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IMF upgrade helps stocks, Beyond Meat sizzles

Stock markets were already driving higher this morning and the bullish move was given extra help by the IMF, who lifted their expectations for world growth.

The IMF revised its 2021 global growth forecast to 5.5%, up from the 5.2% prediction in October, but cautioned that new variants of the virus are a concern for 2021’s outlook.   

Italy’s political crisis deepened as prime minister Giuseppe Conte resigned earlier today. There wasn’t much of a reaction to the news as the move was on the cards for a while. Mr Conte presided over the country’s coalition government and a blow was struck earlier this month when the Viva party withdrew its support for the government.

European equity markets are set to finish firmly higher despite the ongoing worries that tight restrictions will curtail economic output. France currently has a curfew in place but the administration in Paris is waiting to see if that is successful in containing the virus, before it will make a decision on introducing another national lockdown. 

UBS revealed impressive figures today. Fourth-quarter net profit was $1.7 billion, well above the consensus estimate of $966 million. The Swiss bank derives the bulk of its revenue from wealth management, and in the three-month period the unit saw profit rise by 22%. Inflows from clients increased by $21.1 billion, bringing it to a record level of $3 trillion of invested assets. The investment banking unit posted double-digit revenue growth in the final three months. Group annual pre-tax profit was $8.22 billion, the highest level since 2006. It speaks volumes about the bank that it posted its largest profit since the credit crisis.

Yesterday, a story circulated that JD Sports were considering raising fresh capital. This morning the group confirmed that it is considering its options with respect to raising funds, including an equity offering. The group would like to have cash on hand so it can take advantage of potential investment opportunities. High-street retailers have been clobbered by the lockdowns but customers of JD Sports have pivoted to their online store. Earlier this month, the company announced that it expects full-year pre-tax profit to be at least £400 million, above the consensus estimate of £295 million. The company is clearly in rude health and it seems it might carry out acquisitions this year.

Rolls-Royce shares are in the red after the company downgraded its engine flying hours forecast for 2021. The group derives revenue from the flight hours of its engines. Three months ago, it predicted that engine flying hours this year would be 70% of that registered in 2019, which has been lowered to 55%. As a result of weaker trading conditions, the company anticipates cash outflow of approximately £2 billion in 2021, while equity analysts were estimating outflows of £1-1.5 billion. Cash flow has been a closely watched metric at the company, so the news added to the Roll-Royce share price decline. The firm’s restructuring programme is going well. It aims to reduce headcount by 9,000 by the end of 2022, and it has already cut 7,000 roles. The completion of the restructuring scheme is required to help it achieve its target of £750 million cash flow.

Reckitt Benckiser and Indivior have agreed to drop all legal cases against each other in relation to the Suboxone Film scandal. That means that Reckitt has dropped its $1.4 billion claim against its former subsidiary, Indivior, whose shares have jumped on the news. Meanwhile Reckitt shares are offside.                           

S&P 500 hits new record high

The S&P 500 eked out another record high as the overall bullish mood lingers in the US. The planned $1.9 trillion stimulus package from the new Biden administration remains in focus, although lawmakers might be debating it for several weeks. Earnings season is ramping up, so that is influencing sentiment too. Microsoft posts its -numbers tonight. 

Consumer confidence edged up in January accord to the Conference Board report, the reading was 89.3, up from 87.1 in December. It is encouraging to see that confidence is still robust after Christmas.     

Johnson & Johnson (J&J) posted a solid set of fourth-quarter numbers. EPS came in at $1.86, beating the $1.82 forecast. Revenue was $22 48 billion, ahead of analysts’ expectations. The company confirmed that it will release details of its Covid-19 drug soon. Recently it was reported the drug might be approved for emergency use within the next two weeks. J&J’s pharmaceutical business registered a 16% increase in annual revenue to $12.26 billion. The consumer division and the medical device operation saw yearly revenue rise by 1.4% and 0.7% respectively. Looking ahead to 2021’s full-year results, EPS is tipped to be $9.40-$9.60, while revenue is predicted to be $90.5-$91.7 billion.

GameStop shares are once again experiencing high levels of volatility. Recently, the price has seen major swings as it is understood that a high level of the stock has been shorted, so rallies have exacerbated the moves.

Beyond Meat shares are sizzling as the company has struck a deal with PepsiCo. The joint venture will see the production of plant-based snacks and drinks. Beyond Meat’s stock is up 25%.

FX

Sterling sold off early this morning but it has been pushing higher throughout the day and now the CMC GBP Index is up on the session. In November, the UK unemployment rate ticked up to 5% from 4.9%, but the readings don't give us an accurate picture of the jobs market, because the report does not include furloughed workers. Some argue the claimant count update, which held steady at 7.4%, is a better gauge of the actual jobless rate. The UK CBI realised sales reading for January was -50, while economists were expecting -28. It was the lowest level since May 2020.

Weakness in the US dollar index has assisted EUR/USD. There were no major economic announcements from the eurozone today. While the currency pair holds above its 50-day moving average at 1.2111, the broader uptrend should continue. 

Commodities

Gold is essentially flat on the day. It seems that demand for the metal is not too high as dealers are in risk-on mode – stock markets are strong. On the other hand, the dip in the US dollar is acting as support too.

WTI and Brent crude oil spiked higher earlier today after it was reported there was a blast in Riyadh, the capital of Saudi Arabia. The energy rose on fears that supply in the region might be curtailed if political tensions rise. In the last few hours, oil prices have drifted lower. 


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