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Financials lift FTSE, Novavax rises

Equity markets are a mixed bag this afternoon as higher government bond yields have chipped away at sentiment. 

Europe

Stock markets have enjoyed a positive run lately, largely due to the hopes in relation to economies loosening their restrictions in the months ahead, also President Biden signed off on the US’s $1.9 trillion stimulus package last night. The prospect of higher growth, comes at a cost, the likelihood of higher inflation, and that is pushing up yields.

Financial stocks like, Barclays, Lloyds, HSBC and Prudential are benefitting from the tick higher in yields, which in turn is helping the FTSE 100. The DAX 30 is under a little pressure over fears of a third wave of the coronavirus, worries about an Easter lockdown in Italy is hurting the FTSE MIB.           

Burberry shares are in vogue thanks to a positive trading update. The high-end fashion house confirmed that business has rebounded since December. Comparable store sales in the final quarter are predicted to show growth of between 28% and 32%, which would be a very strong finish to an extremely challenging year. Taking into consideration the final quarterly outlook, the full year revenue forecast is between -10% and -11%. Burberry now anticipates revenue and operating profit to top the consensus estimate. In the months ahead, the global economy should return to some level of normality, which should benefit Burberry in particular seeing as a sizeable portion of its revenue comes from wealthy tourists shopping at its stores in global cities like London and New York.

Berkeley issued a respectable trading statement but the stock is down 5%. The housebuilder said it is on track to deliver a similar profit as last year, forward sales are predicted to be above £1.7 billion at the end of the year.  By and large, it sounds like business is carrying on as usual at the group.  Reservations have been robust and cancellation rates are at normal levels. Berkeley reiterated that it is committed to returning £280 million per year to shareholders via a dividend or share buybacks, so it sends out a positive message. The firm cautioned that it is experiencing materials delays as well as some price increases in specific areas, but overall the impact has been neutral.       

The lockdowns have had a brutal impact on high street retailers. Hammerson has huge exposure to retail assets, as it owns well-known shopping centres like Brent Cross in North London. Group full year net rental income slumped by 49% to £157.6 million. The full year loss was a staggering £1.7 billion, its worst on record but it is worth noting the large asset value write downs were a major contributing factor to the loss. Adjusted profit, which strips out one-off costs, tumbled by almost 83% to £36.5 million. In an effort to raise cash to bolster its balance sheet, the property company sold minority stakes in three sites, further asset disposals are on the agenda.

JD Sports will make inroads into central and eastern Europe as it has acquired a 60% stake in Poland’s Marketing Investment Group (MIG). The move will give the London-listed retailer a majority stake in the business that owns 410 retail stores and a string of websites across 9 countries. A mechanism has been put in place for JD to off-load the stake should it want to go down the disposal route.

In the past 24 hours things have gone from bad to worse for AstraZeneca. Sadly a patient who had received the AstraZeneca-Oxford vaccine passed away, so several European countries stopped administering the drug as they want to carry out safety checks first before recommencing. It was then reported the Pharma giant will under deliver on its vaccine commitment to the EU, in terms of quantity of doses. 

US

Tech stocks have been hit the hardest by the rise in yields. The NASDAQ 100 is down 1.7% and the S&P 500 has retreated from yesterday’s record high. The US PPI rate jumped from 1.7% to 2.8% in February, above the 2.7% forecast, the core update was 2.5%, up from 2%. The announcements are adding to the inflation woes that have been circulating lately, so yields might remain elevated.      

Novavax shares are higher as it was reported its Covid-19 vaccine has a 96% efficacy rate, in addition to that, it is 86% effective against the UK strain of the virus. The news has ramped up the stock as its drugs will be in high demand.      

DocuSign shares are in the red following the release of its fourth quarter numbers last night. The loss per share was 38 cents, which missed forecasts as analysts were expecting the loss per share to be 22 cents. Revenue was $431 million, topping the $407.6 million consensus estimate. In the three month period, the billing rate jumped by 46% on an annual basis to $534.9, but looking ahead to the first quarter, it is predicted to be $457-$467 million. It appears the billing rate outlook is weighing on the stock.

Gamestop continues to see a lot of volatility. In the past couple of months, the company has been in the news a lot because it was at the centre of a tussle between a number of hedge funds, who shorted the stock, and a group of retail investors who created a short squeeze. The stock endured a painful fall in early February but it has witnessed a jump in popularity again recently.         

FX

A move higher in the US-year yield had pushed up the US dollar index, helping it snap out of its three day losing streak. Earlier in the week, the greenback hit a new three month high but it subsequently pulled back, partially due to lower yields. Today’s PPI data brought about renewed attention to inflation and while those fears circulate, the dollar could seek to re-test its recent highs.

USD/CAD is in the red as the solid jobs report from Canada overpowered the robust US dollar. Canada’s unemployment rate dropped from 9.4% to 8.2% - an 11 month low. The employment change update showed that over 259,000 jobs were added last month, hammering the 75,000 consensus estimate. The recent bullish run in oil has driven down USD/CAD as the ‘the Loonie’ is closely connected to the energy.

The CMC GBP Index is in the red as it seems that dealers are booking profits from its recent rally. In January, the UK economy contracted by 2.9% on a monthly basis, easily beating the -4.9% forecast. The industrial output and manufacturing output levels were -1.5% and -2.3% respectively, the readings were a little worrying.                

Commodities

Once again, the strong inverse relationship between the dollar and gold is a big factor in the commodities movement. The yellow metal is in the red, partially because of the firmer dollar but the tick higher in bond yields is playing a role too. Gold is non-interest-bearing so higher yields re-routes funds away from the asset. 

Oil is a touch lower following a few days of gains. The energy has been well supported recently as OPEC+ decided to basically maintain their existing production output in place. More recently, OPEC lifted its demand forecast too, which is connected to the wider recovery story. 


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