Financial market research and analysis

Our analysts have their fingers on the pulse of the world's financial market news.

CFD trading is high risk and may not be suitable for everyone.
Rally fizzles out, Tesco pandemic costs, Sterling & Boris

Optimism is fizzling out as doubts grow about how and when exactly quarantine and lockdown restrictions will end. The failure of Eurozone finance ministers to agree joint action underscores the limited capacity of governments to cushion the coming economic fallout.

Shares in Europe are opening with a softer tone after a strong start to the week. The S&P 500 ended slightly lower by 0.2% on Tuesday and the two-day rally in Asian equities reversed course on Wednesday.

Traders are trying to pick a bottom in shares and scientists are trying to pick the peak in the pandemic. Both exercises typically result in a lot of false starts before the real thing.

In the latest developments in the virus, there have been 75,000 global deaths associated with COVID-19, 10,000 of which have been in France. There was the single largest increase in daily cases in New York State yesterday but the Chinese City of Wuhan in which the virus originated has seen its travel restrictions lifted.

It looks like pandemic curves will not flatten in time to reach April deadlines set by many governments to review lockdown measures. A few exceptions including Czechoslovakia have eased restrictions but most of those deadlines come in about a week’s time. That would mean a reset for likely another three weeks. An extension of lockdowns and associated deeper economic hardship is probably priced in but raises the chance of a re-test of the March lows in stock markets.

Tesco emphasises costs

It’s not the very respectable 14% rise in Tesco’s annual profits that investor are looking at. The financial year ended in February before the coronavirus outbreak. It’s the year ahead that matters and Tesco is unable to give a financial forecast for it. The uncertain length of the lockdown means there is very little visibility on future demand for products and services, even the essentials that Tesco sells.

Supermarket shares have outperformed wider markets during the pandemic because panic buying has meant extra sales. What has become a little clearer on these results from Tesco is the rising cost pressures that come along with the pandemic. Notably Tesco hired 45,000 temporary workers in the last two weeks to cover staff sickness. The regular staff will still be paid and the extra staff will be on higher wages. The takeaway is that supermarkets are a good defensive posture in a portfolio right now but don’t expect huge growth from the holdings.

Later on Wall Street discount retailer CostCo will report sales and we expect a similar story to Britain’s Tesco with the added supply chain headaches associated with selling a lot of products made in China.

Forex markets calm with Boris in ICU... so far

The Prime Minister entering the ICU has seen an already flagging rally in the British pound take a pause. A broader improvement in risk sentiment as well as measures by the Fed to ease dollar liquidity issues are reasons to think the uptrend in the pound can hold. If it were to arise that Johnson’s condition deteriorated at a time when stock markets turn lower, we’d expect the bottom to fall out in Sterling.

18-5-2020

Gold hits 7-year high after Powell Warning
Fed Chair Jay Powell has warned the US economic recovery might last through the end of 2021. The Fed is normally too optimistic in its forecasts so the outlook feels bleak. Still, warm weather is encouraging countries to continue exiting lockdown. If the flu s… Read more

14-5-2020

Powell predicts more pain to come but no NIRP
A warning from the top of the US central bank that there’s more pain to come isn’t going down well across markets. Fed Chair Jerome Powell warned yesterday that more stimulus will likely be needed in the US to fend off the economic damage done by virus and pol… Read more

13-5-2020

“Suffering and death” warning hurts markets
A sense of caution has taken hold across markets. Shares, riskier currencies and oil are pointed lower. There’s a reassessment of the likely timeline for economic reopening. Our sense is markets juiced up by higher liquidity may have gotten ahead of themselves… Read more

12-5-2020

Bitcoin halving, dollar breakout on second wave fears
Market sentiment remains fragile. There’s a lot of emphasis being placed on the virus numbers in economies that have been gradually reopening.  Wuhan, the City in China where it all began reported its first ‘cluster’ of new cases yesterday after lifting restri… Read more

20-4-2020

US oil lowest since 1999, European shares diverge from Wall St
Another oil crash US crude prices have plummeted over 15% to the lowest since 1999. The 21-year low came as sellers were trying to get ahead of the expiry of the May contract tomorrow. Open interest was five times the average. A condition of Super Contango in… Read more

14-4-2020

Lifting restrictions, Softbank & Gold 7-year high
Stocks rising Markets are restarting after a long Easter weekend with a positive tone. Things have moved on from when there was so much bad virus news that the weekend was to be avoided at all cost. European shares look set for a positive open as more nations… Read more

9-4-2020

S&P 500 enters bull market, lockdowns to extend
The mood in markets continues to improve but it’s patchy. Virus cases continue to rise at a rapid clip but markets are extrapolating the data forward and hoping we’re close to a peak.    Asian and European markets are playing catch-up to the rally on Wall St… Read more

8-4-2020

Rally fizzles out, Tesco pandemic costs, Sterling & Boris
Optimism is fizzling out as doubts grow about how and when exactly quarantine and lockdown restrictions will end. The failure of Eurozone finance ministers to agree joint action underscores the limited capacity of governments to cushion the coming economic fal… Read more