Simon Peters, UK Market Analyst at eToro, has provided his daily commentary on traditional and crypto markets for June 30, 2020.
Yesterday, most of America’s largest banks said that they had done well enough on the Federal Reserve’s latest stress test to keep their dividends intact. Last week, the central bank put new restrictions into place, requiring big banks to suspend share buybacks and limit dividend payments to their current level, with firms having to pass a formula-based test linked to earnings to be allowed to pay a dividend at all.
On Monday, Goldman Sachs, Citigroup, Morgan Stanley, Bank of America and JPMorgan all announced that they would be keeping their dividends intact, while Wells Fargo said it would be making a cut with the exact rate still to be determined. The announcements were made at the market close, following which Wells Fargo stock fell slightly in late trading, while the other banks made gains.
In other corporate news, Boeing had a mixed day. Its share price surged by more than 14% after the Federal Aviation Authority confirmed it is conducting test flights on the troubled 737 Max airliner. However, after the market close Norwegian Airlines said it is cancelling an order for 92 of the planes, and that a compensation deal is still to be worked out.
US markets shake off Covid-19 record high
All three major stock indices in the US jumped yesterday following Friday’s sell-off, despite record new Covid-19 case numbers over the weekend. The S&P 500 finished Monday 1.5% higher for the day, and down just 5.5% year-to-date, while the Nasdaq Composite extended its year-to-date gain past 10% after jumping by 1.2%. All 11 sectors in the S&P 500 were in the green, with industrials stocks leading the way. The Dow Jones Industrial Average was the biggest winner, with a 2.3% gain, led by Boeing and names including Raytheon Technologies and Verizon.
In corporate news, computer memory firm Micron’s share price popped 7% in late trading following its quarterly earnings report, which showed that a surge in demand from cloud computing service providers rapidly expanding their data centers is fueling chip-maker revenues. Micron reported better than expected Q2 earnings, and the firm said it anticipates the rollout of 5G mobile networks to be another growth driver, as 5G compatible smartphones will require a new generation of memory chips.
S&P 500: +1.5% Monday, -5.5% YTD
Dow Jones Industrial Average: +2.3% Monday, -10.3% YTD
Nasdaq Composite: +1.2% Monday, +10.1% YTD
Homebuilders at the back of the FTSE 100 after record low mortgage approvals
In the UK yesterday, the FTSE 100 posted a 1.1% gain, led by International Consolidated Airlines Group, Standard Chartered, and Kingfisher, which all finished close to 4% up. Home builders and property investment companies were close to the bottom of the pack, after new data from the Bank of England showed that mortgage approvals sank to their lowest level on record in May. The government mandated shutdown of the housing market lifted in mid-May, and less than 10,000 mortgages were approved during that month, versus more than 70,000 per month pre-pandemic. Barratt Developments, Land Securities Group and Taylor Wimpey all saw their share prices fall following the news, although the losses were marginal.
In other news, BP announced that it is selling its petrochemicals business to British firm INEOS for $5bn, rather than make the considerable investment required to turn the division into a growth center. INEOS previously bought the bulk of BP’s petrochemical business in 2005 for $9bn. BP’s London listed shares closed 3.4% higher following the news.
FTSE 100: +1.1% Monday, -17.5% YTD
FTSE 250: +0.5% Monday, -21.4% YTD
What to watch
Fedex: Delivery behemoth Fedex reports quarterly earnings today after the market closes. The release will be closely watched, as Fedex has been a business in turmoil during recent years. Its share price is down 11% year-to-date and 17.4% over the past year, despite a recent boom in consumers shopping online during the pandemic — the company’s business is heavily weighted towards B2B. Fedex’s relationship with online shopping giant Amazon has been problematic, causing the pair to effectively cut ties in 2019. According to Zacks Equity Research, FedEx is hoping to attract Amazon’s direct rivals, such as Walmart. Analysts are anticipating an earnings per share figure of $1.63 today, versus the $2.64 they were predicting for the quarter three months ago.
US consumer confidence: In the US, consumer confidence figures for June will be released today. The Consumer Confidence Index is expected to tick up past 90, versus its May reading of 86.6. It is based on a survey of 5,000 households, including two questions on the present situation and three questions on consumers’ expectations for the future.
Sainsbury’s: On Wednesday, British supermarket chain Sainsbury’s will report its latest set of quarterly earnings, having outperformed the market by a wide margin in 2020 so far. The firm’s share price is up 7.9% YTD, and close to 50% over the past 12 months. That performance also outstrips key rivals Tesco and Morrisons. Analysts are reportedly anticipating a jump in sales over the past three months. In April, the company shared that sales were up 8% in the first seven weeks of the quarter. Currently, half of analysts covering the stock rate it as a buy or overweight, with the rest split between hold, underweight and sell.
Crypto corner: A new fee model for Ethereum?
Developers have proposed an overhaul of the Ethereum blockchain’s fee model as costs have soared in recent months. Since April transaction fees on Ethereum, so-called ‘gas’, have increased in price by 500% according to Coindesk.
Now, developers have suggested one of the biggest possible post-launch changes to a blockchain; Ethereum Improvement Proposal (EIP) 1559. The proposal has been in the works since 2018 but has gained fresh relevance thanks to the sky-high fees.
EIP 1559 would implement a dynamic pricing system for gas fees.Transactions at the moment come under particular pressure when the network is ‘bottlenecked’ by a large amount of activity, something that has increasingly put the blockchain under pressure in recent months.
All data, figures & charts are valid as of 30/06/2020. All trading carries risk. Only risk capital you can afford to lose.
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