Equity markets have shaken off the negative sentiment that was doing the rounds last week as the pullback in government bond yields has seen buyers step into the fold.
Europe
Yields have cooled in light of the updates from central banks that they will not be pushed around by the bond market. The Fed is not overly concerned about the rise in the 10-year yield in recent months, while Philip Lane, the ECB’s chief economist talked about being flexible with respect to bond purchases. Traders feel more confident about snapping up relatively cheap stocks as they are less fearful that central banks will look to tighten their policy anytime soon. The focus has switched back to the Biden administration as the planned $1.9 trillion spending scheme was approved by The House of Representatives, so now the upper house – The Senate – is debating the proposal.
Royal Dutch Shell along with BP are helping the FTSE 100 as the oil titans have a relatively large impact on the benchmark in terms of index points. Oil’s move higher is helping the energy stocks. In a similar fashion, the rally in copper and platinum has boosted Anglo American, Rio Tinto and BHP Group.
Halfords shares jumped as the company confirmed that it expects to deliver full year pre-tax profit of between £90 million and £100 million. The news was a pleasant surprise seeing as the group posted earnings of less than £53 million last year, also the analysts were predicting around £70 million. The group saw a major jump in demand for bikes amid the pandemic, which propelled revenue. Halfords will repay in full the £10.7 million it received from the government with respect to the furlough scheme. Peel hunt upped its price target for the stock from 300p to 390p.
Persimmon, Redrow, Taylor Wimpey and other UK housebuilders are showing strong gains today as there is speculation The Budget on Wednesday will include policies to assist the housing market. There is talk the stamp duty exemption on properties worth up to £500,000 will be pushed back from the end of this month to the end of June. Speculation is doing the rounds that a government backed scheme for 95% mortgages could be revealed too. Only requiring a 5% deposit should spur demand but in light of the fact that property prices are already elevated, it could mean that prices will be jolted higher again, potentially adding to the worries about the market being overstretched.
IAG shares - the parent of BA and Iberia - are showing strong gains today as several banks upgraded the stock. HSBC, Barclays, Bank of America and Peel Hunt lifted their price targets for the airline. The UK continues to have a successful vaccine programme, so that should help IAG and other airlines as it should help reopen the British economy.
Ladbrokes owners Entain, lifted its final offer for Enlabs to $440 million or SEK 53 per share, up from SEK 40 per share.
Restaurant Group has secured £500 million in new loans as a way of seeing it through the lockdown. The owner of the Frankie and Benny’s restaurant chain said it is burning through roughly £5.5 million per month, so the latest round of financing should give it some much needed breathing space.
US
Stocks are recouping some of the losses that were seen last week as optimism in relation to the Biden administration introducing the stimulus plan has lifted sentiment. Equities are also being assisted by the dip in bond yields. The ISM manufacturing reading for February was 60.8, up from 58.7 in January. It was the fastest rate of expansion since August 2018. The finer details of the report were all encouraging, the employment component rose from 52.6 to 54.4, new orders increased too. Lately, there has been talk of higher inflation being in the pipeline, which is evident from the prices paid metric as it increased from 82.1 to 86.
Over the weekend it was announced that Johnson & Johnson’s Covid-19 vaccine received approval from the US regulator, the Food and Drug Administration. In the US, the drug was found to have an efficacy rate of 72%, while the overall rate was 66%. The vaccine is cheaper than Pfizer’s and Moderna’s drug so that should help demand. Also playing into the mix is that it can be stored in a refrigerator rather than having to be frozen so that also helps from a practical point of view.
Sticking with the vaccine theme, Novavax has been in the news a lot recently as its Covid-19 vaccine has performed well in terms of testing. The third trial in the UK showed it had an efficacy rate of over 89%. It has an efficacy rate of 86% against the South African and UK strains of the virus so that should ensure high levels of demand.
FX
The CMC Index GBP has handed back much of its earlier gains but it is still up on the session. In excess of 20 million people in the UK have been vaccinated. Sterling has cooled from the highs of last week, but Britain is on track to loosen restrictions in the months ahead, which should keep demand for the pound firm.
Earlier today, the US dollar index hit a three week high but it has cooled since. The relatively large positive move a few hours ago did seem a little odd given the dip in US government bond yields as well as the wider risk-on sentiment – the rally in stocks and commodities.
Bitcoin is showing a modest gain and it is back above the $48,000 mark.
Commodities
Gold rebounded from the 8 month low that was set on Friday. Last week the yellow metal came under pressure from rising yields but now the situation has reversed. The commodity was trading a lot higher this morning but it has given up some of its earlier gains, which doesn’t exactly project an image of confidence. If Friday’s low is taken out, it should bring $1,700 into play.
Brent crude is off the highs of the session. The energy market was enjoying strong gains earlier today because of supply cuts and optimism surrounding the US’s planned spending scheme. OPEC output fell last month due to voluntary cuts from Saudi Arabia, it was the first monthly decline in production from the group since June.
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