21 Jul 202016:32
The euro’s rally to an 18-month high tonight is partly due to the US dollar weakening, as the single currency is flat against the pound at €1.1069 (or 90.3p).
But it also shows relief that EU leaders signed off a €750bn Covid-19 rescue package overnight.
As Morgan Stanley analysts puts it:
Europe has agreed a €750bn recovery fund, with a majority of the funds provided as grants, underpinning a stable and more balanced recovery, and a positive outlook for European assets….
Overall, we see the recovery fund – joint issuance to finance transfers at scale to the worst impacted countries – as a game changer for Europe, supporting a synchronised recovery and stronger growth over a sustained period, while making monetary union more stable and the euro more attractive.
Euro surges to 18-month high just shy of US$1.15 after $750 bln EU Recovery Fund agreed – up 7.5% from the March low pic.twitter.com/WJfU3qAKIF
— Mike Dolan (@reutersMikeD) July 21, 2020
(and that really is all for today).
Updated at 18.05 BST21 Jul 202016:22
Late newsflash: The Euro has now hit an 18-month high against the US dollar, reaching $1.15 for the first time since January 2019.
Euro rises to $1.1497, strongest level since Jan. 2019 after European Union leaders agreed on a stimulus package to reboot pandemic-hit economies. pic.twitter.com/9I6bnZWNHc
— Holger Zschaepitz (@Schuldensuehner) July 21, 2020
Updated at 17.23 BST21 Jul 202016:09Summary: European markets close higher after EU deal
Finally….the strong rally in Europe’s stock markets faded in late trading, as the jump in the value of the euro and the pound hit stocks.
But European stocks have still closed at their highest level since early March, as the recovery from the Covid-19 slump continued.
Germany’s DAX claimed the prize for the best-performing index, closing up 0.9% today at a five-month high.
That means it has very nearly recovered this year’s losses, and is now just 0.6% lower than on January 1st thanks to its recent strong recovery.
The Italian FTSE MIB also ended higher, on relief that its economy should benefit from new grants and loans from the EU Covid-19 recovery fund.
But France’s CAC and Spain’s IBEX ended the day just 0.2% higher.
European stock market closing prices, July 21 2020 Photograph: Refinitiv
The deal on the €750bn EU rescue package, and hopes of a Covid-19 vaccine, both lifted equities, although the initial rush has fizzled slightly.
EU summit deal: what has been agreed and why was it so difficult?Read more
Jeremy Gatto, investment manager at the Cross Asset Solutions team at Unigestion, explains why the deal has boosted European equities:
The agreement from EU leaders on the EU recovery fund was welcomed news; despite a rocky start, it ultimately showed unity among the block and commitment to get a deal through. The total size of the package at €750bn is significant and despite some complexity when breaking down the details this will give a further boost to the post-Covid 19 recovery in the Eurozone.
The agreement is also yet another confirmation that leaders from both a fiscal and monetary standpoint stand ready to do whatever it takes to support the economy. In light of the extraordinary stimulus, improving sentiment and macro picture, we remain constructive on growth-orientated assets and believe in the V shape recovery scenario. We have reduced our bond exposure and remain friendly towards credit and equities.
We have also recently increased our exposure to Europe as the region is showing an increasingly supportive picture and seems well-positioned for the recovery, given limited second wave impact at this stage.
With uncertainty, nevertheless, remaining high and the recovery not uniform, increasing political risk with the approaching US election, and a recent increase in geopolitical tensions, we have complemented our pro-growth allocation with hedges notably in the option space.
The UK stock exchange also ended pretty flat.
Gambling firm GVC was the top FTSE 100 faller, down 11%, after the UK tax authorities widened their investigation into its former online gambling business in Turkey.
HMRC widens investigation into Ladbrokes owner GVCRead more
But investment platform Hargreaves Lansdown surged 10%, after potential rival Robinhood abandoned its UK launch:
Robinhood cancels UK launch of its investment appRead more
The other significant news of the day was that chancellor Rishi Sunak has asked Whitehall departments to find budget savings after launching a review of government spending.
