It’s been a positive start for markets in Europe this morning, following on from a similarly positive Asia session, as investors absorb a bonanza of earnings announcements, and shrug off the impeachment of President Trump. As far as markets are concerned, he is quickly becoming yesterday’s man.
Asia markets got a boost from another decent set of China trade numbers, which saw its surplus rise to a new record high. Exports rose by 18.1%, slightly down from November’s 21.1% but still better than expected, and the seventh successive month of growth. The strength was primarily as a result of the continued lockdowns in the rest of the world saw the export of PPE and other medical related products do well. As vaccines continue to get rolled out across the world this is likely to slow in the coming months.
Imports were also strong, rising 6.5% reflective of rising internal demand, as the economic sentiment continues to improve in the absence of a second wave, thus far.
Investors are also banking on President-elect Biden setting out his stall as far as the next round of fiscal stimulus is concerned. One of the things Biden and other Democrats will want to avoid is making the mistake the Obama administration made in the wake of the financial crisis, and going too small when it comes to supporting the economy, the effects of which, it could be argued are still being felt.
He will therefore need to navigate the gap between the $3.4trn stimulus plan passed last summer which couldn’t get through the Senate, with the current amount of $1.3trn to $2trn that is being bandied about, which is still more than the $900bn bill which has just been passed. The recent Georgia swing having given the Democrats a narrow majority in the Senate, with Vice President elect Kamala Harris having the casting vote, does not mean that Democrats have carte blanche to turn on the fiscal firehose. There are Democrat hawks as well who will need to be convinced when it comes to deficit spending.
The French government has stuck a spoke in the wheel of Canada’s Couche Tard’s attempt to buy Carrefour at a price of €20 a share, sending Carrefour shares lower in early trade. The rationale appears to be concern over the country’s “food sovereignty” whatever that means. This would appear to scupper any prospect of a deal going through.
On the companies front it’s another busy day of company updates.
Associated British Foods owner Primark is also continuing to count the costs of the pandemic as 16-week sales at Primark fall 30% year on year. Primark is particularly exposed given the lack of an online operation though some of the decline was mitigated when stores were allowed to re-open. All its other operations have performed quite well with grocery rising 7%. Sales losses for the periods of closure of Primark stores are expected to be in the region of £540m, which is expected to wipe out operating profits for the year, which were £441m for the same period a year ago.
If Primark stores are kept closed until March this would result on further loss of sales of £800m, and subsequent reduction in profit of £300m.
Tesco followed in the footsteps of Sainsbury and Morrisons before it, by posting a record set of Christmas trading numbers this morning as like for like sales over the period rose 8.1%, while over the quarter, like for like sales rose 5.7%.
This outperformance was fuelled largely by an 80% rise in online orders over the 19-week period, with 7m orders delivered over the Christmas period.
The performance over the quarter didn’t come without an increase in costs, which rose £85m to £810m. Management have said this shouldn’t affect the overall outlook for the year which is expected to show profits to be at around the same level as a year ago, even with the associated extra costs of taking on new staff, as well as implementing various Covid-19 mitigation measures to protect its staff. This doesn’t include the repayment of the business rates relief that was announced last month, while all front-line staff received a 10% Christmas bonus.
Having completed the sales of its businesses in Thailand and Malaysia for £8.2bn, the company confirmed it would be returning £5bn to shareholders in February alongside a share consolidation on 26th February, as well as making a one-off £2.5bn contribution to the Tesco PLC Pension Scheme
Boohoo appears to have shrugged off its mid-financial year woes with respect to some of its suppliers, which saw a number of so-called celebrity influencers ditch the brand, by raising its full year revenue growth target to 36%-38% from 28%-32%. Current trading for the four months to December also looks impressive with a 40% rise in revenues to £660.8m, driven primarily by the UK operation. The US business also looks to be growing well, with a 67% rise in revenues year to date.
None of this appears to have impressed the markets with the shares dropping sharply, maybe as a result of a 50bps fall in the gross margin to 53%.
With respect to its supplier problem management said that 64 suppliers had been removed with further investigations ongoing.
Premier Inn owner Whitbread’s latest Q3 update has continued to paint a bleak picture of the sector, with total accommodation sales down 55.2%, and occupancy at 49.3%. If anything, the numbers could have been worse given the current environment, though this number has deteriorated further in light of the recent tightening of restrictions.
For the five weeks to December 31st this number fell to a decline of 66.4%, while its operations in Germany are also under tighter restrictions as well.
Capital spend in the four months to December was £98.4m, which with access to £814.9m in cash suggests that Whitbread has the capacity to ride out the current lockdowns with a fairly decent buffer.
House builder Taylor Wimpey has followed in the footsteps of its rivals by posting its latest set of trading numbers, ahead of its full year results, which are due at the beginning of March.
Initial reactions appear underwhelming if the share price reaction is any guide, with total completions down 39% to 9,609 in 2020, primarily due to the lockdowns at the beginning of its financial year. This seems rather a big fall when compared to its peers, and perhaps explains the share price reaction. On the plus side average selling prices rose 6% to £323k, while the total order book rose by over £500m to £2.68bn, which represents 10,685 homes.
Management have said they expect to recommence dividend in 2021, starting with the 2020 final dividend, though it is notable that they haven’t completely committed to it yet, which may help explain the early share price weakness. That, and reviewing the 2021 special dividend for payment on 2022.
The US dollar is treading water after a modest gain yesterday, ahead of today’s latest economic data and the further potential details of the latest fiscal plan by the new US administration.
The euro is unchanged despite the prospect of yet another change in the Italian government, and the latest data showing the German economy contracted 5% in 2020.
Bitcoin has also rediscovered a bit of its mojo after this week’s 20% drop, as it edges back up to the $40k level.
US markets look set for a similarly positive open later today, with the focus on the latest set of weekly jobless claims numbers after last week’s surprise 140k decline December payrolls. The recent fall bac in claims from highs of 885k in December to 787k last week could in part have been skewed by a Christmas and New year holiday effect, which pulled the numbers lower. Today’s numbers are expected to come in broadly unchanged at 789k, with continuing claims at 5m.
Companies to keep an eye on include Johnson and Johnson, which announced after the bell that its one-shot vaccine candidate generated a promising immune response in early trials, though there were some notable side effects, from higher doses.
We’ll also be getting the latest Q4 numbers from the likes of Blackrock and Delta Airlines.
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