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Equities dip, dollar jumps, gold slides

A rise in US government bond yields this week has worried traders a little and that is behind the negative move in stocks. 

Europe

Equity markets have enjoyed a very positive run lately thanks to hopes that coronavirus-restrictions will be loosened in the months ahead, which should bring about higher economic activity. The prospect of a $1.9 trillion stimulus package was also a factor in stocks' recent rally. Yesterday there was a sharp move higher in the US 10 year yield and even though it has cooled a little today, it is still on dealers’ minds. Rising yields have sent a mild tremor through the markets as it might be a warning that a rise in inflation is in the pipeline, which could pose a problem for central banks as they have no desire to increase interest rates anytime soon. The possibility of higher interest rates seems extremely low but nonetheless, stocks are under a little pressure today.               

Rio Tinto is on a roll as the miner posted strong full year results. Underlying earnings was $12.45 billion, which was a 20% rise on the year. The consensus estimate was for earnings was $12.02 billion. Metal prices have been driving higher recently so that greatly helped the business. Rio revealed a final dividend of $3.09, up 33% on the year. In addition to that, a special dividend of 93 cents was declared too. Pay-outs make the stock more appealing to income-seeking investors, at the same time it projects an upbeat image. The company slashed its net debt from $3.6 billion last year to $664 million. Lower debt and higher dividends are a good combination, especially seeing as high debt levels have caused problems for mining groups previously. The stock hit a fresh record high today, which highlights confidence in the company.

Kering shares are in the red following its disappointing full year figures. Total revenue was €13.1 billion, a fall of 17.5% on the year. Fourth quarter comparable sales dropped by 5%, undershooting the near 1% growth that analysts were predicting. Recurring operating income fell by 34% to €3.14 billion. The high-end luxury goods firm suffered as a result of shop closures and travel restrictions. Luxury groups like Kering are exposed to high-street business as very wealthy customers like to shop in-store at their outlets in cities like Paris, London and New York. Kering cautioned that conditions remain tough in Europe, while the first few weeks in the US and Asia Pacific showed encouraging signs. Despite the no-so-hot environment, Kering is recommending an €8 per share dividend.

British American Tobacco had a respectable year even though the industry faced challenges. The WHO warned that smoking can leave people more vulnerable to the coronavirus. In recent years, there have been tighter restrictions as well as a more favourable attitude towards a healthy lifestyle. That being said, the group’s full year revenue dipped by 0.4% to £25.78 billion, ever slightly topping forecasts. There was a 5.5% rise in EPS, beating estimates. Vaping is a growth market and it is helping offset the slide in sales of traditional tobacco products. Vaping sales jumped by over 50%, while cigarette brands like Rothmans and Dunhill saw sales fall.            

US

The major indices are a little lower as the minor worries about US yields are weighing on the sentiment. US retail sales jumped by 5.3% last month, the news caught traders by surprise seeing as economists were expecting growth of 1.1%. At the end of 2020, the US government signed off on a $900 billion relief package, which included stimulus payments. It is possible the stellar sales figures were as a result of the cheques. US PPI and core PPI increased to 1.7% and 2% respectively – both saw a jump on the month, and that speaks to higher demand at the factory gate level. Higher PPI rates is likely to pave the way for an increase in CPI, which ties in with the chatter that a rise in inflation is on the horizon. The release of the minutes from the Fed meeting last month will be posted at 7pm (UK time) should give us an extra insight into the mindset of the central bankers.                   

Chevron and Verizon shares are higher today after it was revealed that Warren Buffet’s investment firm, Berkshire Hathaway, acquired $4.1 billion and $8.6 billion stakes in the firms respectively.

Hilton Worldwide posted a fourth quarter loss per share of 10 cents, while that was nowhere near the 4 cents EPS that analysts were predicting. Comparable revenue per available room fell by over 59% in the three month period to $40.68, missing the $45 forecast.  Quarterly revenue dropped by over 62% to $890 million, which was also shy of the $1.03 billion that traders were anticipating.

EQT, the natural gas producer, registered a loss per share of 2 cents, which was a lot better than the 26 cents loss per share that was anticipated. Quarterly operating revenue was $1.25 billion, up on the $1.01 billion posted in the same period last year. 

FX

The US dollar index was already higher on the session before the impressive sales data was posted. In the last couple of sessions, there has been increased talk of higher inflation being on the horizon, which pushed up US government bond yields and in turn the dollar.

GBP/USD has been hit by the firmer greenback. It is work nothing, yesterday the currency pair hit a new 34 month high so it was coming from an elevated level. This morning UK’s inflation update showed that headline CPI increased from 0.6% to 0.7% in January while the core metric remained at 1.4%.            

Commodities

Gold dropped at a level last seen in late November. The greenback’s upward move has hit the metal on account of the inverse relationship that exists between the markets. For over one month, gold has been trending lower and a break below $1,764 should put $1,747 on the radar.

WTI and Brent crude oil saw have had a relatively volatile session. New 13 month highs were set but the energy market has retreated since. The adverse weather in Texas is a factor in the sharp move in the price as the deep freeze prompted the closure of refineries. Overall optimism that demand will increase as economies are slowly re-opened has helped support prices too. It was reported in the Wall Street Journal that Saudi Arabia is interested in lifting output in the months ahead but that has cooled the oil market a little.              


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