New quarantine rules threaten British airlines
London-listed shares fell harder than their US counterparts last week, with the FTSE 100 ending 2.7% lower after sinking 1.4% on Friday. M&G and Vodafone were the two biggest losers on Friday, closing out the day 6% and 5.2% lower respectively. In addition to the factors that hurt US stocks over the course of the week, the FTSE 100 also had to contend with the value of the pound, which made gains versus the dollar over the course of the week — lowering the value of British companies’ overseas earnings. In headlines over the weekend, it was reported that Rolls-Royce is exploring an emergency sale of its Eurofighter jet division, with a number of major private equity firms interested in the billion dollar unit.
British airlines suffered a blow over the weekend, as the government announced a new 14-day quarantine for travellers coming into the UK from Spain. In response, tour operator Tui cancelled all holidays to mainland Spain until August 9, while British Airways said that the decision throws “thousands of Britons’ travel plans into chaos” and “cannot fail to have an impact on an already troubled aviation industry.”
- FTSE 100: -1.4% Friday, -18.8% YTD (-2.7% last week)
- FTSE 250: -1.3% Friday, -21.1% YTD (-0.5% last week)
What to watch
NXP Semiconductors: While many chip stocks have soared this year — Nvidia is up more than 70% — NXP is down 9%. The firm reports its latest quarterly earnings figures today with an analyst call to follow tomorrow. NXP is known for supplying chips to the automotive industry, for purposes such as keyless entry and car radios. Vehicle sales have been decimated by the coronavirus pandemic, and that has had a knock-on impact on the firm’s prospects. Wall Street analysts lean towards a buy rating on the stock, but their expectations for the company’s Q2 profit have fallen by around 20% over the past three months.
Principal Financial: Another US-listed name that delivers earnings figures on Monday, followed by an analyst call on Tuesday, is insurer and investment firm Principal Financial. Like many financial stocks, Principal has been beaten up this year, with its share price still down by close to 20% year-to-date. However, the stock has surged by 49.3% over the past three months and still offers a dividend yield of 5% despite the share price recovery. Security of the dividend will likely be probed by analysts on the earnings call, as will the impact of close to zero interest rates on the firm’s margins.
Reckitt Benckiser: Investors will be hoping that Reckitt can emulate fellow Anglo-Dutch consumer goods giant Unilever in its own quarterly earnings report on Tuesday. Last week, Unilever gained 6.9% after delivering its earnings numbers, propelling it to become the largest FTSE stock. Reckitt’s share price has gained 25.8% year-to-date. A month ago, UBS put a sell rating on Unilever shares and upgraded Reckitt to a buy rating, citing unsustainable drivers of growth for the former and a “compelling turnaround story” for the latter.
Why have tech stocks paused?
The surge of the tech giants has been one of the defining features of the stock market since the pandemic began. The logic is clear: firms that deliver services digitally, or can enable workers to do their jobs remotely, stand to benefit from a crisis that pushes consumers and companies towards living virtually. Interestingly, the tech stock rally has paused just as Covid-19 cases in the US soar, which logic would dictate will be positive for those companies and once again accelerate trends they are on the right side of. The answer behind why tech stocks have taken pause appears to be a relatively simple one; investors have hit a wall in terms of the valuations they are comfortable with. Amazon’s share price is up by more than 60% year-to-date, while Netflix has added close to 50%.
Crypto corner: Bitcoin soars to highest level since Feb
Bitcoin extended gains seen over the weekend to break through the $10,000 level this morning, with the largest cryptoasset trading as high as $10,314 per coin in the early hours.
The surge comes amid a weakening of the US dollar against a basket of global currencies. The dollar index, which measures the currency against a group of trading peers, fell 0.5% to its lowest level since June 2018 as investors fretted about the true health of the US economy.
It is the first time since June Bitcoin has traded above $10,000 and is just off the peak in February when it touched $10,367.
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