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
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
Summary: 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.
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.
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.
But investment platform Hargreaves Lansdown surged 10%, after potential rival Robinhood abandoned its UK launch:
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.
That’s probably all for today. Thanks for reading and commenting. GW
Updated
Dollar 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.
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.
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.
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.
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.
Wall 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
— F Lopez (@FXandComm) July 21, 2020
-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
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.
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 UK SAYS OVER 700 RESTAURANTS WILL REOPEN FOR DINE-IN WEDNESDAY, ACROSS UK AND IRELAND
— PiQ (@PriapusIQ) July 21, 2020
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
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.
EU 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.
Here’s our news story on Robinhood cancelling its UK launch, by Rob Davies.
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.
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
Gold 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.
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”.
Drinks giant Coca-Cola has reported that sales slumped in the pandemic, but it’s optimistic that the worst is over.
Quarterly revenues slumped by 28.5% in the April-June quarter, as sales were hit by global lockdowns as cinemas, bars and restaurants were closed.
Net income slid by a third, from 61 cents per share to just 41 cents - slightly higher than expected.
Chief executive James Quincey struck an upbeat tone, saying:
We believe the second quarter will prove to be the most challenging of the year; however, we still have work to do as we drive our pursuit of ‘Beverages for Life’ and meet evolving consumer needs.
Sales of Coke held up relatively well, certainly compared to coffee (Coca-Cola bought the Costa Coffee chain last year).
Here’s the details:
- Sparkling soft drinks declined 12%, led by a decline in India, Western Europe and the fountain business in North America due to pressure in away-from-home channels. Trademark Coca-Cola declined 7%. Coca-Cola® Zero Sugar declined 4% in the quarter while growing 2% year to date. ◦
- Juice, dairy and plant-based beverages declined 20%, driven by pressure in the Asia Pacific and Europe, Middle East & Africa operating groups.
- Water, enhanced water and sports drinks declined 24%, led by Asia Pacific, primarily due to a decline in lower margin water brands.
- Tea and coffee declined 31%, driven by the impact of the temporary closures of nearly all of the Costa retail stores in Western Europe
Updated
In another sign of the time, investors are prepared to pay to lend to the UK - even though the country is borrowing at a historic pace.
The Debt Management Office sold £3bn of six-year UK government bonds this morning at an average yield, or interest rate, of -0.064%. That means investors will receive slightly less than the price paid today.
That will reassure the Treasury, given we learned this morning it borrowed almost £130bn in April-June.
And it shows the impact of the Bank of England’s asset-purchase scheme, which was expanded in June to buy £745bn of UK bonds. That gives investors confidence to buy gilts, as they can sell them onto the central bank.
Investors still happily queue to lend the UK government money, some even pay to. Debt Management Office has this morning raised £3 billion. The bond is repayable over six years and was over-subscribed (2.6 times covered). Effective interest rate was -0.06% (negative). pic.twitter.com/yLis5fzYG5
— Joel Hills (@ITVJoel) July 21, 2020
Trading app Robinhood puts UK launch on hold
Robinhood will not be riding through the City anytime soon after all.
The smartphone stock trading app, which has shaken up Wall Street, has just announced that it has taken the “difficult decision” to postpone its UK launch indefinitely, and take down its UK website.
It has emailed people who had pre-registered, explaining that it is focusing on its ‘core business’ in the US, and beefing up its systems:
The world has changed a lot over the past several months and we’re adapting with it. On a company level, we’ve come to recognise that our efforts are currently best spent on strengthening our core business in the US and making further investments in our foundational systems.
Since we announced our intent to launch in the UK, we’ve been fueled by your excitement for Robinhood and humbled by your response. We’re sorry that we cannot deliver the product we promised you this year.
Although our global expansion plans are on hold for now, we will continue our work to democratise finance for all and we look forward to the day when we can bring this mission to the UK.
Around 250,000 people had signed up for the UK launch.
The site has been extremely popular in America, especially with new traders who bought shares during the Covid-19 crash and are sitting on impressive profits since.
