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Indices slip, Twitter tumbles, dollar’s rebound continues

Indices slip, Twitter tumbles, dollar’s rebound continues

Equity markets are set to finish in the red as renewed health concerns have encouraged dealers to book profits. 

Europe

Last week, stock markets enjoyed very bullish moves on the back of the belief that Joe Biden’s administration will reveal new stimulus. The FTSE 100 was sent to a 10 month high while the DAX registered a new record high. Relatively mild worries about Covid-19 cases are weighing on the mood today. The scale of the losses in stocks suggests that traders would prefer to take some money out of the markets as opposed to panic selling. On the FTSE 100, mining stocks like Rio Tinto, BHP Group and Anglo American are some of the largest fallers in terms of index points. Housebuilders, oil, hospitality, travel and transport stocks are in the red too.         

JD Sports shares hit a new record high earlier today on the back of its trading update. In the 22 week period until 2 January 2021, like-for-like revenue increased by more than 5%. Tough restrictions were in place in the UK in November and December but customers smoothly adapted to online shopping. JD announced that it expects full year pre-tax profit to be at least £400 million, and while equity analysts are expecting roughly £295 million. The retailer believes that the pandemic will have an operational impact on the business until at least January 2022 but it is confident it can pivot towards e-commerce when required – this was proven in the past two months. Traders are all too aware that its solid online performance greatly helped the group. Looking ahead to 2022, JD Sports predicts that annual pre-tax profit will be 5-10% above this year’s level but that is highly dependent on how the health crisis plays out. Overall, it was a very bullish update in light of the current climate.

British Land had a tough 2020 as the real estate investment trust suffered because the pandemic had a particularly negative impact on the retail industry. In December, the property firm collected £86 million in rent which accounted for 71% of the total rent that was due. The retail business struggled as only 46% of the rent was collected - £42 million. The other £44 million in rent came from the office subsidiary, amounting to 95% of rent due. Open air retail parks proved to be more popular as footfall was 87% of last year’s level. On Christmas Eve, 73% of the company’s stores were operational. In light of the latest lockdown only 32% of its retail assets are able to operate in some way. There is talk the current restrictions might remain in place until Easter so it seems that British Land are in for further pain in the near-term.

Capita, the outsourcing group, has signed a 12 year contract to provide training services to the Royal Navy, it is worth £12 billion. The group announced that news last month. In the same update it said it expected to be profitable in 2021 so today’s confirmation of the contract should help achieve that target. 

US

The S&P 500 is down 0.5% as stocks have retreated from the record highs that were seen on Friday. Sentiment has been very bullish lately but today the optimism is in short supply. The NASDAQ 100 is down over 1% due to speculation the tech sector could be in for more scrutiny.  

Social media stocks are under pressure because there are fears the impending Biden administration will tighten regulation on the sector. Some Republican politicians are keen to crack down on the tech giants too. In the past few days, President Trump’s Twitter, Facebook and Instagram accounts were been suspended, hence why the social media firms are receiving extra attention. Some people have criticised the groups for their actions, while others feel the tech titans didn’t move fast enough. Either way, their popularity has been hit. Traders are concerned about the groups’ user bases and in turn advertising streams might be impacted.

Tesla shares have been on a roll recently racking up a string of record-highs. The share price is in the red today on the back of chatter that Apple is working with South Korea’s Hyundai to develop electric vehicles. One report claimed that production will commence in 2024 in the US. Tesla has a great head start in the industry but Apple has very deep pockets so they should be able to provide some added competition to the group. 

Boeing shares are in the red after one of its aircraft, a 737-500, was involved in a crash in Indonesia over the weekend. Over two years ago Boeing’s reputation took a beating because of safety concerns for its 737 Max aircraft because of two crashes.

FX

The US dollar index is up again as the greenback’s bounce back continues. In the middle of last week, the dollar tumbled to its lowest level in over two and a half years, but since then it has staged a turnaround. In recent months, the dollar has experienced sell-offs, followed by bounce backs but only to turn lower again. Dealers are wondering whether the currency will experience a short-term rebound or if the positive move is the beginning of a change in direction. EUR/USD and GBP/USD are lower today because of the dollar’s rally. It has been a quiet session in terms of economic announcements.     

Commodities

Gold is lower on the back of the bullish move in the US dollar. The yellow metal is traded in dollars so the rally in the currency hurts the commodity. On the other hand, it is attracting safe haven flows too as stocks are offside so it hasn’t fallen too much. Gold is still above the lows of Friday but the recent bearish trend is still intact. Further losses from here could see it target $1,800.

Brent crude oil and WTI are in the red as the overall bearish mood in the markets has hurt the energies. Oil hit an 11 month high on Friday on the back of supply concerns but today mild demand worries have prompted profit taking. China saw its largest one day increase in new coronavirus cases in five months. The country is the largest importer of energy in the world so dealers are worried that demand will wane. 


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