News

Positive sentiment fades, Palantir falls, dollar moves higher

Market volatility was low today as there was little to excite traders. 

Europe

Yesterday, the mood was upbeat as it was confirmed the UK achieved its target of vaccinating 15 million people by 15 February. The update sparked positive sentiment in the markets, in particular in the UK, as a robust vaccine roll-out system should pave the way for Westminster to think about loosening restrictions. The more vaccines are administered, the closer it brings the country to dismantling the lockdown. The FTSE 100 was showing a respectable gain earlier on but now it is on track to finish marginally lower. HSBC, Standard Chartered, Glencore and BHP Group are some of the biggest gainers on the FTSE 100, while AstraZeneca, GlaxoSmithKline and British American Tobacco are holding back the index.               

It seems that Glencore is on the up as the mining titan reinstated its dividend, after stopping it in August due to its first half loss. The payment will be 12 cents, which isn’t huge but it sends out a positive image - that the group is optimistic in its outlook. Commodity prices took a knock last year due to the health crisis, so that hit the mining group. Thanks to a rebound in prices, that has helped get the business get back on track. Recently we have seen multi-year highs being achieved in some metals, energy prices have rebounded too. Glencore’s marketing division, includes its trading unit, registered a 41% jump in earnings. Group EBITDA was basically unchanged on the year at $11.6 billion, easily beating the $10.7 billion forecast. Glencore’s net debt now stands at $15.8 billion, down 10% on the year, it was helped by strong cash flow. Commodities prices sold off aggressively in late 2015 and early 2016. At the time, Glencore had a relatively high debt position so which added to the pressure on its stock price. It would appear the group learned its lesson with respect to keeping debt at a more manageable level.            

Serco shares have jumped on the news that is plans to take over the US defence business, WBB, for $295 million. The London-listed outsourcing company is determined to expand its exposure to the US defence industry. This year WBB is projected to have earnings and revenue of $29 million and $230 million respectively. Serco predicts the acquisition will bring about synergies of $4 million per year, In addition to that, one year after the acquisition, WBB’s EPS are projected to increase by 10%.     

BHP Group delivered a solid set of first half numbers. In the six month period, attributable profit rose by 16.3% to $6.03 billion, missing the $6.33 billion that analysts were predicting. The mega miner expressed some concerns about operations due to the health crisis, the near-term outlook is a little cautious too, for the same reason. That being said, the company hiked its dividend by 55% to $1.01, so the company is clearly confident it is medium-to-longer-term earnings ability. Iron ore is a major business for BHP and it predicts that demand will remain healthy as China’s steel demand is tipped to be strong. It is in the process of disposing of the following coal assets, Mitsui Coal, NSWEC and Creeejon. Overall, the capital and exploration budget guidance was lifted to 4.2% to $7.3 billion. 

Will Adderley, the deputy chairman of Dunelm has offloaded a 7.4% stake in the group, hence the tumble in the stock price.           

US

Record highs were registered on Wall Street as stocks commenced trading this week, after the long weekend – the market remained closed yesterday as it was President’s Day. Investor confidence is still reasonably high as stimulus hopes still circulate. To a lesser extent, the mood was lifted by the prospect of the world economy edging back to normality as vaccines are administered. A short while ago, the S&P 500 turned negative.  The US empire manufacturing index for February jumped to 12.1, a five month high, which suggests that business confidence is on the rise.    

Palantir Technologies posted a fourth quarter loss per share of 8 cents, which was a big difference from the 2 cents EPS forecast. Revenue in the final quarter jumped by 40% to $322 million, topping the $300 million forecast. In the three month period, the data firm signed 21 contracts that were worth at least $5 million each. In the first quarter of the new financial year, sales are tipped to rise by 45%, the guidance is for between $331 million and $333 million, ahead of the $308.3 million forecast. The stock was trading higher in pre-market trading but then it dropped after the results were published. The company listed on the stock market in September and later this week employees will be allowed to sell their stock so we could see some volatility in the days ahead.

FX

The US dollar index has turned positive on the back of higher yields on US government bonds. The upward move in yields could be a sign that traders feel the US is in for higher growth and inflation. James Bullard of the Fed said that inflation is likely to rise this year and that assisted the dollar.

Earlier in the session, when the US dollar was more subdued, GBP/USD above 1.3950 – its highest mark since April 2018. The currency pair has since retreated as the firmer dollar prompted some profit taking.

EUR/GBP fell to a new nine month low in the early hours of the session and but it is now off the lows of the day. The single currency managed to pull back some of its early losses versus the pound in the wake of the German ZEW economic sentiment update, the February reading was 71.2, a five month high. 

The CMC GBP Index is now basically flat on the day as the previous gains were pared. Sterling has been strong recently because the UK’s vaccination process is going well and there is talk the country could ease up restrictions in the weeks and months ahead.

Bitcoin traded above $50,000 for the first time a few hours ago but the cryptocurrency has since cooled a little.                     

Commodities

WTI is higher due to adverse weather in Texas, which impacted production. The state is the largest oil producer in the US and the freezing temperatures have curtailed output, hence the upward move in the price.

Gold is down 0.5% as the positive move in the dollar has dented the asset. The inverse relationship between the two markets continues to be strong. Gold has been pushing lower since early January, a break below $1,785 should put $1,764 on the radar. Platinum pulled back from yesterday’s six year high.        


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