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David Madden
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Europe

Traders in Europe are paying close attention to developments in the US. According to Reuters, 42 of the 50 states in the US registered an increase in the number of new cases yesterday, so that is influencing sentiment on this side of the Atlantic.

Grafton Group shares are in demand today as the company confirmed that trading in June was better than expected. The group, like its peers, remarked on the pent up demand as a result of the lockdown. Revenue last month increased by 11.4% to £247.8 million. It is worth noting the company made an acquisition last July, so the numbers were a bit misleading, but nonetheless, demand was robust.

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The pandemic had a negative impact on the business as revenue for the six month period fell by over 19% to £1.06 billion, but traders are focused on the rebound in activity since things have gone back to normal. Grafton is in a strong position in terms of liquidity as it has access to £658 million, so there are no concerns on that front. No guidance was issued on account of the uncertainty. In April, it was announced that directors would be taking a pay cut, and because of the strong trading last month, the cut has been reversed, and that is a sign the company is over the worst of the crisis.

Rolls Royce shares had a volatile start to the trading session on the back of its first half update. The engineering giant has been hit hard by the pandemic as air travel has been severely impacted, so in turn demand for aircraft engines has tumbled. In May, the group announced plans to cut up to 9,000 jobs from its workforce of 52,000. At the back end of last week, the group said it was exploring its options in regards to strengthening its balance sheet, and traders took that as a sign that even more restructuring plans would be mapped out.

This morning, the group said it cut costs in the first half by £300 million, and it will cut costs by another £700 million by the end of the year. Its pro-forma liquidity position stands at £8.1 billion. The stock initially traded higher as dealers were encouraged by the cost cutting plans, but the positive move didn’t last long. Traders latched onto the fact that cash outflow was £3 billion in the first half and that an additional £1 billion would flow out in the rest of the year. Looking further down the track, the company expects cash consumption to significantly reduce. Rolls Royce is targeting free cash flow of at least £750 million in 2022.

Vistry, the housebuilder, saw a doff-off in completions in the first half as the lockdown disrupted activity, but demand is respectable and the order book is healthy. In terms of forward sales, including partnerships, the group has £1.26 billion worth of work in the pipeline, and that has taken the light off the underperformance in the first half.

Revenue from house building in the six month period was £344 million, and that was a big fall from the £854 million registered last year. The fall in revenue from the partnership’s unit was less severe. Efficiencies from integration are improving at a faster rate than expected. The net debt position was cut to £355 million from £476 million in May. The sizeable fall in debt should take some pressure off the company in terms of interest rate payments.

Persimmon issued an update covering the first six months of the year. It was similar to that from Vistry, whereby there was a fall in the number of houses it completed, but the order book is robust. Revenue in the six month period was £1.19 billion, which was a 32% fall on the year. Average selling prices ticked by 3.7% to £225,050. The order book is up 15% on the year at £1.86 billion. The economic climate is uncertain, but the housebuilder confirmed that cancellations are at historic lows.

The housebuilding sector as a whole is higher today on the back of yesterday’s announcement from Rishi Sunak, the Chancellor of the Exchequer, the stamp duty threshold will be lifted from £125,000 to £500,000.

SAP shares hit a record high as its preliminary second quarter results were well-received. Revenue increased by 2% to €7.64 billion. Operating profit rose by 7% to €1.96 billion. The group confirmed that full-year earnings will be €8.1-€8.7 billion.

Boohoo shares are back in fashion after a torrid few days. The group is still carrying out an investigation into its UK supply chain. There has been an allegation that the group was connected to a supplier who paid its staff below the minimum wage, something Boohoo has denied.

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US

The S&P 500 is showing a loss of over 1% as the health crisis is hanging over sentiment on Wall Street. Lately, the tech sector has been booming, but even the NASDAQ 100 is 0.35% lower this afternoon.

The initial jobless claims reading fell from 1.41 million to 1.31 million. It has dropped for 14 weeks in a row. The continuing claims update came in at 18.06 million, and that was a fall from the previous reading of 18.76 million. It is clear that the labour market in the US is improving, but the pace of progress is slow. Several US states have either paused or reversed the reopening of their economies so that is likely to hold back the jobs market.

Walgreens Boots Alliance shares are in the red as the third quarter EPS was 83 cents, while equity analysts were expecting $1.19. Revenue was slightly higher on the year as it was $34.63 billion, fractionally topping forecasts. Same store sales in the US increased by 3%, and traders were anticipating a decline of 0.2%. The UK business suffered amid the lockdown even though stores remained open as it was deemed an essential service. The group is cutting costs on account of the economic environment. Boots will cut 4,000 jobs.

Carnival Corp shares are up today as it was announced that its Germany subsidiary, AIDA, will recommence three cruises from August. The business has to restart from somewhere, and even if that is a low point, but at least it projects a positive message.

The recent rally in Chinese stocks has spilled over to the US, as stocks like NetEaseJD.Com and Alibaba have listings in New York too. Recently, the China Securities Journal published a bullish article about domestic equities, and the positive sentiment is still doing the rounds.

Bed Bad & Beyond shares have tumbled on the back of the latest quarterly update. Revenue fell by 49% to $1.31 billion, undershooting the $1.39 billion forecast. The loss per share narrowed to $1.96, but equity analysts were predicting a loss per share of $1.22. The company plans to close roughly a fifth of its namesake stores over the next two years.

It was reported that Wells Fargo is planning on cutting jobs, the group will post its latest quarterly numbers next week.

FX

The US dollar index fell to its lowest level in nearly one month in this session, but it has since rebounded as traders are in risk-off mode. EUR/USD is down today on account of the move in the greenback. The latest trade data from Germany showed that imports and exports in May increased by 3.5% and 9% respectively. Both readings showed huge rebounds on the month, but the levels missed economists’ forecasts of 12% and 13.8% respectively.

GBP/USD was higher earlier, but the turnaround in the greenback hit the currency pair. Political uncertainty exists in regards to the UK’s post-transition period relationship with the EU, but the pound has been gaining ground this week. According to a report from the FX options market, there has been an increase in the number of bullish trades on GBP/USD.

Commodities

Gold is just about above the $1,800 mark. Yesterday the metal hit its highest level since September 2011 and it remains in its uptrend. The commodity has been popular lately as it attracted safe-haven flows but that isn’t the case today on account of the upward move in the dollar. European and most US equity markets haven’t retested their June highs as health fears continue to circulate, and that has helped gold in the past month.

Oil prices are in the red today as fears that US demand will dwindle on account of the pandemic has impacted the energy market. The EIA report yesterday showed that gasoline inventories in the US fell by over 4.8 million barrels, a sign that people were driving more. The finer details showed that areas where lockdown restrictions were reintroduced, saw a fall in consumption, so traders are mindful of that today.

For a look at all of today’s economic events, check out our economic calendar.

By David Madden (Market Analyst at CMC Markets UK)

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