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Europe slips, drab ECB update, Ford accelerates

Stock markets are on track to end the session a little in the red as it has been a fairly dull day in terms of news flow. 

Europe

The buzz of President Biden’s inauguration yesterday was swapped for an uninspiring update from the European Central Bank (ECB), where interest rates and the stimulus programme were left on hold, meeting forecasts. Christine Lagarde, the ECB President, said the economic data seen so far indicates the eurozone experienced negative growth in the fourth quarter. That didn’t come as a surprise in light of the lockdowns that were introduced in November but were rolled over into December. Economic activity in the first quarter of 2021 will be dented due to the new harsher restrictions in countries like Germany, Italy, The Netherlands and France. Lagarde cautioned that domestic prices will continue to be subdued but she also expects upward pressure on inflation as the economy starts to recover. We might be waiting some time for the economy to pick up seeing as it will probably be months before a sizeable portion of the population is vaccinated. The central banker said an ambitious and coordinated fiscal stance is needed to tackle the economic impacts of the lockdowns. This has been a common theme, as it must be a two pronged approach to tackle the crisis. Given that the EU is slow to act at the best of times, the region’s recovery is likely to be behind that of the UK and the US, so that will put further pressure on the ECB.         

Sage shares are higher on the back of the respectable first quarter update. In the three month period, total revenue increased by 1.4% to £447 million, there was a 4.7% rise in recurring revenue to £408 million. The company saw recurring revenue growth from its cloud business of 6.2%. Sage is keen to increase investment, spending and marketing, in particular in the field of cloud computing because it is a rapidly expanding industry. The likes of Amazon, Salesforce and Microsoft have experienced great growth in the cloud sector.

The gaming group Entain, saw a surge in online activity, which helped offset the painful fall in revenue at its retail business – lockdowns negatively impacted betting shops. Net gaming revenue (NGR) grew by 41% in the fourth quarter, making it the twentieth consecutive quarter of double digit expansion. On an annual basis, NGR jumped by 27%. By contrast, the UK and European retail units saw revenue fall by 36% and 38% respectively. Entain has exposure to the US market via its joint venture with MGM. The American group recently tried to acquire the London-listed firm but nothing came of it as MGM were not willing to raise their offer. Entain lifted its profit forecast for its US business from $150-$160 million in October to $175-$180 million. The group full year EBITDA outlook is £825-£845 million.

The lockdowns caused events to be cancelled and that had a negative knock-on effect on the media group Daily Mail and General Trust. Group revenue for the first quarter dropped by 15% to £304 million, while excluding the impact of events it still fell by 5%. Digital advertising revenue increased by 8%. The company confirmed it is trading in line with expectations.        

US

The major indices are a touch firmer the positive economic announcements, coupled with the lingering optimism for the new Biden government. The jobless claims reading fell from 965,000 to 900,000 – which is admittedly is still a relatively high level because in early December the metric was in the low 700,000s. Continuing claims fell to 5.05 million from 5.27 million. The Philly Fed business index for January hit a three month high at 26.5. December’s housing starts level was 1.66 million, up 7.7% on the month.            

Oil field services group, Baker Hughes, announced that fourth quarter orders were $5.2 billion, up 2% from the previous quarter. Total revenue was $5.5 billion, marginally beating the $5.42 billion consensus estimate. The loss per share was 7 cents, while equity analysts were anticipating a positive EPS of 17 cents. Last week the oil market hit an 11 month high so that should benefit the group. Baker Hughes is cautiously optimistic in its outlook as it feels demand will pick up as the global economy recovers from the impact of the lockdowns.

FuelCell shares saw a lot of volatility as its fourth quarter loss per share was 8 cents, undershooting the 4 cents loss per share that analysts were expecting. Revenue surged by 54% to $17 million but that was fractionally below market estimates. Fuel Cell technology, along with other types of renewable energies have been in high demand recently as it is widely believed the Biden administration will invest heavily in the sector. FuelCell shares were down in early trading but they are now in positive territory.

Ford Mustangs will be fully electric by 2029. The well-established auto maker is determined to keep up with the electric vehicle trend. Deutsche Bank upped their price target for Ford from $9 to $11.                     

FX

The CMC GBP Index has been in an uptrend since mid-December. GBP/USD has set a fresh 32 month high, while EUR/GBP has dropped to a new eight month low. There have been reports of UK-EU trade disruption but sterling has reacted well to the trade deal signed last month by both sides.

The US dollar index fell to a one week low. On Monday, the greenback hit a four week high but it has been moving lower since. Even though the ECB would prefer a softer single currency to help exports, EUR/USD is up today due to the dip in the dollar. While the EUR/USD holds above the 50-day moving average at 1.2090, the broader uptrend should continue. 

Commodities

It seems that profit taking has pushed gold into the red. Yesterday, the precious metal rallied more than 1% but today it has drifted lower. The negative move is probably being cushioned by the weaker US dollar.

WTI and Brent crude oil have been subdued today following the gains that were posted yesterday on the back of the general optimism that surrounded the Biden inauguration. Oil has traded in a small range today, but tomorrow’s inventory data from the EIA might add some volatility.    


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