Europe
After a promising start European markets have struggled to maintain their early market optimism though it has been notable, we’ve seen decent gains continue in the likes of travel and leisure stocks, with multi month highs in a lot of cases.
Over the last three days this renewed buoyancy has been evident in anticipation of a possible reopening, and with a set of deadlines to focus on, there is a renewed sense of optimism that we could well see an end point for restrictions which would mark a slow return to some sort of normal.
The likes of EasyJet, IAG, Ryanair and TUI are all up for the third day in succession, with EasyJet shares back at levels last seen prior to the first lockdown, after reporting a big jump in summer ticket sales, and Ryanair shares hitting their highest levels in over 2 years. Rolls Royce shares are also higher as markets price in a significant pickup in air travel by the end of the summer.
Premier Inn owner Whitbread is also well on the way to wiping out its pandemic losses, its shares back at their highest levels in almost 12 months, while pub chain JD Wetherspoon shares have also returned to levels last seen a year ago.
The prevailing optimism is also feeding into the likes of Cineworld, whose shares have risen to an 8-month high, along with Hollywood Bowl, whose shares hit an eleven month high earlier today.
Commercial real estate companies Hammerson, British Land and Land Securities are also getting a reopening optimism lift, in the hope that shopping centres will soon reopen and fill up with consumers again.
The hotel business has been another area hit hard by the pandemic, and this morning’s full year numbers from Intercontinental Hotels Group, who own Holiday Inn, illustrate this well, as full year revenues fell to $992m, down from last year's $2.08bn. Revenue per room fell by 52.5%, as the overall business reported an operating loss of $153m.
HSBC has had its fair share of problems over the last 12 months, this morning it reinstated the dividend having been forced to cut it last year by the UK’s PRA as the COVID-19 crisis rippled across the world. In Q3 the bank said it hoped it would be able to start paying a dividend when it reported its full year numbers at the end of the current fiscal year. The bank has delivered on that aspiration this morning, despite a 34% fall in profits, announcing a modest dividend payment of $0.15c a share.
While this appears to be a little on the low side, CFO Ewen Stevenson said that this was because the bank wanted to strike the right balance between paying out to shareholders, and taking advantage of future growth opportunities.
Pre-tax profits for 2020 came in at $8.78bn, slightly above expectations, but well below last year's $13.4bn, adding another $2.2bn of profits in Q4.
There was some speculation in the leadup to the numbers that HSBC might well be leaning towards a greater focus on its Asia markets which contributes the bulk of its profits. This speculation appears to be well founded and while it is caught in the crossfire of US/China relations it appears to have taken the decision to follow the money. The bank said it was looking to shift $100bn of capital to Asia, while also shifting a raft of key management positions out of the UK into Hong Kong, as it looks to focus on wealth management.
Loan loss provisions came in at $8.82bn, which was very much at the lower end of expectations of the $8bn to $13bn target range, and that these are expected to drop quite sharply in 2021.
The biggest fallers have once again been the areas that have performed the best as a result of the pandemic, with the likes of Ocado and JustEat Takeaway getting hit hard for the second day in a row, along with tech stocks like Sage Group, and Avast PLC.
Scottish Mortgage Investment Trust is also down heavily due to its exposure in the likes of NIO and Tesla, which have lost a lot of ground in recent days.
US
After yesterday’s big decline in the Nasdaq, US markets have continued to look soft with the Nasdaq falling below its 50-day MA for the first time since November last year, and on course for its sixth successive daily decline
Tesla shares are down heavily for the second day in a row, falling below the level the company entered the S&P500 as CEO Elon Musk’s comments on bitcoin serve to drive the shares into negative territory for the year, as well as below the level it entered the S&P500.
Lucid Motors, an electric vehicle maker looking to target the higher end of the electric vehicle market and is backed by the Saudi sovereign wealth fund has agreed a deal with Churchill Capital IV to raise funds to expand its factory in Arizona, and help to bring its vehicles to market. The deal which is set to generate $4.4bn in cash values the business at $24bn, and has seen Churchill Capital IV shares plunge over 35%, however they are still up over 400% on the year.
On the earnings the latest numbers from DIY retailer Home Depot saw sales beat expectations in Q4, rising 24.5%, with revenues rising to $32.26bn, from $25.78bn a year ago. The company also raised its dividend to $1.65c a share from $1.50c. Despite the outperformance management has chosen not to offer guidance for 2021. #
AMC Entertainment, owner of the Odeon chain of cinemas in the UK is also higher with the reopening of cinemas in New York acting as a rare beacon of hope for a sector that has suffered more than most over the past 12 months.
US consumer confidence also showed a solid improvement in February, rising from 88.9 in January to 91.3, as optimism over more stimulus spending helped underpin economic sentiment.
FX
The latest UK unemployment numbers didn’t offer up too much in the way of surprises, edging up to 5.1% for the three months to December, and a five-year high. The number of redundancies rose by 30k to 343k for the three months to December.
On a more positive note, the number of payrolled employees rose by 83k in January, however the number of jobs lost is still more than 700k lower than a year ago.
With an economic reopening still more than 2 months away next week’s budget by Chancellor of Exchequer Rishi Sunak takes on an even greater importance in the context of the extension of support measures that have been in place for most of the last 10 months.
To that end there was little reaction to this morning’s numbers from the pound, which remained steady before moving above 1.4100 against the US dollar, while UK gilt yields are firmer above 0.72%, and at 11-month highs, as optimism continued to build about a UK recovery by the end of the summer.
The US dollar has started to slip back a little in the wake of Fed chair Jay Powell’s comments to the Senate Banking Committee, where gave little indication that the Fed was overly concerned at the recent sharp rise in long term US bond yields.
Commodities
Oil prices have continued to look resilient, with Brent prices up at 13-month highs, in anticipation of a decent pickup in demand, however at these levels it could be argued the gains are looking a little over extended. That doesn’t mean we can’t see a move towards $70 a barrel, however there must be a concern that those sorts of levels could trigger some demand destructions.
Bitcoin has also continued its recent slide from yesterday’s peaks, now back below $50k after Tesla CEO Elon Musk admitted the price was a bit high. Given the stake Tesla has in the cryptocurrency this has turned out to be a bit of an own goal for the electric car maker, with the shares also sharply lower.
