As the Reddit mania continues to unwind, with GameStop shares plunging 60%, US markets have managed to claw back most of their recent losses over the last two days, with the very real possibility that we could see new record highs by the end of the week.
The latest earnings numbers from both Amazon and Alphabet after the bell last night could be the catalyst that realises that, after Amazon posted its first ever $100bn quarter, posting $125bn worth of sales, generating an annual profit of $21.3bn, with its cloud business generating over $13bn of that number. The only cloud, pun intended, if you can call it that, was the announcement that Amazon CEO Jeff Bezos was stepping down after 25 years, to be replaced by AWS supremo Andy Jassy. At any other time, this change might prompt some level of concern, however given that web services accounts for nearly two thirds of Amazon’s profits, the implication is that the business is probably in good hands.
Google owner Alphabet also posted some decent numbers, generating a record $56.9bn in Q4 revenue, a rise of 23%, and a jump in profits of 43% to $15.2bn.
European markets have taken their cues from this rebound in US markets, opening higher this morning, however the recovery this week has lagged behind that of the US, as the fractious state of European politics, combined with the slow vaccine rollout, tempers investor enthusiasm for European assets. In Italy, the fractious state of politics there could lead to the return of former ECB president Mario Draghi as Italy’s next prime minister, as the revolving door between politics and economics in Europe continues to blur, with the FTSEMib leading markets in Europe higher.
We’ve already seen European politicians move from political office into central banking, with ECB president Christine Lagarde, and ECB vice-president, Luis De Guindos, moving from key political positions into key economic positions. This now looks set to reverse with Mario Draghi going the other way, in a manner that in some respects could call into question the so-called separation between political and economic office across Europe.
It's certainly true that Draghi has the profile and the stature to do the job, and is well respected by financial markets, however Italian politics is a unique beast and unlike the governing council, he won’t be able to get his own way by force of personality. That means he will need an appetite for compromise as well the politics, which is another matter entirely. In terms of the optics of these events, this comes across as yet another example of the top jobs across Europe being reserved for a very small cohort of people, with the small matter of democracy being a side issue, as Italian voters get another technocratic government, and a prime minister who is not an elected politician.
On the earnings front, GlaxoSmithKline will announcing its latest set of Q4 numbers at midday today, as it announces that it will pair up with Curevac to manufacture up to 100m doses of Curevac’s first generation Covid-19 mRNA vaccine. The two companies will also look to develop to jointly develop the next set of vaccine candidates to deal with possible variants, at a cost of €150m.
This morning’s Q3 update from Vodafone has seen the mobile telecoms business reiterate its full year guidance, with adjusted EBITDA expected to come in between €14.4bn and €14.6bn. Q3 service revenues saw a rise of 0.4% on an organic basis, helped by a decent performance from its Germany business. The Italian business continues to be a problem for the company with a 7.8% decline in total revenues. On a more positive note, the Vantage Towers IPO remains on track for early this year.
The latest production report from Glencore showed that it remained on course to meet its full-year guidance, with an outperformance in zinc production with a rise of 8.6%, while copper production declined 8.2% year on year.
The latest air traffic stats for January for Wizz Air showed that the budget airline operated at 27% of capacity, carrying 573,000 passengers. Despite the challenging market the airline has continued to look at expansion, starting its operations in Abu Dhabi with its inaugural flight to Athens in Greece. Airlines also appear to be getting a lift from yesterday evening’s news that the improved efficacy rates for the Oxford/AstraZeneca vaccine could bring the light at the end of the pandemic tunnel sooner rather than later, with easyJet and Ryanair rising modestly in early trade. More importantly, there is also evidence that the vaccine helps to reduce transmission rates, which is even more welcome at a time when there is uncertainty around whether having the jab helps in that regard.
Housebuilders are also outperforming on the back of this optimism, along with financials with the likes of Persimmon and NatWest Group leading the way in their respective sectors. Spanish bank Santander’s latest numbers also gave a lift to the banking sector, even though on the face of it they were disappointing, as the bank took a €1.15bn write-down. Looking past the write-downs, they came in slightly better than expected, raising expectations that the worst could be behind it. CEO Ana Botin said the bank was looking to restore its policy of cash dividends of 40% to 50% of underlying profit as soon as the ECB lifts its limitations on payouts. Virgin Money shares are also higher, pushing up to their best levels since March last year, after the ADR shares surged in Australia on the back of yesterday's positive Q1 earnings update.
On the economic data front the various lockdowns continue to take their toll on the services sector, with services PMI activity in Spain slipping to 41.7 from 48 in December. In Italy there was a slight improvement from 39.5 to 44.7, while in France the numbers came in at 47.3, and Germany 46.7.
Crude oil prices have continued to edge higher, hitting their highest levels in nearly a year, as optimism about an economic reopening increased and the latest US stockpiles data showed a decline. The big concern at a time when unemployment is still high and economies are struggling is that the oil price overshoots and snuffs out any nascent recovery.
Currencies are treading water, however sterling continues to look resilient after hitting an eight-month high against the euro yesterday, over optimism over the vaccine rollout programme, and diminishing expectations over the prospect of negative rates.
US markets look set for another positive open, with the focus shifting back to the latest economic data, as well as more earnings announcements. Both Amazon and Alphabet shares are likely to be closely watched in light of their bumper earnings reports last night.
The latest ADP employment report is likely to be viewed as a leading indicator of Friday's January jobs report, including the non-farm payrolls report, with expectations that we could see a return to job gains after December's loss of 123,000 jobs.
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