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Markets buoyed by Biden spending hopes, GameStop flies

All week traders have been looking forward to the update from President-elect Joe Biden as there are hopes he will announce a new stimulus scheme. Market chatter suggests the relief programme will be $1.3-$2 trillion and the announcement will be made after midnight (UK time). It would appear that some dealers have been happy to sit on the side-lines until the update has been issued, hence the relatively small trading ranges. The health emergency can’t be ignored but by the same token, vaccinations are being distributed.

Travel and transport stocks ae higher on the session due to optimism surrounding the roll out of vaccines as traders are looking towards the Spring-Summer season, when economies should be reopened.        

Tesco had a record Christmas period as UK like-for-like (LFL) sales increased by 8.1%, whereas group LFL sales increased by 5.7%. E-commerce has become extremely popular and the retailer registered an 80% surge in online sales in the 19 week period. The food division was the driving force behind the UK’s strong performance. Certain sections of society have seen their disposable income increase amid the lockdowns as there are fewer options for ways to spend money these days. Tesco’s ‘finest’ food brand in the UK saw a 14% rise in sales, which suggests that some shoppers were content to splash out for Christmas. Ireland is one of Tesco’s core markets, the unit posted a 12.1% rise in LFL sales in the 19 week period. The group expects full year operating profit to be at least the same as last year’s metric, even though pandemic-related costs for the UK alone are in the region of £810 million.           

Boohoo had a positive run in the third quarter as revenue jumped by 40%. The online fashion house saw strong sales across all brands and regions. Sales in the UK and the US increased by 40% and 52% respectively. Lockdowns redirected shoppers away from the high streets to the online groups. Boohoo has experienced very strong demand but at the same time, pandemic-related costs ticked up, hence why margins dipped by 50 basis to 53%. Despite higher expenses, the full year adjusted EBITDA is still expected to be around 10%. Boohoo lifted its full year revenue guidance to 36-38%, from 28-32%. 2020 was a brutal year for traditional retailers as well-known names like Debenhams and Arcadia Group, Top Shop’s owner, went into administration. On the other hand, Boohoo is expanding. The new UK warehouse site will be open in April. As a part of Boohoo’s plan to restructure its supply chain, 64 suppliers were removed and it is likely that further suppliers will be axed too. Costs associated with that are likely to rise and that seems to be the reason why the stock is in the red. 

Taylor Wimpey announced a respectable set of fourth quarter numbers. There was major disruption to construction activity because of the pandemic. The group confirmed that total home completions fell by 39% to 9,609 but demand has been strong since the market re-opened. Full year figures are expected to be in line with management’s expectations. The order book is £2.68 billion, up 23% on the year. The stamp duty exemption on properties worth less than £500,000 expires at the end of March so buyers are keen to move quickly. Taylor Wimpey expects to resume ordinary dividends in 2021, in addition to that it will review a special dividend for 2022 too. There are no guarantees a special dividend will be paid but the very mention of it indicates the company is heading in that direction.

The owner of Premier Inn, Whitbread, announced that total UK accommodation sales fell by 55.2% in the third quarter, the occupancy rate was 49.3%. The vast majority of their hotels remain open but the outlook in the near-term isn’t too bright as the group expects restrictions in the UK and Germany to remain in place until the end of the financial year. As a way of reacting to the pandemic, Whitbread has cut its headcount by 1,500. In the current environment, cash flow is crucial and it was inline with previous expectations. Management is looking forward to restrictions being gradually unwound from spring but until then, the stock price is unlikely to make any great headway.

The low-cost fashion firm Primark, which is owned by Associated British Foods (ABF), announced a 30% fall in first quarter revenue. It was estimated that Primark lost out on £540 million in sales in the quarter because of the lockdowns. Should stores remain closed until the end of the financial year, the loss of sales could reach £1.05 billion. ABF said their grocery division is on track to post an adjusted operating profit that’s well ahead of last year’s metric.

Halfords posted an 11.7% rise in LFL sales in the third quarter. The group is a now a little less pessimistic with respect to motoring demand in the context of the lockdown.

Dunelm sales increased by 11.8% in the second quarter but it warned about an uncertain outlook in the second half, hence why the stock is -8%. 

US

Equities are up slightly as traders are hopeful Mr Biden will set out plans for a stimulus package – it has been the focus of the week. The initial jobless claims reading jumped from 784,000 to 965,000 – its highest level since August. Last week the headline US non-farm payrolls showed that 140,000 jobs were lost in December – the worst reading in eight months. Also announced today was the continuing claims report, it increased to 5.27 million, the highest level in over one month. In recent months there have rumblings the US economic recovery is running out of steam, so today’s jobless data has heightened those concerns. One could argue the weak jobs report is a justification for a massive stimulus plan.

GameStop shares are rallying again on the back of hopes that Ryan Cohen’s appointment to the board of directors will help with the group’s turnaround. The firm has been struggling recently because the lockdowns impacted high street sales, so the stock has been under pressure. Ryan Cohen, of Chewy, an activist investor, was recently appointed to the board. That sparked a surge in the share price. There have been reports of a sizeable short squeeze.  

Delta Air Lines registered a fourth quarter loss per share of $2.53, while equity analysts were predicting a loss of $2.50 per share. Revenue dropped by 65% to $3.97 billion, beating the $3.59 billion consensus estimate. Airlines across the board have suffered greatly on account of the health emergency but the roll out of vaccines means there is light at the end of the tunnel. Delta’s cash burn in the last quarter was $12 million per day, down from $24 million per day in the previous quarter, so that is a step in the right direction for the group.

Tesla shares are a touch higher even though the US regulator requested that 159,000 vehicles be recalled for concerns about the touchscreens.

FX

EUR/USD fell to a one month low, largely on the back of a move higher in the US dollar. Just over two weeks above the US dollar index fell to its lowest level in over two and a half years, subsequently it has rebounded. Also playing into the mix is the political uncertainty hanging over Italy as the country could be facing a general election. The German economy contracted by 5% last year.

The dollar’s resilience in the face of the poor jobless claim report suggests the recent bullish move could continue.       

Commodities

Gold is a little lower today, partially due to the firmer US dollar, partially because of the risk-on attitude being fuelled by the hopes for Biden’s stimulus. On Monday, the yellow metal fell to its lowest level since early November. Should it fall below the recent low, it could pave the way for $1,800 to be tested.

WTI and Brent crude oil are a little lower this afternoon as demand concerns are weighing on sentiment. China’s oil imports increased by over 7% in 2020 despite the pandemic. Fresh health fears from the country has put pressure on the oil market. China has recorded the largest number of new coronavirus cases in 10 months, so that has outweighed the import data news. 


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