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Sentiment muted as Yellen speaks

Traders spent much of the day waiting to hear from Janet Yellen, the future US Treasury Secretary, so volatility has been low. 

Europe

Ms Yellen is currently speaking in front of US lawmakers. Last week, President-elect Joe Biden, announced plans for a $1.9 trillion stimulus package, and it is understood that Ms Yellen will tell politicians that a robust fiscal response is needed to ensure the US’s economic recovery continues. Lately, there have been growing signs the rebound is running out of steam, most notably the negative US non-farm payrolls report for December, so a large financial injection should improve the health of the country.          

It was confirmed that Germany’s lockdown will be extended until 14 February. This was not a surprise seeing as there was speculation about it recently. Tough restrictions are in place in the UK, Portugal and France too. There are fears the economic recovery in Europe will be hampered by prolonged lockdowns.   

Superdry has suffered greatly because of the lockdowns. The first half update underlined the problems it is incurring, the pre-tax loss widened to £18.9 million from £4.2 million. At the moment, more than 70% of its shops are closed. The fashion house was keen to point out that it has in excess of £130 million in liquidity so that should ease some concerns with respect to its ability to keep operating but the near-term outlook is bleak. Superdry expects prolonged store closures and subdued footfall in early 2021. The firm should be able to keep the lights on but business is tipped to be challenging. The company cautioned that material uncertainty exists which may cast doubt significant doubts over its ability to continue operating, the uncertainties include the duration of the latest lockdown as well as its ability to meet debt obligations. Superdry does have a good relationship with its lenders but the time span of the current restrictions could prove to be a major issue for the firm.   

AO World had a great run recently as the lockdowns drove shoppers from the high street to online retailers. In the three months until the end of 2020, AO’s UK and German revenue increased by 67.2% and 77.4% respectively. The group enjoyed record sales between Black Friday and Christmas.  It wasn’t all good news for the company as the coronavirus environment caused costs to increase significantly, traders latched onto that remark as profit margins are likely to come under pressure. Over one week ago, the stock set an all-time high, so expectations were high going into today’s update. 

Premier Foods also saw a rise in demand as a result of the lockdowns. People did more cooking and baking at home as eateries were either closed because of lockdowns or else operated on a limited basis. Premier owns well-known brands like Sharwood’s, Mr Kipling and Batchelors. It registered a 9% increase in group like-for-like sales in the third-quarter. Online sales surged by 90%. The full year trading profit is now tipped to be £145-£150 million, which would be a respectable rise on last year’s reading of £132.6 million.

Entain shares have sold off after MGM announced they will not make a revised offer for the UK gaming group. The London-listed firm, which owns Ladbrokes, said it is happy to continue working with MGM with respect to their joint venture in the US.     

British Land, the real estate investment trust, was due to collect £60.2 million in rent in the fourth quarter but it only received 66% of the amount due. It has already collected 41% of the rent that is due in the first quarter. Last week, Land Securities revealed that it collected 65% of the rent that was owed for the December quarter, so that gives some perspective to British Land’s update.     

US

It has been a quiet start of the equity trading week as the US market was closed yesterday for a public holiday. Janet Yellen is in focus today as the future Treasury Secretary is in speaking in front of US lawmakers. Equity markets are a touch higher as the general consensus is that Ms Yellen will call upon politicians to pursue a stimulus package to ensure the US economic recovery continues.  

Goldman Sachs shares are lower despite very impressive fourth quarter numbers. EPS was $12.08, smashing the $7.47 consensus estimate. Revenue was $11.74 billion, while equity analysts were expecting $9.9 billion. Net revenue for the global markets business increased by 23% and investment banking net revenue rose by 27%. It is understood that litigation and regulatory fees fell, which contributed to the 19% decline in operating expenses, so that helped the EPS metric. The credit loss provision was $293 million, down 13% on last year.

Bank of America’s fourth quarter numbers were not too hot. There was a 10% fall in EPS to 59 cents, but it exceeded the 55 cents forecast. Revenue slid by 10% to $20.2 billion, narrowly missing the consensus estimate. $828 million of reserves were released in relation to provision for bad debts, so it looks as if the bank initially overestimated the scale of the bad debts – it has been a common theme of the banking sector recently.

Chinese stocks such as Baidu.com, JD.com and Alibaba are higher as some traders are taking the view the future Biden administration might adopt a softer stance with respect to the government in Beijing. 

FX

EUR/USD has recovered from yesterday’s six week low. There is a broad move lower in the greenback, the US dollar index retreated from its four week high that was set yesterday.

Janet Yellen said the US will not seek a weaker dollar policy to gain an advantage over other countries in terms of international trade.

Germany’s ZEW economic sentiment report for January increased to 61.8 – the highest reading in four months.

GBP/USD has been given a lift by the dip in the dollar. There were no major economic announcements from the UK or the US today.

Commodities

Gold is a touch higher today on the back of the dip in the US dollar. The metal is listed in dollars so a move lower in the currency makes it relatively cheaper to buy the commodity. Yesterday, gold dropped to its lowest level in since early December but it managed to finish higher. Today’s range is very small as it seems that traders are content to sit on the fence.

Brent crude oil and WTI have had relatively volatile sessions today. Earlier on, the oil market was under some pressure on the back of the International Energy Agency lowering its demand forecast for 2021 on the basis that extended lockdowns would weigh on demand. The body lowered its first quarter demand prediction by 580,000 barrels per day (BPD). The 2021 estimate was cut by 300,000 BPD. Two hours ago, Suhail Al Mazroui, the UAE’s energy minister issued a more optimistic outlook with respect to demand for oil across 2021 and 2022, which seems to have lifted the energy.   


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