Sunak also warned that “tough choices” will be made in response to the Covid-19 outbreak. which is driving UK borrowing to record levels.
Rishi Sunak warns of ‘tough choices’ as he starts spending reviewRead more
That’s probably all for today. Thanks for reading and commenting. GW
Updated at 17.11 BST21 Jul 202015:08Dollar weakens
The US dollar is now coming under pressure, losing ground against major currencies.
This has pushed the euro up to $1.1486 (a new four-month high). Sterling has risen to a six-week high, at $1.275.
This dollar weakness is bad for European equities, which are losing some of their earlier gains (a stronger euro or pound means overseas earnings are worth less).
It’s also pushing commodity prices up, keeping oil at a four-month high and gold at a nine-year peak (as covered earlier).
Investment platform Willis Owen suspects the dollar is suffering from the huge money-printing programme launched by the US central bank, and America’s huge deficit (which hit a record of $864bn in June).
The US dollar had been strong for the best part of a decade, but since its March high the currency has been falling.
A combination of stimulus from the Federal Reserve creating more US dollars, low savings, and high levels of government debt could mean a weaker US dollar is here to stay. That would be good news for emerging markets where companies borrow in US dollars, as a weaker currency makes their borrowing costs cheaper.
21 Jul 202014:56
Tech companies aren’t immune to the Covid-19 recession, of course.
Microsoft, for example, is cutting 960 jobs at its LinkedIn business, which has suffered from the slump in vacancies.
CEO Ryan Roslansky told staff yesterday that the coronavirus was having “a sustained impact on the demand for hiring”. The jobs will be cut across its sales and hiring divisions of the group globally. More here.
21 Jul 202014:12
In other tech news, Apple has pledged to be 100 percent carbon neutral across its business, supply chain and product cycle by 2030.
The technology giant’s corporate operations are already carbon neutral, but it’s now pledging that within a decade every Apple device sold will have net zero climate impact.
That’s a much bolder target. To achieve it, Apple says it will use more low carbon and recycled material, recycle its devices more efficiently and become more energy efficient. It will also support the development of the first-ever direct carbon-free aluminium smelting process.
Plus, over 70 suppliers have committed to use 100 percent renewable energy for Apple production. That will avoid over 14.3 million metric tons of CO2e annually — the equivalent of taking more than 3 million cars off the road each year, the firm says. More details here.
21 Jul 202014:02
The US S&P 500 index has also rallied, and is now up over 1% for this year. Quite a recovery….
…but not compared to the Nasdaq, which is actually up 20% this year, as traders have poured money into tech stocks.
The open of Wall Street today Photograph: Refinitiv
Firms like Microsoft, Amazon and Apple are clear winners in a pandemic that leads to more home working and a greater reliance on technology. They also benefit from strong balance sheets, and are expected to enjoy rising revenues in future. But still, some of the valuations are eye-wateringly high.
John Teahan, portfolio manager, RWC Partners Equity Income fund, writes that Amazon’s growth is particularly remarkable.
Amazon Inc is surely a candidate for the eighth wonder of the world. It is a manmade creation that has so far defied the laws of finance.
The share price return of 199,908% since its IPO in 1997 (from a split adjusted share price of $1.50 to $3,000), equating to 39% compound annual return, is only part of the story.
The stock has had an outsized influence on the global stock market; over the last ten years it has contributed 3% to the MSCI World Index total return (MSCI World returned 100% for ten years to end of March), behind only Apple and Microsoft and that due to their larger starting weights (0.95% and 1.05% respectively, versus 0.21% for Amazon). The average stock contribution to the Index was 4bps.
What is truly wonderous is the consistent revenue growth. In the 2000s the company grew at 29% per annum so that by March 2010 it had annual revenues of $27b. At this point we normally expect the fade in growth to kick in. Not so Amazon – in the 2010s it has generated revenue growth of 27% p.a. The quarter to March 2020 witnessed a 26.4% growth rate over the first quarter in 2019, no sign of slowing in the headline numbers.
