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Europe gains, US tech hit by higher bond yields

Last night, the Federal Reserve maintained its dovish stance and that triggered the bullish moves seen in European stocks today. 

Several hours ago the Bank of England kept their policy unchanged too, so that contributed to the positive move also. Jerome Powell, the head of the Fed, announced the US economy is predicted to grow at a faster rate than initially thought in 2021 but at the same time, rates are likely to stay near zero through 2023 – this acted as a green light for the bulls. Mr Powell cautioned that higher inflation is on the cards but it should only be temporary and therefore not warrant higher interest rates. Bond yields have increased today but it hasn’t spooked equity markets.      

888 Holdings shares racked up new all-time highs as the gaming group decided to boost its return to shareholders. The final dividend was 12 cents, which is a massive increase on the 3p paid last year, the total dividend increased by 200% to 18 cents. In the 12 month period, revenue rose by 52% to $849.7 million and adjusted EBITDA increased by almost 69% to $155.6 million.    

National Express suffered greatly in the past year because lockdowns crippled the transport industry. Annual revenue came in at £1.96 billion, a drop of almost 29%, the group registered a loss of £381.4 million, which was a huge difference from the £242.3 million profit posted last year. The UK’s vaccination distribution scheme is making great progress and the country should be operating without restrictions by late June, if everything goes according to plan, so National Express stands to benefit from the planned reopening of the country. Even though the transport business has faced tough conditions in the past year, it still managed to reduce net debt by £400 million, which makes the company more nimble. Tight restrictions are still in place but National Express has access to £1.9 billion – a mixture of cash and credit.

Ocado shares have been in a downtrend recently as traders are rotating out of stocks that outperformed amid the lockdown and are snapping up companies that stand to benefit from when restrictions are eased. The online grocery group confirmed that first quarter retail revenue jumped by nearly 40% to £599 million. In the three month period, average weekly orders were 329,000 up 2.5%. Ocado’s real test will be if can hang onto its market share when normal life resumes.

Vantage Towers commenced trading on the Frankfurt exchange today, the IPO price was €24.00 and the stock is trading slightly above that level at the moment. The decision to list 18.9% of the business will help Vodafone pay down debt.     

Fevertree shares are offside following the poor full year figures. Revenue and adjusted EBITDA fell by 3% and 26% respectively. The final dividend was lifted by 4%, it seems strange the drinks group is raising the pay-out in the face of disappointing numbers.                  

US

US stocks are in the red following the record highs that were set last night as the upward move in government bond yields has encouraged profit taking. Tech stocks have suffered the most as the US 10-year yield hit 1.74%, a 14 month high, but it has since cooled a little.

It was a mixed bag on the economic indicators front as the jobless claims reading jumped to 770,000 - a four week high. The Philly Fed index for March surged to 51.8, the highest reading in almost 50 years, the prices paid component was 75.9, up from 54.4, this ties in with the inflation mention by Mr Powell last night.     

Williams-Sonoma shares are in high demand today as the company posted strong fourth quarter numbers. EPS was $3.95, easily beating the $3.39 forecast. On an annual basis, revenue increased by 24.5% to $2.29 billion, topping estimates. Home furnishing groups performed well in the past year as the lockdowns encouraged people to spend more on their homes. Williams-Sonoma lifted its dividend by 11%, in addition to that, a $1 billion share buyback scheme was announced. 

South Korea’s, Hanwha, owns a 5.65% stake in Nikola but the firm has announced plans to reduce its position in the truck manufacturer by up to 50%. Nikola shares are off over 7%. 

FX

The aggressive jump in the 10-year yield has dragged the US dollar index higher, the currency has pulled back most of the losses its endured yesterday in the wake of the Fed’s update. As it stands, it doesn’t look like interest rates will be rising in the US until 2024 but dealers are taking the view the US is further down the track when it comes to lifting rates than other countries because the recovery is one of the best in the West. EUR/USD is down over 0.3% on account of the dollar’s move.

There were no major surprises from today’s Bank of England meeting as rates were kept at 0.1% and the asset purchase scheme was left at £895 billion – also in line with economists’ forecasts.  Andy Haldane, the bank’s chief economist continues to be cautiously optimistic about the state of the British economy, as he said that a rapid recovery is more likely than not. The CMC GBP Index is moderately higher this afternoon.            

Commodities

The rise in yields has hurt gold on two fronts, firstly, the rebound in the dollar dented the yellow metal as there is an inverse relationship between the two markets, secondly, gold is a non-interest-bearing asset, so higher yields makes the commodity less attractive from an asset allocation point of view. 

Brent crude oil and WTI are suffering large declines today. Oil is under pressure as there are growing concerns about demand in light of the fact that several large European economies have halted the distribution of the AstraZeneca-Oxford vaccine. Also playing into the mix are worries about rising US inventories, yesterday’s EIA report showed that stockpiles jumped by 2.4 million barrels, the fourth consecutive weekly increase. Lastly, the jump in the dollar isn’t helping the commodity either.      


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