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Optimism grows, silver slumps, Uber accelerates

The bulls are back in control as the fears of the retail-Reddit mob have dwindled. One could argue that normal service has resumed as the established players are buying back into stocks.

President Biden’s stimulus plans are in focus as US lawmakers are debating the scale of the relief package. A group of Republican senators back a $618 billion scheme, which is only a fraction of the $1.9 trillion that Mr Biden announced last month but the funds might be dished out in tranches. Eurozone indices are all up over 1%, even though there was talk that Germany’s state of emergency could be extended until June. Commodity companies are holding back the FTSE 100. Disappointing results from BP, plus a pullback in miners like BHP Group, Rio Tinto and Glencore are the reasons why the British index is showing roughly half the percentage gains of the continental benchmarks.         

BP posted a full net loss of $5.7 billion, which was far greater than the $4.8 billion loss that equity analysts expected. The energy titan is determined to reduce its exposure to fossil fuels as it is making a play for renewables. In the final quarter, the company raised $4.2 billion from asset sales and in 2021 it hopes to sell off $4-6 billion worth of assets, the bulk of which will be disposed of in the second half. Progress is being made to deliver disinvestment of $25 billion by 2025 Funds raised will be used to pay down debt, it still anticipates meeting its net debt target of $35 billion in late 2021 or early 2022. BP announced a 25 cents dividend for the quarter, which should keep shareholders sweet. One could argue the firm should be using the cash to reduce the debt quicker but that might chip away at investor confidence. The group cautioned that refining margins will remain under pressure. Retail volumes in January fell by 20% on the year, compared with an 11% decline in the final quarter.

Moonpig shares had their debut on the London Stock Exchange today. Due to a dedicated advertising campaign, the brand is well-known and that contributed to its popularity. Last year, annual revenue rose by 44% to over £173 million. The company is trying to position itself as a tech group but ultimately it is a card and gift firm. Moonpig, like other e-commerce groups, benefitted amid the lockdowns at the expense of high street companies. The tech firm label often adds a premium to the valuation but it could be argued that a valuation of roughly £1.5 billion is a bit frothy for a card firm, Card Factory is worth approximately £120 million by contrast.                    

Fresnillo shares have retreated from the big rally that was seen yesterday. The buzz surrounding the underlying silver market has faded, especially seeing as futures exchanges have raised their margin requirements, which is a typical reaction when volatility surges.

Business is ticking along nicely at SSE. The energy provider’s third quarter update confirmed that it is trading in line with expectations. It reiterated its financial outlook for the year and it is on track to raise more than £2 billion from its asset disposal programme. SSE intends to pay a final dividend of 80p.  

Virgin Money shares hit a three week high on the back of a respectable first quarter update. Management said that it was trading in line with forecasts. In the three month period, deposits ticked up by 0.9% to £68.1 billion but mortgage lending and personal lending slipped by 0.2% and 2% respectively. Impairment charges are £18 million. Virgin is cautious in its outlook because of the current climate. The net interest margin – lending profitability – held steady at 1.52%.  Andrew Bailey, the head of the Bank of England, talked down the prospects of negative interest rates last month, so that should help the net interest margin.     

Aston Martin shares are driving higher this afternoon. It was recently announced that the company will not be sold to a Chinese group. The firm described the chatter as rumours. 

US

Chatter about the stimulus talks has boosted sentiment in stocks. Wall Street seems to be getting its groove back in the wake of the short squeeze saga, something it is unlikely to forget anytime soon. 

UPS delivered well received fourth quarter results. EPS was $2.66, which easily exceeded the $2.14 that equity analysts were expecting. Revenue rose by 21% to $24.9 billion, topping forecasts. The lockdowns promoted a surge in demand for parcel delivery. The domestic parcels unit posted a 17.5% rise in revenue on a yearly basis. No guidance was issued on account of the uncertain environment.      

Uber shares have moved up a gear as the firm acquired Drizly, the alcohol-delivery service for $1.1 billion. Uber Eats saw a surge in popularity due to the pandemic, so Drizly should complement the business.

Gamestop, Blackberry, AMC Entertainment and Bed Bath & Beyond are nursing large losses today. The stock experienced massive rallies last week as they were caught up in the short squeeze frenzy that was carried out by a hoard of retail traders. It seems the heat has come off the shares.

Alphabet and Amazon will post their latest quarterly results tonight after the close of trading. Alphabet is Google’s parent and traders will be monitoring its advertising stream as it has been successful at poaching business from traditional adverting agencies like WPP. The cloud business will also business in focus. Sticking with the cloud theme, Amazon web services has grown dramatically in recent years. The online vendor’s dominance has grown amid the lockdowns, while traditional retailers have suffered.         

FX

The US dollar index has hit its highest level since early December as the greenback’s positive move continues. As far as Western economies go, the US’s recovery from the pandemic has been robust. It appears there is growing confidence in the US’s ability to bounce back. In the final quarter of 2020, the eurozone contracted by 0.7% on a quarterly basis. Vaccination rates in the EU are slow so that should prolong the economic suffering from the harsh restrictions. EUR/USD is offside. The positive move in the dollar coupled with fears of a new variant of Covid-19 seems to be putting pressure on GBP/USD. Sterling has been strong lately so a pullback is not a shock.         

Commodities

Silver has lost its shine following the very bullish move it experienced yesterday. Derivative exchanges, like the CME, have upped their margin requirements for silver futures due to the heightened volatility. It is not uncommon for exchanges to introduce such measures when there are violent price swings. Silver has fallen as the brakes have been essentially applied by the exchanges.

Silver’s move lower has weighed on gold. The yellow metal had also been hit by the broader risk-off attitude as it has historically benefitted from dealers seeking out assets that are considered to be lower risk. Also working against gold is the firmer US dollar –the inverse relationship is denting the commodity. 

OPEC issued mixed data which pushed WTI and Brent Crude oil to their highest levels in almost 12 months. The group predicts that inventories will be below their five year average by June, which would suggest that demand in the next few months should rise, probably because economies should have fewer restrictions in place by the summer. At the same time, it is understood that OPEC lowered its 2021 demand outlook from 5.9 million barrels per day (BPD) to 5.6 million BPD. Traders focused on the inventory estimates though.           


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