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“When the US sneezes the world gets a cold and when the US is feeling chipper it seems everyone else is in a better mood too,” says AJ Bell Investment Director Russ Mould.
“A positive start to the second quarter results season and a signal from the Federal Reserve that it will keep financial stimulus in place helped stoke a rally on Wall Street overnight and the FTSE 100 followed in its wake on Wednesday, up 0.8% to 6,229.12. Other European markets were also in the black.
“Further bolstering optimism was news of another potential vaccine breakthrough – a viable vaccine being the most obvious route back to pre-Covid normality.
“The pound was lifted slightly by a higher than expected inflation reading, hitting $1.2588 against the dollar.
“A significant draw on inventories in the US helped lift oil prices – with the Brent Crude benchmark back above $43 per barrel although all eyes are on OPEC and its affiliates and whether they will extend production cuts at a meeting later today.
“Gold prices remain above $1,800 per ounce but momentum towards the record level of $1,920.30 set in 2011 seems to have stalled as appetite for risk increases.”
ASOS
“The fashion retailer had already been through the wars before the pandemic thanks to warehouse problems. Coronavirus struck just as ASOS was getting back on its feet, meaning the company had to be very careful not to derail its recovery efforts.
“Online retailers have enjoyed a surge in demand during lockdown as people stuck at home find solace in having deliveries to their homes to cheer them up. While ASOS had a clear advantage over high street retailers, a reduction in marketing activity meant sales growth in some of its regions wasn’t at the levels one might expect from the business.
“Lower marketing costs will have helped at a time when the business incurred higher Covid-related operating costs. However, a change in the type of products being bought caught ASOS off guard.
“Weaker demand for dresses and formalwear made sense given people weren’t going out for a night on the town. Unfortunately, ASOS didn’t have enough supplies of what customers wanted instead, namely casualwear.
“It looks like ASOS will have to wait a bit longer for a return of its normal sales mix. Even though more people are now returning to work and shops and leisure attractions are reopening, it seems there is still subdued demand for a big night out or going abroad on holiday. As such, ASOS is still without a major sales catalyst for a key part of its product range.”
Burberry
“Things may be looking up a bit for luxury brand Burberry but not enough for the company to truly be in fashion with investors.
“The company was one of the first to see an impact from the coronavirus crisis. The importance of the Chinese market to Burberry meant its position in the epicentre of the virus was leading the market to fret about the firm’s prospects as early as late January.
“And while it is encouraging to see trading in China and Korea hit pre-Covid 19 levels in June, Burberry itself acknowledges this could simply be nationals from both countries buying domestically because travel restrictions are keeping them at home.
“This is a double-edged sword as the company more widely is reliant on a steady flow of wealthy tourists to its European stores which has all but dried up for the foreseeable future. This is just one of the reasons why it faces a lingering impact from the pandemic.
“The company is trying to adapt to post-Covid realities. More sales are migrating online and it is increasingly trying to engage through avenues like digital games, Spotify playlists and social media.
“However, while the luxury sector has tended to outperform in other downturns the circumstances this time around are different and will be interesting to see if people remain as wedded to the idea of buying expensive branded goods as we enter a ‘new normal’.”
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