Another wonder is the valuation. In the last 12 months (to end of March) Amazon made $21 of earnings per share, putting it on a historic price-earnings ratio of over 143 times, and it trades on 5.1 times price to sales. It currently earns a group EBIT margin of around 5%, and within this it earns 2.2% for its non-cloud businesses.
But for all that, investors may be wary of getting too close to this wonder of nature:
If the trajectory continues it would truly make Amazon the eighth wonder of the world. For investors, I think it is one safer watched from the side lines.
21 Jul 202013:46Wall Street opens higher
Wall Street has joined the rally, with the Nasdaq index hitting yet another record high in opening trading.
The tech-heavy Nasdaq composite index gained 0.7% at the open…. although it’s then dipped back a little.
The Dow Jones industrial average has pushed higher too, up 0.9% or 247 points at 26,928.
Stocks open higher as European leaders agree to stimulus, earnings season rolls on
-Dow adds 184 points, 0.7%
-S&P 500 up 20 points, 0.6%
-Nasdaq opens about 71 points higher, up 0.7%#DOW #US30 #SPX500 #NASDAQ #MarketWatch
— F Lopez (@FXandComm) July 21, 2020
Edward Moya, analyst at OANDA, reckons that the virus situation in the US is showing signs of improvement, helping the mood on Wall Street.
The virus data in the US suggests coronavirus cases are peaking, California, Florida, Georgia and North Carolina showed meaningful declines…..
The case curve seems to be flattening and hospitalizations continue to trend lower. President Trump also reversed his stance on masks and tweeted an image of himself wearing a face mask and indirectly called it patriotic. Over half of the US has mandatory mask orders in place. Trump’s troubling poll numbers have created a sense of urgency in changing the narrative so it is no surprise he is also bringing back his 5pm coronavirus task force briefings.
21 Jul 202013:28
In another step towards normality, fast food chain McDonald’s will reopen around 700 dine-in restaurants across the UK from Wednesday.
My colleague Rebecca Smithers has the details:
Food will be served by table service only with customers able to order directly via the My McDonald’s app, at the till or kiosk. Diners will also need to leave their contact details – using their phone to scan a QR code or visiting a dedicated webpage – in line with government guidance.
The fast food giant said its restaurants will also be taking part in the “Eat Out to Help Out” scheme from the chancellor when it starts next month.
Rishi Sunak’s deal – which aims to encourage families to start eating out – will offer 50% off dine-in bills up to a maximum of £10 per head on Mondays, Tuesdays and Wednesdays in August.
McDonald’s reopens 700 dine-in restaurants in UKRead more
? MCDONALD'S UK SAYS OVER 700 RESTAURANTS WILL REOPEN FOR DINE-IN WEDNESDAY, ACROSS UK AND IRELAND
— PiQ (@PriapusIQ) July 21, 2020
21 Jul 202013:02
Oil has hit a four-month high today, as optimism about the economic outlook drive up energy prices.
Brent crude has gained 2.75% today, or $1.2 per barrel, to $44.47. That’s the highest since early March.
Brent crude breaking through $43.91 resistance here. Fresh 4-month high here as we look for a potential bullish triangle breakout #OOTT pic.twitter.com/ucL7SRvxQV
— Joshua Mahony (@JMahony_IG) July 21, 2020
21 Jul 202012:56
Fiona Frick, chief executive of Unigestion, reckons investors will be happy to lend to the EC, to fund its €750bn recovery fund.
Speaking on Sky News, she says Brussels will be seen as a solid borrower when it taps the debt markets, to fund grants and loans to help members recovery from Covid-19.
Frick explains:
For the first time there will be a union of countries in Europe in a merger of credit risks. It makes the euro a stronger currency, and make the European block an extremely solid borrower.
