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Cautious start for European stocks, as commodity prices soften further

Asia markets have slipped back today after Chinese regulators warned on the prospect of asset bubbles in overseas markets. This is hardly a new phenomenon, there’s been talk about bubbles in US markets for months, and China’s property market isn’t immune to these sorts of concerns either.   

European markets, on the other hand, are trading more cautiously this morning, slipping back initially in early trade, before edging into positive territory, as investors mull whether a change in tone from the Federal Reserve is forthcoming with respect to their recent ambivalence on the recent sharp rise in US bond yields.

It was notable that while yields in Europe fell back yesterday, US 10-year yields held steady, which suggests a fair degree of uncertainty around whether Fed officials will push back harder, especially given the sharp rise seen in the ISM manufacturing prices paid data yesterday which hit their highest levels since 2008.

The main drags in early trade are in basic resources with lower oil prices pulling on the likes of BP and Royal Dutch Shell. Fresnillo shares are also lower after reporting declines in gold and silver production for the year 2020. Revenues were higher by 14.6%, while profits before tax came in at $551.3m, a rise of 208%.

The house builders sector got a nice boost yesterday ahead of tomorrow’s budget on an expectation that Chancellor of the Exchequer Rishi Sunak would extend the stamp duty holiday for another three months, as well as bringing additional measures to support the market, the reintroduction of 95% mortgages.

We’ve certainly seen a decent bounce back in the sector in the wake of the lockdowns introduced just under a year ago, though some have recovered better than others. Taylor Wimpey has been one where the share price has swung more than most in the past 12 months as it sets out its full year numbers.

When Taylor Wimpey reported its Q4 numbers in January the initial reaction was a little underwhelming, however investors appear more enthusiastic this morning.

Total completions were 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 why the shares have struggled to break out of the range they’ve been in since November.

Today’s numbers haven’t offered much in the way of surprises coming in broadly as expected. Operating profits fell 64.7% to £300.3m, as profit margins declined to 10.8%, while the company set aside an additional £125m in respect of cladding improvements, in the wake of the Grenfell fire findings.

On the plus side average selling prices rose 5.9% to £323k, while the total order book rose by over £500m to £2.68bn, which represents 10,685 homes.

As for the outlook management were fairly bullish back in January with expectations that margins could well improve to 21% to 22%, and while this still remains the case, this looks set to happen in 2022, with margins for 2021 expected to come in at 18.5% to 19%.  

As expected, the dividend was resumed with management deciding on a payment of 4.14p, helping to push the shares up to the top of the FTSE100.

Precision engineering firm Renishaw shares have surged after it announced it is putting itself up for sale after its major shareholders and founders expressed their desire to offload their 53% stakes in the business.

The company which makes precision products for the aerospace, healthcare and dental industry amongst many other high value areas, was formed in 1973, and has gone from strength to strength, with its shares surging over 15%, and reaching a record high on this morning’s announcement.

Meggitt, a key supplier to the aerospace and defence industry, received a welcome boost this morning with the announcement of a new contract with Boeing the supply of cockpit indicators for the 737 MAX, expanding the scope its contracts from its current engine and APU fire detection and suppression systems, with deliveries set to start in the second quarter of 2022.

Flutter Entertainment, the company that came out of the merger of Paddy Power and Betfair has this morning posted a very impressive set of preliminary full year results. On a proforma basis, group revenues have risen 27% to £5.26bn, with earnings per share rising 19% to 496.6p

Its US operations have continued to grow with the FanDuel sportsbook now live in 10 states. The purchase of another 37% stake in FanDuel Group at the end of last year, taking its total stake to 95% is set to boost its growth potential in the US market even further, with early signs that this is already paying dividends, despite an EBITDA loss of £170m.

Boohoo shares have taken a bit of a tumble on reports that it, as well as some of its suppliers, could face a possible US import ban on allegations that slave labour may have been used in some of its products. Boohoo has pushed back on this strongly, seemingly conscious that its behaviour is under even more scrutiny given recent events with some of its suppliers in Leicester.  

Ashtead shares are at the bottom of the FTSE100 despite beating expectations on Q3 pre-tax profits and raising its full year revenue guidance for 2021. With the shares hitting record highs last week, there is probably more than an element of profit taking going on here.    

The US dollar has continued to look firm moving to its highest levels in a week against the euro with the fairly aggressive tone from ECB officials yesterday helping to undermine demand for the single currency. It would appear that the ECB is much more concerned about the recent rise in yields than US central bankers are, and to be fair they should be, given the higher levels of debt that the weaker European nations are currently having to contend with.

Crude oil prices have continued to sink ahead of this week’s OPEC+ meeting as markets weigh up the prospect that oil production levels will be increased.    

US markets look set for a weaker open after yesterday’s sharp rebound ahead of more jawboning from a number of Federal Reserve policymakers later today. The most notable will be permanent Fed board member Lael Brainard whose comments last week almost played down market concerns about the sharp moves higher in long term yields. Given recent volatility markets will be looking for a much stronger pushback lest the US central bank loses control of market expectations.

On the earnings front, any concerns that Zoom might see a slowdown in revenues proved to be wide of the mark, as Q4 revenues crushed estimates, coming in at $882.5m, well above the $811m expected, while Q1 revenue estimates were also better than expectations. Forecasts for Q1 were raised to $900m from $829.5m, with full year earnings per share expected to come in at $3.60c on revenues of $3.77bn.

We also have the latest Q4 numbers from US retailer Target which could see a nice end of year bump from the $900bn stimulus payments that came at the end of last year, and saw US retail sales rebound strongly in January. Q4 sales are expected to increase between15% and 20% with net sales expected to come in at $27.4bn, and EPS at $2.50c a share.


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