It was no secret that when the UK’s GDP figures came out this morning they would confirm a recession – defined as two consecutive quarters of economic decline – the question was by how much. Although the figure came in slightly ahead of estimates, the 21.7% slump compared with April to June last year is the worst ever. This number also dwarfs many of its European counterparts, with Germany’s decline around half of the UK’s at -10.8% for the same period. This figure even topped Spain’s figure of -18.5%, which adds another unwelcome label of largest economic decline to the UK’s title of worst confirmed Covid 19 death rate in Europe. The economy did bounce back 8.7% in June as lockdown eased and the country got back to work but it’s a small bright spot in some fairly bleak figures and the road to recovery seems a fair way off. Market reaction to the news has been fairly muted as it was already priced in with the FTSE positive by 0.2% and Sterling flat against the dollar.
Moderna seals $1.5bn vaccine deal with the US government
The share price of pharmaceutical firm Moderna, which was already up over 250% this year, jumped more than 10% in late trading on Tuesday after President Trump announced the US government will purchase 100 million doses of its experimental vaccine. Moderna stands to be paid $1.5bn for delivering the vaccine, and the US has the option to purchase up to 400 million extra doses. Currently the vaccine is in human trials, with 30,000 participants being studied to test the safety and effectiveness of the drug. Trump said that the US is investing in the top six vaccine candidates, and that regulators are “very close” to approval of a vaccine.
AirBnB also made headlines on Tuesday, after it was reported that the firm plans to go public this year despite the impact the pandemic has had on its business. According to The Wall Street Journal the firm plans to file IPO paperwork in the US later this month; the company was reportedly recently valued at $18bn, down from the $31bn it was pegged at before. In recent months, firms have returned to tapping the public markets for capital, with insurance startup Lemonade taking part in a multi-billion dollar IPO last month.
Vaccine hopes hit big tech stocks that have benefited from lockdown economy
All three major US stock indices fell on yesterday in a rocky trading session that saw stocks sold off sharply in the final few hours before the close. One factor that may have driven the sell-off is positive news on a Covid-19 vaccine, as Russia announced it had granted regulatory approval to the world’s first vaccine – although there remain concerns about the speed at which that approval was granted. The tech giants have been the driving force behind the market rally of recent months, one of the main reasons behind that is a world where everyone is forced to work and shop online, which plays right into their hands. So, somewhat paradoxically, the positive implications that a vaccine has for the physical reopening of global economies may actually be a negative in the short-term for tech stocks, which form a huge part of the broader market.
Nvidia, Apple and Netflix were among the stocks that dragged the indices lower, closing 2.8%, 3% and 3.4% respectively. In the Dow Jones Industrial Average, Apple was the biggest loser, with Microsoft and Intel also in the red, while financial names JPMorgan Chase and American Express led the day. Tesla stock closed the day 3.1% down, but jumped 6% in after-hours trading after reporting it is planning a five for one stock split, which investors are anticipating will lead to an increase in demand for the company’s shares from smaller investors.
S&P 500: -0.8% Tuesday, +3.2% YTD
Dow Jones Industrial Average: -0.4% Tuesday, -3% YTD
Nasdaq Composite: -1.7% Tuesday, +20.2% YTD
Airlines, finance names lead FTSE 100 1.7% higher
London-listed stocks soared on the Russia vaccine news, with the FTSE 100 adding 1.7% and the FTSE 250 up 1.5%. The London market closed before the end of day tech-led sell-off in the US, but there is relatively little tech representation in either the FTSE 100 or FTSE 250 regardless. British Airways parent International Consolidated Airlines Group continued to make gains on Tuesday, adding 8.4%, while FTSE 250 constituents TUI, Wizz Air and easyJet added 9.7%, 7.1% and 7% respectively. Finance names also did well in the FTSE 100 on the day, with Standard Chartered adding 5.3%, NatWest Group 4.6% and HSBC 4.5%.
Engine maker Rolls Royce added 2.9% despite having to calm customers and investors yesterday after reporting cracks in compressor blades in the engines it produces to power the Airbus A350 airliner. The firm has already shelled out billions to fix issues with the engines it makes for the Boeing 787 Dreamliner. Broader sentiment around a vaccine and the return of more air travel demand appears to have drowned out investor concern about the engine issue, however.
FTSE 100: +1.7% Tuesday, -18.4% YTD
FTSE 250: +1.5% Tuesday, -17.8% YTD
What to watch
Tencent: Chinese tech conglomerate Tencent, which offers products including instant messaging services, video games, streaming and more, reports quarterly earnings on Wednesday morning New York time. The earnings release comes shortly after President Trump suggested the firm’s WeChat app poses a threat to US national security, and banned American companies from doing business with it – with a lack of clarity around whether the ban is limited to the app itself or the whole company. The company’s US listing has added 36.8% year-to-date, but its share price fell back 7.1% last week on the Trump announcement. Currently, 44 Wall Street analysts rate the stock as a buy or overweight, and four as a hold.
Cisco: IT and communications tech firm Cisco is down 1.6% year-to-date. While it offers services and products that can help firms shift to virtual operations, a big chunk of its business is in hardware for offices that aren’t being used right now and face an uncertain future. The company has exposure to cloud data centers, online video conferencing tools and other components that are in demand right now, but investors will be watching closely for how that balances out the firm’s huge on-site network services when the company reports quarterly earnings today. Currently, analysts are split between a buy and hold rating on the stock.
Lyft: Ride hailing app Lyft reports its Q2 earnings today, days after a California court ruled that the firm’s drivers are employees, rather than the contract worker status Lyft and rival Uber have been fighting for. Analysts are certain to probe the implications of that ruling for the company’s business, and whether it can still see a route to profitability if it has to treat its drivers as full-blown employees. The damage the pandemic, which has suppressed demand for Lyft’s services, has had on the company’s profitability prospects will also be a likely focus on the earnings call. Unlike Uber, Lyft does not have a food delivery service in its repertoire to fall back on. As such, it is down close to 30% year-to-date, while Uber is up 4.9%.
Crypto corner: Bitcoin and others hit by sell off as markets react to vaccine news
Bitcoin was not immune from the machinations of the market in response to the Russian vaccine news yesterday. Alongside tech stocks, gold and other lockdown-positive stocks, the world’s three major cryptoassets all suffered significant losses.
Bitcoin, having briefly breached the $12,000 mark early on Monday is now off around $11,240 – down nearly 7%. This leaves Bitcoin below both its 10-day and 50-day moving averages.
Meanwhile Ethereum, which reached $400 on Sunday is now trading around $368 – down by 8%. XRP which hit $0.3059 early yesterday is now around $0.27 – down nearly 12%.
Cryptoassets aren’t the only ones down, however. Safe haven asset gold has come off its record highs and is now trading around $1,900 per ounce – having peaked at $2,069, down some 8%.
All data, figures & charts are valid as of 12/08/2020. All trading carries risk. Only risk capital you can afford to lose.
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