But it has also been heavily criticised for exposing people to financial systems and instruments without proper education and safeguards, especially after a student tragically killed himself after wrongly thinking he’d run up a $700,000 loss.
Updated
The US stock market is also on track to rally, when it opens in three hours time.
That would propel the Nasdaq to a fresh record high, as investors clamour to buy big tech stocks.
💥BREAKING:
— Investing.com (@Investingcom) July 21, 2020
*U.S. STOCK INDEX #FUTURES POINT TO HIGHER OPEN AS WALL STREET EYES MORE STIMULUS, LATEST EARNINGS
*DOW FUTURES GAIN 170 POINTS
*S&P 500 FUTURES RISE 0.7%
*NASDAQ FUTURES JUMP 0.9%
💥TRACK THE ACTION IN REAL-TIME: https://t.co/c2YtNoxoA3 $DIA $SPY $QQQ $IWM $VIX pic.twitter.com/TzQ4xXHwR4
How Germany's stock market bounced back
The German stock market has been on a remarkable ride this year.
The DAX touched a record high in February 2020, before plunging almost 40% to its lowest level since 2013.
But the recovery then began in late March, as governments and central banks took unprecedented action to prop up their economies. The DAX led the way, recovering almost all its losses - and is now slightly higher than on 1st January.
Here’s the Financial Times’s take:
The Dax index of German blue-chip stocks rallied nearly 2 per cent on Tuesday, to produce a gain so far this year of 0.4 per cent. It had been down more than 35 per cent during the darkest days of March. Investors also snapped up the debt of EU countries that have endured an especially hard hit to their public finances from the virus.
The reaction suggests that the EU has surpassed investors’ expectations and laid the framework for tighter co-ordination on fiscal policy in its efforts to overcome the impact of the coronavirus pandemic.
“We see the recovery fund . . . 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,” said Reza Moghadam, a Morgan Stanley economist.
Updated
A few photos from the climax of the EU summit:
Conte at 5am in the morning pic.twitter.com/pAfLjadUrC
— Maria Tadeo (@mariatad) July 21, 2020
Perhaps surprisingly, the euro hasn’t kicked on today, now the EU Recovery Fund is in the bag.
The single currency is hovering around $1.144 against the US dollar, having hit a four-month high yesterday.
Sam Cooper, vice president of Market Risk Solutions at Silicon Valley Bank, reckons the euro will head higher in the coming weeks.
“The positive conclusion of the marathon Brussels summit will be a relief to many market participants who’s hopes were pinned on the agreement of the €750bn recovery fund.
Although the euro initially sold off in the aftermath in what appears to be a classic case of buy the rumor, sell the fact, many will welcome the developments and view the intraday weakness as an opportunity to buy a ticket for a long-term euro rally.”
Although the markets are celebrating, there’s real disappointment that the EU deal includes cuts for some key projects, and little direct support for the climate emergency.
The Just Transition Fund (a key part of Europe’s ‘Green deal’) will get tens of billions of euros less than hoped - with the Horizon innovation scheme also ravaged, as EU leaders tried to find an acceptable package.
One of the biggest losers is the Just Transition Fund, which was downgraded from the Commission’s €40 billion climate action war-chest to just €10 billion, illustrating how low down the pecking order environmental policies ultimately fell during the talks.
The final deal maintained the stipulation that only countries that have signed up to the EU-wide goal of climate neutrality by 2050 will be eligible for funding.
The recovery fund is meant to tackle the fallout of an unprecedented pandemic but the only instrument meant to support the health sector was scrapped entirely and Horizon Europe, designed to boost innovation, suffered severe cuts as well.
Funding for neighbourhood policy and the Solvency Support Instrument, a €26 billion fund aimed at supporting economically viable private companies, both fell by the wayside.
Naomi O’Leary of the Irish Times has also tweeted the details of these cuts, which fall short of the plans drawn up by the European Commission:
Cuts to clinch deal, compared to initial Commission proposals:
— Naomi O'Leary (@NaomiOhReally) July 21, 2020
- Horizon 2020 [research] 13.5bln -> 5bln
- InvestEU [business investment incentives] 30bln -> 5.6bln
- Rural development 15bln -> 7.5bln
- Just Transition Fund [climate transition subsidies] 30bln -> 10bln pic.twitter.com/rNCZnUnZJh
Here's a big one: EU4Health, a plan to create strategic medical stockpiles, a pan-EU medical response force, strengthen health systems and improve warning systems for epidemics, is largely axed.
