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David Madden
City of London

The original proposal was that €500 billion be distributed as grants, and the remaining €250 billion be issued as loans. A few northern European members, Austria, Denmark, The Netherlands and Sweden, were opposed to such a high proportion of grants being issued. The group have been called the ‘frugal four’, and they are keen for conditions to be attached to the grants.

Talks continued into the early hours of today, and it is understood that some of the ‘frugal’ group are pushing for €390 billion in grants and €360 billion in loans. It was reported that France are keen for €400 billion is grants – so that is where the division lies. Some progress has been made, which is encouraging, and negotiations are expected to carry on this afternoon.

The EU have a track record of a lot of in-house haggling, but in the end a deal is usually struck. Italy and Spain had high debt levels going into the pandemic, and given how hard their economies have been hit on account of the health crisis, their debt is poised to jump. The Mediterranean countries have a higher dependency on tourism, so they will feel the pain of higher debt levels more so than their northern counterparts.

Future, the media company, confirmed the integration of TI Media is going well. Future will repay furlough funds to the government. This not only adds to their public image, but it underlines their financial health. The group are in talks with employees about reducing the size of the workforce. The consensus estimate for the full year adjusted EBITDA is £86.3-£91 million, and firm said it expects earnings to be at the top end of the forecasts. Keep in mind that last year’s figure was £54.5 million.

AstraZeneca shares are higher again on continued optimism in relation to the drug that they are working on with the University of Oxford – it is tipped as a possible Covid-19 vaccine. The Lancet media journal is expected to publish trial data on the drug today.

In terms of index points, BP and Royal Dutch Shell are some of the biggest fallers on the FTSE 100. The underlying oil market is down over 1% as concerns the health crisis will impact demand has hit the energy. It was reported that Japan’s oil imports fell by 14.7% in June, on an annual basis.

According to Righmove, house prices in Great Britain have risen by 2.4% since March. The annual reading was 3.7% growth, its highest growth rate since late 2016. The property portal said that customer enquiries are up 75% when compared with last year. It is clear the reopening of the housing market has unleashed pent up demand. Most of the UK house builders are higher this morning and Berkeley Group and Taylor Wimpey are some of the biggest gainers.

It was reported that Marks and Spencer are to announce hundreds of job cuts this week. One newspaper claimed that Ted Baker will lower its headcount by 500.

British American Tobacco shares have sold off following the downgrade by Jefferies. The bank has lowered its rating to hold from buy, and the price target was cut to 3,000 from 4,800p.

The euro had gained ground against the US dollar and the pound as hopes are growing for the EU to agree on the terms of the €750 billion rescue fund. The talks will continue today. It wouldn’t be a European meeting if it didn’t drag on. The gap between the two sides is narrowing, so currency traders took that as a sign that we are nearing a deal. Last month, German PPI was -1.8% and that was an improvement in the -2.2% registered in May, but economists were expected -1.5%.

IBM will be in focus as it will post its second quarter results tonight. The first quarter update was not well received. Revenue slipped by 3.4% to $17.57 billion, undershooting the $17.62 billion forecast. EPS were $1.84, and that topped the $1.80 estimate. The cloud and cognitive unit saw a 5.5% rise in revenue to $5.24 billion, but that fell short of the $5.30 billion consensus estimate.

We are expecting the Dow Jones to open 51 points lower at 26,620, and the S&P 500 is called down 6 points at 3,218.

By David Madden (Market Analyst at CMC Markets UK)

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