It has been a directionless trading session as the bullish mood that has been circulating recently has faded, hence why European equity benchmarks are mixed.
Europe
Volatility is low as there wasn’t much in the way of major macroeconomic news to trigger excitement in one direction or another. In recent sessions, the sentiment has been dictated by the prospect of the Biden administration signing off on the $1.9 trillion stimulus package without backing from Republicans. The story is still relevant but it has lost some of its sway over the markets. Things are looking up for the EU with regards to the health crisis as the trading bloc is in the process of securing a vaccination deal with Pfizer-BioNtech, in which it will receive 300 million vaccines, this should help with its vaccination rates, which are way behind that of the UK.
Ocado delivered a respectable set of full year figures but it seems the stock has been hit by profit taking. EBITDA was £73.1 million, in December the company said that earnings would be at least from £70 million. Group revenue for the year was £2.33 billion, up 32.7% on the year. Strong demand in the UK helped the retail unit post a 35% rise in revenue. The UK solution and logistics operation registered double digit growth. Fees from the international solutions business surged by 52% to almost £124 million. Ocado has expanded a lot in recent years, further expansion is in the pipeline too. Capital expenditure is predicted to be roughly £700 million. In December, the group completed its acquisition of Kindred Systems and Haddington Dynamics, which should assist automation. As a result of that takeover, Ocado predicts that revenue in 2021 will be increased by £30 million. The fact that Ocado is going down the capital expenditure route speaks volumes about the outlook, but by the same token, it warned that existing demand is heavily reliant on Covid-19 restrictions being in place. Seeing as the UK’s vaccination roll-out is going well is likely that far fewer constraints will be place come summer, so that could dent Ocado’s appeal.
Bellway posted a well-received trading update this morning. In the first half, house completions increased by 6.3% on an annual basis to 5,656 – a record level. By the end of the financial year, it expects to complete roughly 9,800 homes, while last year’s metric was 7,522. Demand has been strong but that’s probably has a lot to do with the stamp duty exemption on properties worth up to £500,000 – the promotion will expire at the end of March. Not only is the housebuilder experiencing strong demand, it expects full year operating margin to increase by at least 200 basis points – higher sales and margins is a good combination.
Micro Focus International reinstated its dividend as the company is making good progress on its three year turnaround plan. Annual adjusted EBITDA dropped by 14.2% to $1.2 billion - at the upper end of market expectations. Revenue fell by 10% to $3 billion. A final dividend of 15.5 cents was declared. The pay-out should make the stock more attractive to income seeking investors. In addition to that, the resumption of dividends sends out a positive message too, that they have turned a corner.
TUI called for rapid Covid-19 testing instead of the existing quarantine rules. The travel group stands to benefit from a successful vaccine roll-out scheme as it should prompt governments to ease restrictions and that should encourage more people to travel overseas. TUI is planning on operating at 80% of the capacity it achieved in 2019 but that seems ambitious given that we are in early February and several major economies in Europe are still in lockdowns. It appears a major jump in vaccination rates would be required in the months ahead for the company to justify operating that such a high capacity. The first quarter adjusted loss widened to €698.6 million, from €146.7 million last year. In the three month period, revenue was €468 million, down from €3.85 billion last year. As painful as the first quarter was, the group has €2.1 billion in cash and equivalents so it can easily ride out the turbulence of the next few months.
JD Sports shares are in the red after Peter Cowgill, the chairman, said that shipping costs on account of the UK-EU trade situation will increase by ‘double digit millions’.
US
The Dow Jones and the S&P 500 are a touch lower today as the indices have retreated from the record highs that were registered yesterday. US stocks have enjoyed a bullish run recently but it now appears that some profit takers have entered the fold. The selling pressure is far from strong as traders haven’t forgotten about the proposed spending plan from the Biden government.
Tilray shares are flying high after it was announced the company has signed an agreement with Grow Pharma, who will import and distribute their medical cannabis products in Britain. The deal should mean that Tilray’s products will be available in the UK from March. Canopy and Auroroa are gaining ground too on the Tilray news.
Twitter is in focus today as the social media group will post its fourth quarter numbers tonight. The riot witnessed at Capitol Hill last month and the subsequent banning of former US president Donald Trump from the platform brought some negative attention to Twitter, which could impact advertising streams. At times, Mr Trump was very controversial on social media so an argument could be made that his removal from the site could actually hurt user numbers and activity – contentious opinions tend to spur on activity. The third quarter saw revenue increased by 14% to $936 million. Keep in mind, in the latest quarterly update from Facebook, revenue was $28.07 billion - is it vastly outstripping the microblogging service. In regards to Twitter’s update, EPS is predicted to be 30 cents.
FX
It was been a quiet day in terms of economic indicators. GBP/USD and EUR/USD have been given a lift by the weakness in the US dollar. Last week, the greenback hit its highest level since early December as hopes grew that the US’s economic recovery would continue to be relatively strong. Yesterday afternoon we saw a drift lower in the dollar and we are seeing a repeat of the negative move today.
The CMC GBP Index is holding up relatively well. It is not too far from Friday’s high, which was the highest level in 11 months. Sterling has been strong recently following the Bank of England’s update as it was suggested that negative interest rates won’t be introduced anytime soon.
Bitcoin is still benefitting from yesterday’s news that Tesla has invested $1.5 billion in the digital currency. The well-known electric vehicle company also said that it will accept bitcoin as a form of payment for its products. Tesla’s CEO, Elon Musk, helped boost Bitcoin’s price recently after he included #bitcoin in his Twitter bio, and it is now clear that Mr Musk is a big supporter of the cryptocurrency. Bitcoin traded above $48,000 this morning, notching up a new all-time high, but it has since cooled a little.
Commodities
Gold has been given a boost by the weakness in the US dollar. The yellow metal is traded in dollars, so the dip in currency makes it relatively cheaper to acquire the commodity. It the past few sessions, gold has been recovering from the big drop suffered on Thursday. If gold’s recent move higher continues, it could target $1,871, the 100-day moving average.
Oil eked out a 13 month high earlier today but it has since rolled over, as the broader mildly negative sentiment has weighed on the energy market. WTI and Brent crude oil have gained ground for six consecutive months but it seems that some traders are keen to trim their long positions.
Disclaimer: CMC Markets is an order execution-only service. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
