for the six months to 31 May only dropped by 7 per cent at constant currencies to £151m. Although operating profit almost halved to £13m thanks to the impact of Covid-19 as well as planned investment in its technology and infrastructure. The group has £31m of net cash (excluding lease liabilities) and there is no interim dividend. |
| Petropavlovsk (POG) | The latest twist in the board fight at the Russian gold miner has seen its shareholder UGC begin a process to convert $28m in bonds to equity, equal to about 2 per cent of the company’s stock. |
| Gamma Communications (GAMA) | Management expects adjusted cash profits and EPS to be ahead of consensus of £71.8m and 46.5p this year, as trading held up in the past six months. The group is continuing its European acquisition strategy as it transitions to a unified communications-as-a-service (UCaaS) model. |
| Future (FUTR) | The publisher anticipates that trading for 2020 will be towards the top end of market expectations, as digital growth offered some shelter from coronavirus. The consensus range for adjusted cash profits for the year is £86.3m to £91m. |
| Applegreen (APGN) | The motorway service station operator has traded ahead of its expectations for its second quarter, but warned that another coronavirus wave would likely result in the breaking of its banking covenants. |
| Synairgen (SNG) | Positive trial results for an experimental Covid-19 medicine “could signal a major breakthrough” in the treatment of the disease, according to the minnow stock, whose shares shot up 190 per cent this morning. |
Pfizer and BioNTech have agreed a vaccine deal to supply UK with 30m doses should their candidate prove successful. Hopes for a vaccine continue to underpin positive equity market sentiment despite signs of a slower recovery than the V-shaped rebound everyone had hoped for. Much hope is being pinned on a candidate vaccine being developed by AstraZeneca and Oxford University – results from phase one clinical trials are due today and could set the tone for the rest of week in equity markets. New cases in the US and globally continue to soar but hope for a cure wins over the idea of a fresh lockdown. AstraZeneca shares hit a record high this morning ahead of the results.
Treasury yields were softer as markets eye the rising case numbers in the US – Friday marked a fresh record 77k new cases, whilst efforts to roll back the easing of lockdown restrictions in states like California could result in some high frequency data like initial jobless claims taking a turn for the worse.
Gold is well supported and trying to break above $1810 as US real rates (10yr TIPS) moved even deeper into negative territory at a new seven-year low of -0.82 per cent.
FTSE 100 give up 50 per cent retracement of the June range
Neil Wilson is chief markets analyst at Markets.com
