After 4 days of uneasy talks, EU leaders agreed to a €750bn rescue package for the bloc which includes €390bn in grants. Although short of the €500bn in grants first proposed, it nevertheless marks a significant moment for the EU. The Frugals were brought round (bought off) by increasing their rebates – they can thank Margaret Thatcher for that. The agreement is a classic EU fudge that papers over the schisms but is nonetheless a step forward towards ever closer union, and this time it’s fiscal.
This has been hailed as Europe’s ‘Hamiltonian moment’ as it involves mutual debt issuance. It’s not quite that – we are not talking about mutualisation of countries’ existing debts. Nevertheless, it sets an important precedent in securing the idea of fiscal coordination, if not union. Italian yields fell to their lowest level in months, with the benchmark 10yr BTP under 1.12 per cent.
The deal ought to be a positive for the euro and we can look for further gains. EURUSD was well supported above 1.140 and moving higher to test near-term resistance at 1.1470 before we can look for the 1.15 target, the March high. A break here would mark an 18-month peak for the cross and could be chased higher with momentum favouring the euro. The next level would be the Jan 2019 highs around 1.1570. However with the deal perhaps not ticking every box in terms of the amount of fiscal aid on offer, the euro may not be released from its range just yet.
Sterling is also on the front foot, with GBPUSD rising to 1.27 and achieving its best level in over a month. With the pressure off in terms of the pandemic rescue package and 7-year budget agreed, there may be hope that the EU is in a better position to agree to a Brexit deal. The pressure on the dollar left the dollar index testing support around 95.50.
European equities were higher on a cocktail of the EU budget deal and the ongoing daily dose of vaccine news. AstraZeneca and Oxford University’s candidate is showing promise, whilst there are positive signals from several other quarters. The DAX in Frankfurt surged 1.5 per cent to make a fresh post-Covid high at 13,250. London and Paris remain within their Jun-Jul ranges.
| GVC Holdings (GVC) | UK tax authorities are investigating the gambling operator over "potential corporate offending", having initiated an investigation last year in relation to GVC's former Turkish-facing online gambling business. |
| Alliance Pharma (APH) | Full-year revenues and underlying pre-tax profits are anticipated to be in line with market expectations. Prescription-driven products have been hit by delays in routine healthcare treatments, but consumer healthcare has been more robust. |
| RPS (RPS) | Fee revenue for the three months to 30 June was 18 per cent lower year-on-year at constant currencies at £107m, with 55 per cent of the total coming from government or quasi-government organisations. The now group believes Covid-19 disruption will last for longer with a slower than anticipated recovery this year, meaning it does not expect to return to organic growth in 2020. |
| Redcentric (RCN) | The group has reached a settlement with the Finacial Conduct Authortiy (FCA) in relation to accounting misstatements in 2016, which has cost £11.4m. |
| Capital and Counties (CAPC) | The value of the commercial landlord's Covent Garden portfolio fell 17 per cent during the first six months of the year, pushing up the group's loan-to value ratio to 32 per cent, from a conservative 16 per cent. Management revealed that it collected just 27 per cent of rent due in respect of the third quarter, making repayment arranegments including rent deferrals and switching to turnover-linked rents. |
| Begbies Traynor (BEG) | Management has recommended an uplift in the final dividend, taking the annual payment up 8 per cent to 2.8p a share. The insolvency practitioner reported a 5 per cent increase in organic revenue for the year to the end of April, reflecting increased insolvency appointments. |
The Nasdaq jumped 2.5 per cent as the likes of Amazon, Alphabet, Apple, Microsoft and Facebook all rose. Amazon shares leapt 8 per cent and continued higher in after-hours trade to break $3,200 after two brokers upgraded their price target to $3,800. Despite positive vaccine news, this was not a reopening trade as such. In addition to Amazon, other ‘Covid-proof’ stocks were very strong with Peloton up over 10% and Zoom almost 9 per cent. The S&P 500 rose 0.8 per cent as tech lifted the boats.
Retail may be going through its worst recession in memory, but not everyone is losing out. UK grocery sales rose 10 per cent in the four weeks to July 11th, with Tesco sales +12 per cent, Sainsbury’s +10.2 per cent and Morrisons +15.7 per cent.
UK borrowing is surging - £128bn in the second quarter – but rates on gilts are negative out to 7 years, so there is very little worry about repaying it. The political pressure and inclination to raise taxes will increase, however.
Gold rallied through $1824 to make a fresh 9-year high as US real rates continued to edge lower, with 10yr TIPS down to –0.84 per cent, their weakest in seven years. The entire curve keeps going deeper into negative territory with 5yr TIPS at –1.08 per cent and 30yr TIPS have slipping to –0.30 per cent.
Crude oil has made a push back above $41, looking for a breach of the Jun highs at $41.60 to trigger further gains. Reversal could signal bulls’ exhaustion.
Neil Wilson is chief markets analyst at Markets.com
