It’s been a pretty lacklustre day for markets in Europe today, with the FTSE 100 and DAX both drifting back on the back of a weaker Asia session, as concerns over events in India act as a drag on global recovery prospects.
There may also be some anxiety over recent sharp rises in commodity prices, which are now starting to bleed into the agriculture sector, as both corn and wheat prices surge to multi-year highs, largely over supply concerns due to unseasonably dry weather in North and South Dakota.
BP’s latest Q1 numbers helped the BP share price to rise in early trade as the company announced the restart of its buyback programme, after reporting Q1 underlying replacement cost profit of $2.6bn, its best performance since 2019. This compares to $100m in Q4, driven by higher energy prices, as well as better refining margins. BP also announced that it had met its debt reduction target earlier than expected, reducing it to $33.3bn well ahead of schedule. BP's share price response has been somewhat underwhelming, despite management's commitment of a 60% return of surplus cashflow if the business continues to perform as expected. Perhaps this muted response has more to do with scepticism that this can be achieved, as the company looks to steer itself towards a greener future.
The next few months are set to be crucial ones for Whitbread, as its Premier Inn chain of budget hotels get up and running for the summer season, after a year that has seen total sales slump by 71.4%, due to the various closures and restrictions that have been in place since March 2020. The successful completion of a £1bn rights issue in June last year, and a £550bn green bond a couple of months ago, has managed to give management the flexibility ahead of a full reopening on 17 May. Full-year revenues for 2021 came in at £589.4m, a 71.5% decline from 2020, with the company posting an adjusted loss before tax of £635.1m, with the shares sinking back towards the bottom of the FTSE 100.
HSBC’s latest numbers, on the other hand, showed a bank that appears to be recovering well, posting a 79% rise in full-year profit to $5.8bn, as the bank followed in the footsteps of its US counterparts in releasing $400m back on to its balance sheet from the money set aside last year for non-performing loans. While the bank generates most of its profits from its Asia operations, the outperformance of its UK operation saw returns of $1bn. Despite the rise in profits, revenues were lower overall, coming in at $13bn, which management blamed on the low interest rate environment. This is a somewhat bizarre claim given that interest rates over the last quarter are actually higher, and yield curves are slightly steeper. It may also help explain why HSBC's share price has only made modest gains in London trading today.
The fallout from the Archegos hedge fund collapse has continued to reverberate, with UBS announcing a surprise $774m hit from its exposure to the business. This surprise revelation overshadowed what was an impressive Q1 performance, which saw net income rise by 14% to $1.8bn. It also raises some serious questions about the risk-management processes within UBS, with CEO Ralph Hamers saying that the bank has started a review into its prime brokerage business.
US markets are treading water near to their record high levels as yet another US data point blows through expectations. The latest consumer confidence number for April surged again, this time to 121.7. At the beginning of the year this indicator was at 88.9 reflecting wider concern over rising infection rates and the twilight of the Trump presidency. Isn’t it amazing what a successful vaccination program, and two fiscal stimulus packages can do?
Even though Tesla managed to sell almost twice as many electric cars in Q1 as it did in Q4, delivering 184,800 vehicles, Tesla's share price opened lower. Profit also beat expectations, with net income at $483m on revenues of $10.39bn. The extra capacity Tesla is investing in is certainly paying dividends; however, looking behind the numbers, Tesla still isn’t making any money from selling its cars. If it wasn’t for a $101m profit from bitcoin sales and $518m from the sale of regulatory credits, the company would have made a loss. This inability to generate returns from its primary business remains the biggest concern for investors right now, especially when one looks at the scale of the likes of General Motors, Ford and Daimler, who are now starting to ramp up their electric vehicle offerings, and have the ability to scale much quicker. It’s difficult to see how this can change, as competition increases, no matter how much it drives down its costs of production, which means it will still be heavily reliant on the other areas of its business, regulatory and energy storage sales, as well as bitcoin sales. This begs the question as to how sustainable that is.
GameStop shares have risen after the company said it had completed an equity offering, selling 3.5m shares, raising around $551m in the process. UPS shares have also risen on the back of a bumper Q1 sales report, numbers that have been boosted by the transportation of Covid-19 vaccines across the country, pushing revenues up to $22.9bn and profits to $2.77 a share, up from $1.15 a year earlier.
We’ve also got the latest Q3 numbers from Microsoft after the bell. In Q2, the company posted a 17% rise in annualised revenues, driven by its intelligent cloud business, which saw a rise in revenues of 23% year-on-year. This outperformance saw quarterly sales rise above $40bn for the first time ever, to $43.1bn. Today’s Q3 numbers are going to be a big test and it will be interesting to see if Microsoft can pull off the same trick of another quarter of revenues in excess of $40bn. Profits are expected to come in at $1.77 a share. Alphabet is also expected to report its Q3 numbers.
It’s been a bit of a snooze fest on currency markets today ahead of the conclusion of tomorrow’s Fed meeting, with the US dollar edging higher, posting its best gains against the Australian dollar, with this afternoon’s bumper consumer confidence number also adding some fuel to the fire, as the US central bank sits down to discuss how the US economy is doing.
If these numbers continue to remain strong the Federal Reserve will come under increasing pressure to act on its “outcome-based guidance”. Fed chair Jay Powell may well have said that the US economy was at an inflection point last month, however given the strength of this data there is a case of saying it is starting to reach escape velocity. While no one is suggesting that the Fed needs to tighten now, at some point it will start to have to lean into a taper if upcoming data continues to surprise to the upside.
Copper prices have continued to move higher, and although not quite back at the record levels we saw in 2011, it can only be a matter of time before we get there, given that demand is likely to continue to remain strong, and we still have supply concerns in places like Chile.
Precious metals are also looking strong, with palladium prices hitting another record high earlier today. Gold prices, on the other hand are flat, with US yields edging higher after this afternoon’s bumper consumer confidence number.
Crude oil prices are slightly better bid ahead of this week's OPEC+ meeting, when they are expected to rubber stamp a modest easing of the output cuts that have been in place for several months now. Recent events in India have served to pull prices down from their peaks last week, over concerns that the surging virus cases there will prompt a sharp fall in demand over the next couple of months.