— Naomi O'Leary (@NaomiOhReally) July 21, 2020
€9.4bln -> 1.7bln
(Initial proposal is here https://t.co/AeuI8ZuqCV) pic.twitter.com/MRGj5nl59S
German stock market now up for the year
Today’s tide of optimism has just driven the German stock market into positive territory for 2020 -- quite an achievement, given the year we’ve had.
The German DAX is now 1.6% higher today at 13,259 points, or slightly above its closing price on 31 December 2019 (when the world was quite different). Companies which make consumer goods, such as BMW, Continental and Volkswagen, are among the risers.
Neil Wilson of Markets.com explains how the EU deal has lifted stocks:
The agreement is a classic EU fudge that papers over the schisms but is nonetheless a step forward towards ever closer union, and this time it’s fiscal.
This has been hailed as Europe’s ‘Hamiltonian moment’ as it involves mutual debt issuance. It’s not quite that – we are not talking about mutualisation of countries existing debts. Nevertheless, it sets an important precedent in securing the idea of fiscal coordination, if not union. Italian yields fell to their lowest level in months...
European equities were higher on a cocktail of the EU budget deal and the ongoing daily dose of vaccine news. AstraZeneca and Oxford University’s candidate is showing promise, whilst there are positive signals from several other quarters.
The DAX in Frankfurt surged 1.5% to make a fresh post-Covid high at 13,250
The DAX was already outperforming other major stock markets this year. German companies seem to be benefiting from Berlin’s solid handling of the crisis, and expectations of rising exports as the global economy heals.
In contrast, European stock markets are down around 9% on average.
The UK’s FTSE is still 16% lower this year, being dragged down by major players like oil companies and banks (BT and HSBC, for example, are both down a third in 2020).
Italian government debt is strengthening, as bond traders hail the EU recovery fund deal.
This has pulled the interest rate, or yield, on Italy’s 10-year bonds to just 1.05%, the lowest since early March.
Covid-19 drives UK borrowing to new record
The cost of the coronavirus pandemic is clear to see in the latest UK public finances, released this morning.
The UK borrowed £35.5bn to balance the books last month, around five times as much as in June 2019. That increase was driven by stimulus measures such as the furlough scheme, and increased healthcare costs.
This pushed borrowing since April up to £127.9bn, £103.9bn more than in the same period last year and the highest borrowing in any April to June period on record.
As my colleague Richard Partington explains:
The government has been forced to borrow almost £130bn between April and June to combat the coronavirus pandemic, more than double the amount it did over the whole of last year.
Setting out the scale of the economic shock unleashed by the virus, the Office for National Statistics said public borrowing in the first quarter of the 2020-21 financial year jumped to £127.9bn, the highest quarterly sum since comparable records began in 1993.
According to the latest snapshot, borrowing in June was £35.5bn, roughly five times the level in the same month a year ago, albeit a gradual decline from even higher levels of borrowing in April and May during the earlier stages of the pandemic.
This year, the deficit could exceed £320bn, forecasters believe, as it’s already approaching the record deficit of nearly £160bn run-up in 2009-2010 financial year.
Here’s the full story:
Ladbrokes-owner GVC faces probe
Ouch. Shares in gambling company GVC, which owns Ladbrokes Coral, have tumbled by 8% after it told the City it is being probed by the UK tax authorities.
The investigation relates to GVC’s former Turkish facing online gambling business.
For some time, HMRC has been looking at how online gambling payments in Turkey were handled, and yesterday it told the company that it is examining “potential corporate offending” by an entity (or entities) within the GVC group.
Those entities haven’t been identified, but the probe seems to relate to potential failure to prevent bribery.
