David Madden
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Similar things are happening elsewhere, Leicester will enter a local lockdown, and parts of Melbourne will see restrictions being reintroduced. There are some concerns that localised lockdowns will become a regular occurrence.

Beijing has warned that it will retaliate against the US, if the Trump administration strip Hong Kong of its special status – treat it the same as mainland China. Last week, President Trump confirmed the US-China trade deal was intact, but that could change in light of the political developments.

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China’s manufacturing PMI report for June was 50.9, an improvement on the May reading, and that has assisted copper prices, but that hasn’t translated into higher prices for mining stocks. BHP Group, Rio Tinto and Anglo American are all lower.

Royal Dutch Shell said it expects to incur an impairment charge of between $15 billion and $22 billion in the second quarter, the results will be published in late July. The write-down is because the energy titan revised its assumed prices for oil and gas – the benchmarks it uses for valuing assets. For 2020, 2021 and 2022 it is now factoring in an oil price of $35, $40 and $50, while the company previously assumed an on oil price of $60 for 2020-2022.

Gas prices have been revised too. The long term refining profit margin forecast was cut by 30% too. The move by Royal Dutch echoes that of BP, as it announced earlier this month that it will writedown up to $17.5 billion – largely because it revised down its assumed price for oil. Royal Dutch Shell’s gearing position is tipped to increase by 3% on account of the impairments. The downward move in the Royal Dutch Shell share price has been relatively small, so it seems that dealers were not surprised by the announcement.

Smiths Group shares are higher this morning after the company revealed a restructuring plan that would bring about savings of £70 million from FY2022 onwards. Traders welcomed the proactive stance the firm is taking.  The restructuring programme should help the company achieve its operating margins target of 18-22%. In the ten months until the end of May, underlying revenue from a continuing basis increased by 2%. Operations are going on at all its 75 manufacturing sites, but it warned of higher costs, but the cost cutting plans should offset that.

Redrow shares are in the red on the back of a trading update. In the year to the end of June, the house builder completed 4,032 homes, and that was a big fall from the 6,443 in the previous year. Full year revenue is tipped to be £1.34 billion, which would be a 36% fall on an annual basis. The lockdown was blamed for the huge fall in completions. On the bright side, the order book is at a record level of £1.42 billion, up from £1.02 billion, and roughly 70% of the order book is contracted in terms of revenue. The group cautioned that the outlook is uncertain, but trading has been upbeat since it went back to business.   

InterContinental Hotels Group said it expects comparable revenue per available room (REVPAR) to be about 75% down on the year, and for the first half, it is tipped to be 52% lower. The company is taking action in light of the current environment, and it is on track to reduce costs by $150 million.

Cineworld now plan to re-open their UK and US cinemas on 31 July, which would be later than the original date of 10 July, but the stock is up this morning nonetheless.

GBP/USD is in the red on the back of the weaker than expected UK GDP data. The final reading of UK first quarter GDP on a quarterly basis was -2.2%, while the initial level was -2%. The firmer US dollar is a factor too.

EUR/USD has been impacted by the rise in the US dollar. Eurozone CPI ticked up to 0.3% in June from 0.1% in May. The core reading, which is deemed to be a better gauge of demand slipped from 0.9% to 0.8%.

Micron shares gained ground in post-market trading last night on the back of the well-received third quarter figures. The spike in working from home has seen the demand for data centre chips surge, so that has helped Micron greatly. Revenue jumped by 13.8% to $5.44 billion, while the consensus estimate was $5.31. EPS came in at 82 cents, topping the 77 cents consensus estimate. The company issued a bullish forecast too as it anticipates fourth quarter revenue to be $5.75-$6.25 billion, and the mid-point of equity analysts’ forecasts was $5.84 billion.

Last night Wells Fargo confirmed that it will have a new dividend policy when it reports its second quarter numbers in July. Traders took the view that a new dividend policy was just a way of saying that it will be cut. In April, the bank set aside $3.1 billion for bad loan provisions, but it has warned that the next provision will be ‘substantially higher’ than the previous one.

We are expecting the Dow Jones to open 70 points lower at 25,525, and the S&P 500 is called down 4 points at 3,049.

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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