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News

Stocks rally, ECB ups inflation forecast, AMC entertains

European equity markets are higher as the end of the trading session draws near. 

Europe

The European Central Bank (ECB) left interest rates and the pandemic emergency purchase programme (PEPP) on hold, meeting forecasts. Christine Lagarde, the bank’s chief, lifted the 2021 inflation forecast from 1% to 1.5% and next year’s guidance is now 1.2%, up from 1.1%. There is a growing view in the markets that inflation is poised to rise but at the same time, Ms Lagarde, said its bond buying scheme would be adjusted as a way of trying to keep a lid on yields. As we saw in recent weeks, a spike in yields can bring about a sell off in stocks, so traders welcomed the comments from that point of view. Several countries in the eurozone are heavily indebted so the last thing they need is higher borrowing costs, hence the ECB’s desire to not let yields run higher.       

Rolls Royce revealed its full year numbers today. The engineering giant was already suffering before the pandemic as issues with its Trent 1000 engines weighed on the firm. 2020 was a horrendous year for aviation and that massively contributed to the company’s £2.1 billion operating loss. Going into the update, the market was braced for dreadful figures so expectations were well managed in that regard. Putting the painful loss to one side, revenue was £11.76 billion, down 24% on the year but it was ahead of the guidance that was projected last year. Cash flow has been closely watched and this morning’s update showed that cash outflow was a colossal £4.2 billion. For 2021, the group predicts that engine flying hours will be 55% of the levels achieved in 2019, which should lead to a cash outflow of £2 billion – it aims to be cash flow positive by the second of the new financial year. In 2022, Rolls anticipates having positive cash flow of £750 million, on the assumption that engine flying hours are 80% of 2019 level.

AstraZeneca shares are in the red as it was reported a number of European countries suspended the distribution of the AstraZeneca-Oxford vaccine following the death of a patient. Investigations into the drug are underway. This is bad publicity for the group, if further nations halt administering the vaccination, Astra’s stock price could see further losses.            

Morrisons, along with other supermarkets, saw high demand on account of the health crisis but costs relating to the pandemic ate into profit margins. Full year profit before tax fell by 62.1% to £165 million, but that includes exceptional costs, such as the repaying of £230 million in business rates relief. Stripping out one-off costs, profit was £431 million, up 5.6% on the year. Online sales tripled last year, which shows it is capable of adapting to the changing trends. The final dividend was 5.11p, bringing the total payment to 7.15p, up 5.6% annually. Morrisons are optimistic in their outlook. Next year’s earnings are anticipated to be ahead of the £431 million registered this year, cash flow is projected to be strong and it projects a significant fall in net debt.

WPP saw full year revenue slip by 7.3% to £12 billion. It swung to an operating loss of £2.79 billion on account of £3.1 billion in impairments. It is no surprise that revenue dipped as many companies curtailed their advertising budgets as a result of the pandemic. A final dividend of 14p was proposed, in addition to that, a £620 million share buyback scheme was announced. Looking ahead to next year, operating margin is tipped to be 13.5%-14%, down from the 14.4% registered in 2020.     

US

The major indices are driving higher, in particular the NASDAQ 100, as it lost the most ground in the past month. A new intra-day record high was set for the Dow Jones. Sentiment is being lifted once again by the US stimulus story, President Biden is due to sign off on the $1.9 trillion package soon, possibly tomorrow.

The jobless claims reading fell to 712,000, its lowest in 14 weeks. The continuing claims reports slipped from 4.33 million to 4.14 million. This follows on from the impressive US non-farm payrolls report that was posted last week – the headline reading showed that 379,000 jobs were added last month, smashing forecasts. It is clear the US labour market is improving but at the same time inflation fears have faded a little in light of yesterday’s CPI update, so it is the best of both worlds.     

Bumble, the dating app, floated on the stock market in February. Last night the firm delivered its first set of quarterly numbers as a publicly traded company. Fourth quarter revenue increased by 31% to $165.6 million but the loss was $26.1 million on account of higher expenses – stock market listing costs would have been a factor. As countries around the globe slowly begin to re-open in the months ahead, that should increase activity on the app. Bumble predicts that first quarter revenue will be $716-$726 million.

AMC Entertainment shares have seen a lot of volatility in the past couple of months. It was caught up in the Gamestop saga, where a hoard of retail investors were targeting certain stocks that were heavily shorted. Last night, it confirmed its full year loss was $4.6 billion, it wasn’t as bad as some analysts had predicted. In the final quarter, revenue slumped by 88% to $162.6 million but that was still an improvement on the $119.5 million registered in the second quarter. Revenue in the first quarter was below $19 million, so things have changed a lot in the six month period. The group raised $917 million in January through equity and debt issues to keep the business operating. It confirmed that bankruptcy has been taken off the table following the financing schemes, so it is in a good position to benefit from the reopening of the global economy. 

Roblox, the gaming platform group, floated on the stock market yesterday. Cathie Woods’s investment group Ark buys into the firm. The share price is up over 3%.   

FX

The US dollar index is in the red again following the three month high that was set on Tuesday. It seems that dealers are continuing to trim their dollar exposure following the news yesterday that US core CPI cooled from 1.4% to 1.3%, so that could be interpreted as an indication that underlying demand eased.

The ECB meeting created a lot of news headlines but the reaction by the single currency was muted. The CMC EUR Index is marginally higher, up from the eight month low that was set yesterday. Inflation in the euro area is tipped to race ahead this year as the ECB’s inflation forecast was lifted from 1% to 1.5% but at the same time, the ECB said they would be flexible in their bond buying scheme as a way of stopping spikes in yields.                

Commodities

Gold eked out a one week high today but it has retreated a little, as the dollar has pared some of its earlier losses. The yellow metal dropped to a new nine month low on Monday but it rebounded since then. While it holds above the $1,700 mark, we could see this week’s upward move continue, the $1,760 area might act as resistance.

Oil is up on the session as OPEC lifted its demand forecast for 2021, it now predicts that demand will increase by 5.89 million barrels per day – the forecast was upped from an increase of 5.79 million barrels per day. The energy market is also being assisted by the optimism circulating from the US $1.9 trillion stimulus story.       


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