Good morning everyone,
Burberry sent a chilling warning to investors this morning in an unplanned announcement which revealed the impact the coronavirus is having on the ground in China.
The group said the outbreak of the coronavirus in Mainland China was having a “material negative effect on luxury demand”, with more than a third of its mainland China stores currently shut. CEO Marco Gobbetti said: “While we cannot currently predict how long this situation will last, we remain confident in our strategy. In the meantime, we are taking mitigating actions and every precaution to help ensure the safety and wellbeing of our employees. We are extremely grateful for the incredible effort of our teams and our immediate thoughts are with the people directly impacted by this global health emergency.”
He added the impact is expected to worsen in coming weeks. “The spending patterns of Chinese customers in Europe and other tourist destinations have been less impacted to date but given widening travel restrictions, we anticipate these to worsen over the coming weeks,” he said. Similarly firms such as LVMH and Kering who own Louis Vuitton and Gucci respectively, have also seen their share prices suffer.
While the situation on the ground appears grim, markets got a welcome boost on Thursday after China announced that it would halve tariffs on $75bn worth of imports from the US on February 14. Shares in China, Hong Kong and Japan jumped on the news, which could be a sign that China is willing to move beyond the phase one trade agreement signed last month.
The tariffs in question were put in place last September, after President Trump placed additional charges on more than $100bn in imports from China, and the olive branch from China is a significant step in the thawing of tensions between the two economic giants. US shares rallied on the news, pushing past last week’s coronavirus related selloffs. All three major stock indices closed at new records, and the Nasdaq composite posted its 10th record close of 2020.
NYSE parent gives up on eBay deal as investors put their foot down
It was the Nasdaq Composite that made the biggest gains on Thursday of the three major indices, climbing 0.7% and taking its year-to-date gain to 6.7%. In the S&P 500, which gained 0.3%, Twitter led the way with a 15% share price pop after its quarterly revenue topped $1bn for the first time amid better than expected new user numbers. In acquisition news, New York Stock Exchange parent company Intercontinental Exchange was forced to abandon its plan to take over eBay in a $30bn deal, after a major negative reaction from shareholders to the news. ICE stock had fallen by double digit amounts since the news broke on Tuesday, with the stock subsequently rallying in after-hours trading last night after it was scrapped. Elsewhere, Boeing delivered another big day, climbing 3.6% after the Federal Aviation Administration said that certification flights for the trouble 737 Max airliner will start within weeks. The aerospace giant’s share price has now gained more than 7% this week, although it is still down 16% over the past 12 months.
S&P 500: +0.3% Thursday, +3.6% YTD
Dow Jones Industrial Average: +0.3% Thursday, +3% YTD
Nasdaq Composite: +0.7% Thursday, +6.7% YTD
UK stocks enjoy coronavirus distraction
London-listed stocks also reacted positively to the China tariff news, which distracted from the coronavirus epidemic and eased lingering fears of a return to a full blown trade war between the world’s two biggest economies. Both the FTSE 100 and FTSE 250 remain in negative territory for the year however, lagging well behind their US counterparts. The FTSE 100 was led by retailer Kingfisher, Vodafone Group and miner Evraz, which all gained close to 3%. At the bottom of the index, NMC Health’s woes continued. Shares in the healthcare firm, which operates hotels in the Middle East, dropped more than 8%, taking its one month loss to more than 30%. It was reported by the Financial Times this week that the company’s founder is looking to buy out his partners and return to a leadership position in the firm. At the top of the FTSE 250 was insurer Beazley, which gained 8.2% after announcing that it was able to increase its premiums last year following hefty catastrophe claim payouts in 2018.
FTSE 100: +0.3% Thursday, -0.5% YTD
FTSE 250: +0.3% Thursday, -1.4% YTD
What to watch
AbbVie: $129bn market cap pharmaceutical firm AbbVie has delivered a rollercoaster ride for shareholders over the past two years. From a share price peak of more than $120 in early 2018, it sank to below $65 in August last year, but has been on a tear since, climbing more than 35% and hitting an $87 share price. The company currently offers a dividend yield of more than 5% and will report its latest set of quarterly earnings today before US markets open. AbbVie has found itself in the coronavirus spotlight, as without any proof of effectiveness, one of its drugs used by HIV patients has become a popular treatment for the virus in China – a topic certain to be addressed on the company’s earnings call.
FirstEnergyCorp: Electric utility provider FirstEnergy has been a steady performer in recent years, gaining close to 70% since the start of 2018 and offering a 3% dividend yield. Wall Street analysts are expecting an earnings per share figure of $0.50 when the company reports its fourth quarter earnings today, in line with last year’s figure. At present, 10 analysts rate the stock a buy, six a hold and one an underweight. The average 12-month share price target is broadly in line with the current price, at $53.13.
US employment data: Several key employment metrics will be released in the US today, including nonfarm payrolls, the unemployment rate and average hourly earnings, covering January. All eyes will be on the US labour market to see how it has started 2020, after December’s figures for the number of new people added to payroll and wage growth both came in below expectations. The health of the labour market is one of the key pieces of information the Federal Reserve uses when determining interest rate policy, and upbeat numbers would be viewed as supportive of consumer spending – which the US economy has been heavily dependent on for growth.
Cryptoassets continue to accelerate to multi-month highs as we close out the week, with all three of the largest cryptoassets climbing.
Bitcoin is trading at $9,816, its highest level since it fell through $10,000 in late September. We have also just seen a golden cross of the 50 and 100 day moving averages. This occurs when a shorter term moving average rises above a longer term one, this is often seen as a signal of a bullish run and extended uptrend.
Ethereum has outperformed bitcoin this week, hitting a peak of $219.5 overnight, its highest level since August. XRP, which has often lagged behind bitcoin in terms of price movement in recent weeks cleared the $0.28 handle over night and if we do get more bullish sentiment taking over it will be looking to get back to its November highs of over $0.30.
All data, figures & charts are valid as of 07/02/2020. All trading carries risk. Only risk capital you can afford to lose.