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Risk-off sentiment prevails, sterling falls

Equity benchmarks are set to finish lower as fears of stricter or extended lockdowns are dictating sentiment. 

Europe

It is a broad based sell off, as fears that England’s lockdown might last until summer has impacted most sectors. There are concerns the EU might shut internal borders and there has been chatter the bloc might ban travellers from the UK. Even though none of these measures have been confirmed, the very mention of them has soured sentiment in equities. Judging by the mood in relation to restrictions, we are more likely to see further constraints imposed rather than an unwinding of conditions in the near term.

The FTSE 100’s losses have been cushioned to a certain extent by the weakness in sterling. Constituents of the index that earn relatively large revenue streams from overseas like, Ashtead, Unilever, Imperial Brands and AstraZeneca are showing small gains.        

Lately, lockdowns have been extended and some traders are fretting that could become a regular occurrence. Airlines have suffered due to worries that international travel might be impacted in Europe. TUI, the German travel group, is leading the sector lower. EasyJet, Air France and IAG are all down in excess of 3%.

UK retail stocks like Next, JD Sports, and Frasers Group are down on account of the disappointing retail sales report for December. The reading was 0.3%, which was nowhere near the 1.2% consensus estimate. Expectations were high as it is typically a busy shopping month because of Christmas but the underwhelming reading speaks to guarded spending. Today, even the online fashion houses – ASOS and Boohoo – are in the red.                  

Computacenter shares are currently showing small declines but earlier today they came within a whisker of the record high that was posted last month. The company provides computer services to private companies and government bodies. Its services have been in high demand as technology has become a much bigger part of everyday life because of the lockdowns, so that has helped Computacenter increase its full year earnings outlook for the second time in two months. The company now anticipates full year adjusted pre-tax profit to be more than £195 million. Full year revenue increased by 8%. Credit Suisse upped its price target for the stock from 2,650p to 3,176p.           

US

The S&P 500 and the NASDAQ 100 have pulled back from yesterday’s record highs as traders are content to trim their exposure to stocks following the recent bullish run. US equities have registered impressive gains lately on the back of hopes for President Biden’s spending plans but the mood has mellowed a little. 

Intel announced its fourth quarter figures last night. Revenue was $20 billion, which easily topped the consensus estimate of $17.49 billion. Sales of PCs and laptops, which included, Intel chips, were strong. Since the pandemic set in, working from home has surged so that is likely to have been behind the strong sale of personal devices. EPS was $1.52, which hammered the $1.10 that equity analysts were expecting. Intel upped its quarterly dividend payment by 5% to $1.39. The chip maker anticipates that first quarter EPS and revenue will be $1.03 and $18.8 billion respectively, which would be declines on the year. Pat Gelsinger, will take over a CEO next month and it is believed the majority of Intel’s products will be produced in-house and that seems to have weighed on the stock.

Ford shares rallied to their highest level since 2018 yesterday. It is understood the well-known automaker is keen to grab a larger share of the electric vehicle market. JPMorgan upgraded it to overweight from neutral and they upped their price target to $14 from $11.

IBM shares are in the red on the back of mixed fourth quarter earnings. On a yearly basis, revenue fell by 6%, making it the fourth consecutive quarter of declines. The level was $20.37 billion, missing the $20.67 billion forecast. The cloud and cognitive software business saw revenue slip by 5% to $6.84 billion, missing expectations. Sales were lower at the systems and global technology services units too. On the bright side, EPS came in at $2.07, beating the $1.79 that analysts were predicting.                     

FX

The risk-off attitude that is prevailing today has seen funds flow into the US dollar index. In recent months, the greenback has become a popular destination for safe-haven flows.

Sterling took a hit in the wake of the disappointing UK retail sales numbers, and it fell further as a result of the dismal services data. The flash services PMI report for January fell to 38.8, the worst reading in eighth months. It is clear the national lockdown is having a brutal effect on the industry – which equates to approximately 80% of British GDP. The manufacturing update for this month was 52.9, down from 57.3 in December. The CMC GBP Index is down 0.35%.

EUR/USD is essentially flat on the day. It is holding up relatively well considering the positive move in the dollar. By and large, the latest manufacturing and service reports from France and Germany were negative. The German manufacturing update slipped from 58.3 to 57, there was a small dip in the services level. In France, the services sector suffered as the December level was 49.1 but in January it fell to 46.5.         

Commodities

Gold is down over 0.5% as the upward move in the dollar has hurt the precious metal. Also playing into the mix is the move higher in Bitcoin – lately there has been talk that some market participants view the cryptocurrency as an alternative asset to gold. It possible that Bitcoin is capturing some of the funds that traditionally would flow to gold. 

WTI and Brent crude oil have been hit because of rising worries that China is edging towards even more localised restrictions. The country is the largest importer of oil in the world. Regional lockdowns are in place. Shanghai has recorded its first cases of Covid-19 in two months, in addition to that, residents of Beijing have been advised not to travel during the upcoming Lunar New Year celebrations, so the traders are worried China’s oil demand will be impacted by additional lockdowns. US oil inventories jumped by 4.3 million barrels according to the EIA – it suggests falling demand.   


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