21 Jul 202012:45EU recovery deal: What the experts say
Hetal Mehta, senior European economist at Legal & General Investment Management is hopeful that this morning’s deal on the EU Recovery Fund will bring calm to the region.
“The deal reached on the EU Recovery Fund is historic and a step toward debt mutualisation that was thought highly unlikely just a few months ago.
Within the compromises, there was something for everyone; the Frugal Four will get large rebates and lowered the split of grants versus loans while the overall size at €750bn was unchanged. By showing determination and stepping up to the unique challenge posed by the coronavirus, EU leaders will hope this eases political tensions in the years to come.”
Anna Stupnytska, global macro economist at Fidelity International, says the plan will take some pressure off the European Central Bank to keep rescuing the eurozone.
“Importantly, the governance of the Recovery Plan has been made more complex. While no member state has a veto power to stop the distribution of aid to another member state, the newly adopted ‘super emergency brake’ gives any member state the power to oppose a recovery plan, requiring a decision by EU finance ministers or EU leaders. This could result in delay to disbursements. In addition, a weighted majority of EU governments could decide to suspend disbursements altogether to a country in case of evidence of the rule of law violations.
“Despite the compromises involved, the agreement on the Recovery Fund sends a strong political signal which could mark a new chapter in the Union’s history. EU bond issuance will create a precedent which could become a permanent feature of the institutional framework going forward. With fiscal policy finally stepping up to facilitate the post-COVID recovery, the ECB is no longer ‘the only game in town’. This powerful combination of monetary and fiscal policy, as well as the strong political will to not just ensure the union’s survival but indeed its success on a number of dimensions, now has the potential – perhaps higher than ever – to lead to more superior economic outcomes in the years ahead.”
Nick Wall, alternative fixed income manager at Jupiter Asset Management, says Europe continues to evolve at moments of crisis – as one founding father predicted
The collective will to keep the European monetary union alive has proved resilient through the global financial crisis, the European sovereign debt crisis, the second Greek debt crisis and Brexit. The structural framework of the monetary union improved after each test, and Jean Monnet’s mantra that Europe will be “forged in crisis” looks like it will still hold true this time, after a very rocky start.
COVID-19 has been an external shock that exposed the flaws in the EU’s institutional framework, but its nature rendered arguments about moral hazard null and void. Europe’s silver lining in this tragic crisis may be that these shortcomings are now being addressed.
21 Jul 202012:19
Here’s our news story on Robinhood cancelling its UK launch, by Rob Davies.
Robinhood cancels UK launch of its investment appRead more
Incidentally, shares in investment platform Hargreaves Lansdown started to climb when the news broke, and are now up 9% at their highest level since early June. It risked losing UK customers to Robinhood.
21 Jul 202012:02
The US S&P 500 is on track to hit a new five-month high – a day after it turned positive for the year.
SPX breaking free from the Jun range tops and next stop could be all-time high…seems craazeeee pic.twitter.com/bAO5ddpAs9
— Neil Wilson (@marketsneil) July 21, 2020
21 Jul 202011:43Gold hits nine-year high
The price of gold has climbed to a nine-year high today and it may only be “a matter of time” before the gold market reaches a record high, analysts believe.
The spot market price for the ‘safe haven’ commodity surged past highs last seen in September 2011 to reach $1,827 per ounce this lunchtime.
The spot price of gold over the last decade Photograph: Refinitiv
Gold prices have climbed by about 20% this year as investors increasingly turn to bullion as a fail-safe harbour from the impact of Covid-19. Citi believe the yellow metal may reach a new record by rising to the $2,000 mark before the end of 2020.
While the markets are bullish today, with European stocks at five-month highs, gold could provide protection if the pandemic intensifies and shares tumble again.
Gold prices have already reached record highs in some developing countries, and the dollar-denominated benchmark may follow suit as the US currency softens in the face of rising coronavirus cases.
Carlo Alberto De Casa, chief analyst at ActivTrades, said investors are “looking for a parachute in case of future stock market collapses and are buying gold as insurance”.