GVC say they are “surprised by the decision” to extend the investigation and “disappointed by the lack of clarity provided by HMRC as to the scope of its investigation”, adding:
HMRC has not yet provided details of the nature of the historic conduct it is investigating, with the exception of a reference to section 7 Bribery Act 2010, nor has it clarified which part of the GVC group is under investigation.
Updated
The UK stock market is lagging behind its perky continental rivals today, but at least it’s managed a small gain.
The FTSE 100 index has risen by 29 points, or 0.5%, to 6291. Travel and hospitality companies are among the risers, reflecting optimism that a vaccine could help the economy to fully reopen.
IAG, which owns British Airways, is the top gainer, up 5%. Hotel and restaurant chain Whitbread has gained 3%, with catering operator Compass up 2.5% and retailer JD Sports 2.4% higher.
Take note, investors. Professor Sarah Gilbert, who is leading the Oxford vaccine trial, says there’s no certainty that it will be rolled out this year - but it might.
Reuters has the details:
“The end of the year target for getting vaccine rollout, it’s a possibility but there’s absolutely no certainty about that because we need three things to happen,” Sarah Gilbert told BBC Radio, saying it needed to be shown to work in late stage trials, there needed to be large quantities manufactured and regulators had to agree quickly to licence it for emergency use.
“All of these three things have to happen and come together before we can start seeing large numbers of people vaccinated.”
Those late-stage Phase II/III trials are currently underway in the UK, Brazil and South Africa and are due to start in the US soon.
Updated
Italy’s FTSE MIB index has surged by 1.5% to a four-month high, as traders celebrate the prospect of billions of euros of grants to help fund its recovery.
Prime minister Giuseppe Conte sounds optimistic too, saying that the package of grants and loans will help his government to “change the face of the country.”
Conte said (via Reuters).
“Now we have to run and use these funds for investments and structural reforms. We have a real chance to make Italy greener, more digital, more innovative, more sustainable, inclusive.
We have the chance to invest in schools, universities, research and infrastructures.”
German's DAX highest since February
In Frankfurt, Germany’s DAX index has surged by 1% to its highest level since February 24th.
That was the first day of the Covid-19 market crash, which began after Italy imposed local lockdowns, in a desperate bid to control the virus.
European stocks hit four-month high
Ding ding! Europe’s major stock markets are open, with gains across the board.
The EU-wide Stoxx 600 has jumped 0.7% in early trading, hitting its highest level since March 5 (when markets were wobbling).
Asia-Pacific stock markets are all showing gains today.
Australia’s S&P/ASX 200 is the top performer, up 2.5%, while South Korea’s KOSPI 200 has gained 1.5%.
China’s CSI 300, which took some nasty bumps last week, is up 0.4%.
Fiona Cincotta of City Index says the EU deal and vaccine optimism are both lifting the mood.
Encouraging results from Oxford’s vaccine candidate, in addition to EU leaders agreeing to a €750 billion Recovery Fund is overshadowing rising tension between the UK and China and soaring covid numbers in California.
As the marathon EU leaders’ talks entered the fifth straight day, an agreement was finally reached. The EU Recovery Fund will be €390 billion in grants and the remaining €360 billion in loans to help those countries most affected by the coronavirus pandemic and help the region out of its deepest recession since World War 2. Italy, Spain and Poland are set to gain the most after leaders compromised over the proportions of the fund which would be grants and or loans to please the frugal four. This is being hailed a historic moment for the EU, which is more than a little late to the stimulus party. However, given the boost to risk sentiment this is definitely a case of better late than never.
Here’s our Brussels team Daniel Boffey and Jennifer Rankin on the EU recovery fund deal:
The deal was hard won and the negotiations divided north against south, and east against west, as governments haggled over the terms of both the bloc’s seven-year budget and an one-off economic stimulus.
The summit, stretching from Friday morning into the early hours of Tuesday, was so prolonged that two leaders, Xavier Bettel of Luxembourg and Ireland’s Micheál Martin, had to briefly return home before coming back to Brussels.
But despite initial opposition from the so-called frugal states of the Netherlands, Austria, Sweden and Denmark, agreement was finally found, following a final 5.15am session of the 27 on Tuesday morning, to disburse vast sums in the form of non-repayable grants to countries most stricken by the coronavirus pandemic.
