It has been a fairly uneventful week for European equity markets, with US markets continuing to grab the headlines with another series of record highs, and though the DAX also managed to eke out a new record at the beginning of the week, there has been little in the way of momentum behind any of this week’s moves.
Asia markets returned from their Lunar New Year holiday with a similarly lacklustre session, and this has translated into a similarly tepid start for European markets this morning, with some early weakness in the travel and leisure sector.
Amongst the bigger fallers IAG shares are at the bottom of the FTSE100, with the airline sector having a disappointing week as it becomes increasingly apparent that the summer holiday season this year is likely to see the UK population confined to the home market, with very restricted access to holidays abroad. EasyJet shares are also lower, giving up most of the gains we saw last week,
Carnival Cruise Lines is also under pressure, after being downgraded to sell by Berenberg, along with Norwegian Cruise Lines, with the bank saying it is “negatively disposed” toward leisure stocks in the aftermath of the pandemic. While an economic re-opening would provide a tailwind for the sector this still seems some way off.
Premier Inn owner Whitbread on the other hand, while also set to finish the week lower, and down today does look like it will hang on to most of the gains we saw last week in a sign it may well benefit from a staycation season.
The main focus today has been the latest UK Q4 GDP numbers which showed the economy expanded by 1%, more than had been expected, meaning that the UK has avoided the prospect of a double dip recession for now.
We already know that the first quarter of this year will see an economic contraction given the lockdown measures that have been in place since 6th January and which are unlikely to be significantly eased much before the end of March.
The Bank of England has already indicated that it thinks the UK economy will contract by 4% in Q1 on the basis that while this may be the third lockdown in the space of 12 months it is by no means anywhere near as onerous as lockdown one.
Services did most of the heavy lifting in that regard with an expansion of 0.6%, while government spending rose 6.4%. Private consumption was much more subdued contracting 0.2%, compared to a 19.5% expansion in Q3.
While we’ve managed to avoid the prospect of a double dip recession it doesn’t change the fact that the UK economy has seen its worst annual contraction since 1709 at -9.9%, however while this will no doubt grab all the headlines, there are some positives if you look ahead.
Unemployment levels are much lower than our peers, and the rollout of the vaccine means we could well be out of lockdown sooner as well, which means the scope for a rebound is closer than we might think.
Next month’s budget will be key in helping that process achieve escape velocity, and though there won’t be a sudden back to normal moment, as overseas travel is likely to be fairly limited, economic activity in Q2 is likely to see a significant bounce back effect, if all goes to plan.
The manufacturing sector also slowed a touch in December, with a slightly more modest expansion than was predicted, however November’s numbers were revised higher so all in all these numbers were probably as expected.
The numbers elicited a tepid response on the part of financial markets with UK gilt yields slipping back from their recent 11-month peaks, while the pound has held steady at 1.3800 against the US dollar and unchanged against the euro.
The US dollar is slightly firmer after starting the week on the back foot, rebounding from two-week lows, as traders weigh up the timing of any new stimulus plan from politicians on Capitol Hill.
Bitcoin also looks set to cap another record-breaking week as it looks to close in on the $50 level, after Tesla CEO Elon Musk announced earlier this week that the company had invested $1.5bn in the crypto currency.
US markets look set to open lower despite just about eking out a new record close for the S&P500 yesterday. It still looks set to be another positive week for US equities over optimism that we’ll get to see a new $1.9trn stimulus plan get pushed through by the Democrats in the next few weeks.
The main focus yesterday was once again on the US jobs market with weekly jobless claims edging lower to 793k, while the earnings numbers continued to drop thick and fast.
After the bell Disney posted its latest numbers which came in better than expected. With revenues from their theme parks and resorts taking a hit from the pandemic, the success of the Disney+ streaming services has never been more important for this iconic US brand. The “Mouse House” lost $710m in Q3, while revenues slumped to $14.7bn, so expectations around the latest Q4 numbers weren’t particularly high. As it turns out Disney managed to beat expectations returning to profit of $0.32c a share with revenues coming in at $16.25bn, as new subscribers rose to 95m as at the beginning of January, with the shares trading sharply higher after hours.
This user growth is pretty impressive, however average monthly revenue per user fell back to $4.03 from $5.56, from the same quarter a year ago. This is down to the fact that the subscriber numbers now include the services in India and Indonesia. Revenue from Disney's parks and resorts fell 53% to $3.58bn, while the lack of film releases also acted as a drag.
We also got to see the launch of yet another IPO, which flew out of the blocks. Bumble, an online dating app which will be taking on the likes of Match, closed its first day of trading at $70, well up from its IPO price of $43, valuing the business at $7.7bn.
Kraft Heinz also posted Q4 numbers which were better than expected, helped by higher demand for its tinned products, as more people were confined to home due to lockdown restrictions. The company also raised prices on some of its goods, which also helped on the revenues front. As a result, the shares rose strongly after hours. US sales rose 8%, while overall net sales came in at $6.9bn, a rise of 6.2%. Profits surged to $1bn, compared to $132m a year ago, definitely a case of Beanz, Meanz, Heinz. Kraft also agreed to sell its Planters brand to Hormel for $3.35bn
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