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FTSE 100 back above 7,000, tech and miners rebound

FTSE 100 chart

Having seen large falls yesterday, markets appear to have recovered some of their mojo rebounding strongly today with the FTSE 100 back above the 7,000 level once more, while the DAX has recovered back above the 15,000 level, as the focus returns to the economic prospects of various companies as restrictions continue to get lifted.

Basic resource stocks are leading the way today with the likes of Anglo American, BHP and Rio Tinto benefitting from the continued rise in copper prices, while Irish construction giant CRH has seen its share trade up at new record highs as optimism over the upcoming US infrastructure stimulus plan helped to underpin the shares. The US is one of CRH’s biggest markets. On the downside, the worst performers have been Ocado and Just Eat Takeaway, as some of the main beneficiaries of the lockdowns over the last 12 months see some more profit-taking.   

The last 12 months have been testing ones for Boohoo, with sentiment taking a hit on reports that Jaswal fashions, a factory in Leicester, and a reported supplier to the company, was operating below the required standards as set by UK Health and Safety, and was also paying below minimum wage levels. The company also saw their Nasty Gal and PrettyLittleThing brands dropped by ASOS, Next and Amazon. In spite of the short-term brand damage, management appear to have drawn a line under some of these issues, and in March took the decision to drastically cut back on the number of suppliers it uses in its supply chain to 78, down from over 200, as it looked to shore up its battered reputation, and improve its oversight. To further reinforce its governance, the company announced that it would also be setting up a risk committee to oversee supply chain monitoring and compliance.

Putting to one side the noise around the supply chain issues, the last 12 months have seen the business increase the number of active customers to 18m, a rise of 28%, as well as post a 41% boost in revenues to £1.75bn. This translated into a 35% increase in profits before tax to £124.7m. In terms of its outlook Boohoo’s guidance was a little on the cautious side, with revenue growth expected to slow to 25%, below market expectations, with the newly acquired brands expected to deliver about 5% of this number. This low-ball number probably helps explain why the shares have finished the day sharply lower.

ITV’s share price has seen some decent gains over the course of the past six months, though it still remains some way off its 2020 highs. The shuttering of ITV Studios at the start of the pandemic saw revenues slide in that business, while advertising revenues also fell back as customers cut costs to preserve cash. At the end of Q4 there were some tentative signs of a rebound with much better comparatives from the same quarter a year previously, which could well be down to rising optimism about the outlook, as the vaccine rollout program offered the hope of a strong summer rebound.

Today’s Q1 update has continued this theme with total revenue as well as total viewing numbers both higher. Advertising revenues in May and June are expected to be between 85% and 90% higher from the same levels a year ago. Q1 revenues came in at £709m, with ITV studios showing a rise of 9% from last year at £372m, with the delivery of programs like Unforgotten and Line of Duty. On the downside media and entertainment revenues were down 3% at £484m, however as advertisers become more confident about the outlook this is expected to improve over the course of the summer.  

Virgin Money shares slid sharply on opening trade, despite posting a return to profits in the first half of this year. A surprise increase in one-off costs related to the CYBG deal saw shares slide sharply from this week's one-year highs, however sentiment has stabilised somewhat, and while the shares look set to finish the day lower, we’ve recovered significantly off the lows of the days. Net interest margin was also disappointing, slipping back to 1.56%, however management were confident that this would recover to 1.6% by year end.    

US

US markets have stabilised a touch after yesterday’s sharp sell-off, though tech stocks are lagging behind a a touch in terms of today’s rebound.

The latest ADP employment report for April showed that 742,000 new jobs were added, which was slightly below market expectations of 850,000, while the March number was revised higher to 565,000. As a leading indicator for Friday’s non-farm payrolls report, its probably about as much use as a chocolate teapot, given that in recent months there hasn’t been much in the way of correlation between the two.

The latest services reports were also positive with the latest IHS report at a record high of 64.7, while the latest ISM services number slowed slightly to 62.7, however the prices paid component jumped to 76.8, the highest level since 2008, while the employment component also improved to 58.8, its best level since September 2018.

On the earnings front, General Motors blew through expectations on its Q1 update as profits came in well above expectations, at $2.25 a share, though interestingly they didn’t move their full-year guidance higher, which you might have expected them to do so. This may well be over concerns about the current chip shortage which is expected to push costs higher over the next three quarters. Q1 revenues came in at $32.47bn.    

Lyft’s latest numbers last night showed that the ride sharing company managed to narrow its losses for the quarter, as the reopening of the US economy saw traffic start to pick up, initially pushing the shares higher in early trading, before slipping back into negative territory. Losses came in at $73m for Q1, almost half of what had been expected, despite a decline in revenues of 36% to $609m. The recent sale of its self-driving division to Toyota will help the company to reduce its operating costs by another $100m according to management.  

Lyft’s results are also a decent leading indicator for Uber’s numbers later today, after the bell. At its last set of numbers losses for the year came in at $6.77bn, which while better than expected were still only a 20% improvement on last year's $8.51bn losses. Given that the company’s ride sharing business has been decimated this year one could argue that this is a small victory, and revenues for its delivery business are improving, which you would expect to see anyway. This improvement in its Eats business appears to be behind the recent resilience alongside an expectation that its rides business will also improve as economies reopen.

This appears to have been borne out in its recent March data which showed bookings rise to their best levels in a year, as more people left home due to increasing confidence on the back of rising vaccination rates. The number of gross bookings in its delivery unit also surged, rising to $52bn on an annualised run rate. As with anything to do with Uber there is a downside with the prospect that costs will increase after the company was forced to classify all of its drivers as workers, meaning they are all entitled to minimum wage protections and other employment rights after the UK Supreme Court ruled against the business. Losses are expected to come in at $0.56 a share.

Peloton shares are getting pummelled after management finally caved to pressure over its Tread+ treadmill and ordered a recall over safety concerns, something the company had been resisting ahead of its Q3 numbers, which are due tomorrow.

FX

Commodity currencies are the best performers today given the sturdiness being seen in commodity prices with the Australian dollar, and Canadian dollar outperforming.

The pound is broadly unchanged ahead of tomorrow's Bank of England rate meeting, with some discussions now starting to move on to when the central bank might look at tapering its asset purchase program. If the Bank raises its growth and inflation forecasts for this year, while it also looks at a slightly more hawkish bias with respect to its monetary policy outlook?   

Commodities

Crude oil prices have maintained their resilience of the last couple of days after US inventory data showed steep drops in weekly stockpiles, with Brent crude prices moving up to $70 a barrel for the first time since early March. US inventories showed a draw of almost 8m barrels, well above expectations of -2m. Demand expectations are continuing to improve despite concerns about rising infection rates across Asia, as UK and US vaccination rates move towards some form of herd immunity.  

Copper prices hit a fresh 10-year high earlier today before retreating, as long positions in the red metal started to get a little bit crowded. There appears to be little doubt that prices could well go higher in the medium term, however there is evidence that current momentum is starting to wane.


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