The breakthrough followed a new proposal from Michel, for the EU to pay out €390bn in grants countries and €360bn in loans from the new economic reconstruction fund.
Introduction: EU deal and vaccine hopes lift markets
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Stock markets are pushing higher this morning after the EU agreed a landmark deal on a Covid-19 recovery fund.
After the longest summit in 20 years, Europe’s leaders finally signed off on the €750bn package to help protect and rebuilt economies hurt by the pandemic.
Crucially, it includes a €390bn programme of grants for the member states hit hardest. That’s below the €500bn package originally proposed by Berlin and Paris in May - but still a very important moment.
EU leaders, even the ‘frugal’ Austria, Denmark, the Netherlands, Sweden and Finland, have agreed that the bloc can borrow collectively to fund the recovery.
Leaders also signed off on the EU’s next seven-year budget, which will be worth €1.074tn.
European Council president Charles Michel has said the negotiations (which began back on Friday morning), were difficult, but ultimately successful.
This is a good deal, a strong deal, the right deal for Europeans now. I believe this will be seen as a pivotal moment on Europe’s journey.”
This is going to lift shares in Europe, and strengthen peripheral government debt. Germany’s DAX index, for example, is tipped to rise by over 1%.
Asia-Pacific stocks have already rallied, led by Australia, as traders welcome the news.
But the deal has come at a price, and not just loss of sleep for the leaders and the hard-working Brussels press pack. Funding for some EU projects has been cut, including the Horizons programme designed to boost innovation.
‘The recovery fund is meant to tackle the fallout of an unprecedented pandemic but the only instrument meant to support the health sector was scrapped entirely and Horizon Europe, designed to boost innovation, suffered severe cuts as well’. https://t.co/ZATDpVqjkH
— Nicoline Tamsma (@NicolineTamsma) July 21, 2020
Hopes of a Covid-19 vaccine are also rising, after AstraZeneca and Pfizer both reported positive results from their early human trials. This lifted stocks on Wall Street last night, with the tech-heavy Nasdaq jumping another 2.5%.
Traders were encouraging that the Oxford vaccine, which AstraZeneca is producing, is safe and generates an immune response.
The team don’t yet know that it fights the virus (this is being tested now in larger trials). But hopes are building, as my colleague Sarah Boseley reports:
After intensive research, Prof Sarah Gilbert, from Oxford’s Jenner Institute, said they were more than happy with the first results, which showed good immunity after a single dose of vaccine.
“We’re really pleased that it seems to be behaving just as we thought it would do. We have quite a lot of experience of using this technology to make other vaccines, so we knew what we expected to see, and that’s what we have seen,” she told the Guardian.
Tuesday's Guardian: "Hopes of Covid vaccine rise after UK study hailed as breakthrough" (via @hendopolis) #TomorrowsPapersToday #BBCPapers pic.twitter.com/eijm7iuxxJ
— BBC News (UK) (@BBCNews) July 20, 2020
Tuesday's Mirror: "Vaccine by Christmas" (via @hendopolis) #TomorrowsPapersToday #BBCPapers pic.twitter.com/ekAZSZt3tS
— BBC News (UK) (@BBCNews) July 20, 2020
Any good vaccine news generates a strong response in investors - sending them rushing to buy shares, on hopes that the world economy could return to normality in time.
That is allowing investors to largely ignore the fact the pandemic is still raging, with cases surging alarmingly in the US and WHO increasingly worried it is gaining momentum in Africa.
As Stephen Innes of AxiCorp puts it:
Risk assets are moving to the vaccine pump’s beat after it was raining positive vaccine trials overnight, and investors are still dancing in that rain.
Ebullience around positive vaccine and the recent round of robust macro data continues to float markets in rough seas. The worsening outlook on the virus front continues to churn in the background. But the fear of the virus is less than it was, so the economic beat down is expected to be less this time around.
The agenda
- 7am BST: UK public finances for June
- 1.30pm BST: Canadian retail sales for June
Updated
