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News

Bulls lose a little control, Twitter Trumps earnings forecast

Equity markets were showing modest gains for much of the session as traders remain hopeful that President Biden will manage to implement his planned $1.9 trillion stimulus scheme without needing to get support from Republicans. 

Europe

If the procedure goes ahead, it could still take a few weeks to be approved. Seeing as it looks likely that US government spending is in the pipeline, the mood was upbeat for most of the day. Roughly an hour ago, sentiment turned a little bearish as US tech stocks rolled over and that impacted confidence on this side of the Atlantic. Indices are now tipped to close in the red.   

Here in Europe, governments continue to distribute vaccinations so there is an overall feeling that things are heading in the right direction health wise. Nobody is expecting the process to be fast but while vaccinations are being rolled out, that bodes well for the prospects of governments easing up in restrictions in the next few months. In London, firmer metal prices have helped Rio Tinto, Anglo American, Glencore and BHP Group – they are some of the biggest gains on the FTSE 100.            

The packaging company Smurfit Kappa delivered a 9% fall in EBITDA to €1.5 billion, fractionally beating its internal forecast of €1.46-€1.48 billion. Revenue fell by 6% to €8.53 billion. The cash flow metric hit a record of € 675 million. There was a big fall in net debt as it dropped from 2.1 times earnings at the end of the first half to 1.6 times earnings by the end of the year, a relatively smaller debt burden should make the group more nimble. Smurfit saw accelerated demand in the second half, particularly in the fourth quarter. The surge in home deliveries due to the lockdowns has pushed up demand for packaging. Management is optimistic in their outlook as they feel there will be a boom in the global economy once the lockdowns are lifted.

Redrow posted solid first half results. Revenue increased by 20% to £1.04 billion and pre-tax profit rose by 11% to £174 million. The order book at the end of the six month period was £1.3 billion – a record. Housebuilders have seen high demand lately thanks to the government’s decision to scrap stamp duty on property purchases worth up to £500,000, so it is not a surprise that Redrow’s order book is healthy. First half completions were 3,065, up 20% on the year. The company resumed a dividend of 6p, it was signalled in September that it was planning on returning to making cash pay-outs. Redrow cautioned about construction activity being impacted by restrictions. The stock saw a lot of volatility on the open but it is in the red despite the decent update.

Dunelm shares hit their highest level since early November as it was confirmed the company reinstated its dividend -12p, it was announced last year that it would be returning to making pay-outs. The home furnishings retailer performed well amid the pandemic as people spent more money on sprucing up their homes during lockdowns. First half sales increased by 23% to £719.4 million, while operating profit jumped by 34% to £118.3 million. Dunelm experienced a 23% rise in sales in the second quarter, even though store closures were an issue on account of the lockdown. The group’s home delivery and click and collect services is extremely beneficial to the company amid restrictions. 

Heineken announced a €2 billion cost savings plan in the wake of the tough trading conditions. Full revenue fell by almost 12% to €19.7 billion.   

US

The major indices have registered record highs in early trading. The mood was bullish due to hopes the government will introduce a spending package in the next few weeks that will propel the US recovery along but stocks have turned lower since. Jerome Powell, the Fed chair, will be in focus as he is due to speak at 7pm (UK time). The central banker is likely to say the Fed will continue to provide support for the economy. He will probably shy away from talking about a timeline to taper the bond buying scheme.   

Headline CPI in the US held steady at 1.4% in January but economists were expecting it to rise to 1.5%. The fact that inflation didn’t tick-up, could be a sign that demand is treading water. The core reading removes volatile components like commodities, so it is deemed to be a more accurate picture of underlying demand. The core update dipped from 1.6% to 1.4% in January, so it seems that demand has softened.                        

Twitter shares hit a seven year high following the release of the solid fourth quarter numbers that were posted last night after the close of trading. Revenue jumped by almost 38% on a quarterly basis to $1.29 billion, beating the $1.19 billion consensus estimate. EPS was 38 cents, topping the 31 cents estimate. Monetisable daily active users (MDAU) is a closely watched metric for social media companies, the reading was 192 million, which slightly undershot the 193.5 million forecast. The microblogging company anticipates a ‘modest impact’ from the planned changes at Apple’s iOS 14 – operating system. Looking ahead to the first quarter, revenue is predicted to be between $940 million and $1.04 billion, while equity analysts were anticipating $965 million. In reference to the permanent banning of former US President Donald Trump from the platform, CEO Jack Dorsey said the social media company is bigger than one account. MDAUs are predicted to rise by 20% in the first three months. 

Lyft shares are driving higher as the company posted a smaller-than-expected loss. The loss per share in the fourth quarter was 58 cents and the consensus estimate was for a loss per share of 72 cents. Revenue rose by 14% to $570 million, beating the $563 million estimate. The ride-hailing business is on track to deliver positive EBITDA by the final quarter of the new financial year, it might even turn profitable by the third quarter should the business perform well. Uber Technologies will announce its fourth quarter figures tonight.           

FX

The US dollar index fell to a two week low as the currency has been moving lower since last Thursday, when it hit a two month high. Sentiment surrounding the dollar has cooled in the wake of the disappointing US non-farm payrolls last week. Today’s CPI update knocked the greenback. EUR/USD and GBP/USD are higher on account of the dollar’s dip. Later on, we will hear from the Bank of England’s Andrew Bailey, the update shouldn’t be too different from the recent BoE meeting, in which the prospect of negative rates was talked down. The CMC GBP Index hit a fresh 11 month high.

Commodities

Metals are enjoying a bullish run for two reasons, first, the slide in the US dollar has made the assets relatively cheaper to purchase, and secondly, the prospect of extra stimulus from the US is lifting demand perceptions too. Gold is up for its fourth consecutive session as a softer dollar is fuelling demand. Industrial metals like copper and platinum racked up eight year and six year highs respectively as dealers are banking on a robust recovery in the world economy.

Oil was jolted higher by the EIA report which showed that US oil inventories fell by 6.6 million barrels, which caught traders off guard as the consensus estimate was for a build of 1.08 million barrels. Such a sizeable fall in stockpiles paints a picture of rising demand, hence the move higher in oil.    


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