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News

Italy boosted by Super Mario appointment, Alphabet leaps

Italy’s FTSE MIB is flying high on the news that Mario Draghi, the former head of the European Central Bank, accepted the mandate to try and form the next Italian government.  

Europe

The previous government collapsed after the Viva Party withdrew support for it, so uncertainty has been hanging over the country recently. Strong political leadership is needed to guide the nation through the health crisis. Traders snapped up Italian equities on the announcement that Mr Draghi will try and cobble together a new administration. His success at the helm of the ECB earned him the nickname ‘Super Mario’ but achieving similar results from strained Italian politics should prove to be much trickier. The League party and the Five Star Movement haven’t decided if they will support Mr Draghi or not. Matteo Salvini, of The League party feels that an election would be the best course of action.

Equity markets in the rest of Europe are showing small gains. Hopes on the vaccine front and the optimism surrounding a US stimulus package are helping sentiment. The FTSE 100 is underperforming as GlaxoSmithKline, Diageo and Royal Dutch Shell are weighing on the index.             

Virgin Money shares are higher again today following the group’s respectable set of first quarter results yesterday. The company’s Australian-listed shares enjoyed a big rally overnight and that sentiment spilled over to today. The Sydney listed stock at one point was up in excess of 15%, which seems a bit excessive as the London listing didn’t enjoy such a positive run yesterday. Nonetheless, the UK listing of the shares hit its highest level in almost one year today. 

Vodafone revealed a solid third quarter update. Service revenue grew by 0.4%, which was a rebound from the 0.4% fall that was seen in the second quarter. The European division underperformed as sales slipped by 1.1%, while Vodacom and other markets saw revenue growth of 3.3% and 12.3% respectively. The telecoms company experienced continued commercial momentum despite lockdowns. Demand for high-speed broadband has been strong too. Vodafone reiterated that it expects adjusted EBITDA of between €14.4-€14.6 billion and cash flow of at least €5 billion.

Last month, Wizz Air carried 573,000 passengers, which equated to 27% of capacity. It is worth remembering that Wizz saw a 77% fall in capacity in the third quarter. The airline sector is largely positive today as a certain amount of vaccine hopes are circulating. On the other hand, Grant Shapps, the UK transport minister, said it was too early to mark out a date for a recovery in the aviation industry.

GlaxoSmithKline shares are one of the biggest fallers on the FTSE 100 following its disappointing fourth quarter update. The pharma giant cautioned that full year adjusted earnings are expected to fall by a mid-to-high single digit percentage, while the consensus estimate was for a 3% fall Group turnover slipped by 2% to £8.7 billion, while pharma and healthcare revenue dropped by 4% and 8% respectively. Disruptions to health services because of the pandemic were cited for the poor update. The health crisis is likely to hamper operation in the first half of this year. Glaxo continues to invest in the business ahead of the planned separation of the biopharma and consumer healthcare companies in 2022. Earlier today, the company announced a £132 million deal with CureVac to develop a multi-variant Covid-19 vaccine. Glaxo has fallen behind AstraZeneca, Pfizer and Moderna in the vaccine race, which explains its share price underperformance - fell to its lowest level since early November. 

Daimler shares have revved up as it was announced the car manufacturer will spin off its truck business via an IPO.              

US

Stocks are higher again as dealers are bullish as stimulus hopes are in the ether. The ISM non-manufacturing report ticked up from 57.7 in December to 58.7. The internals of the update were upbeat, the employment component jumped from 48.7 to 55.2, and the new orders metric was 61.8, up from 58.6.   

It was a double win for the ADP employment report as the January reading showed that 174,000 jobs were added. Economists were expecting 49,000. December’s level was revised from -123,000 to -78,000. Lately, there have been growing worries the US’s recovery has been faltering, but in light of the ADP data, it might be the case the recent softness is only a blip in the rebound.    

Amazon delivered blow out fourth quarter numbers last night. The group registered quarterly sales that exceeded $100 billion for the first time. Sales were $125.5 billion, a record level and it easily topped the $119.7 billion consensus estimate. EPS was $14.09, which hammered the $7.23 that equity analysts were expecting. The group saw a massive jump in demand but coronavirus costs surged too. Amazon is anticipating costs in the next three months to be $2 billion, down from $4 billion in the third quarter. Headcount is now 1.3 million, up over 60% on the year – this underlines its colossal surge in demand on account of the lockdowns. The cloud division has become an important operation, revenue rose by 28% to $12.7 billion on an annual basis, but it narrowly missed forecasts. Amazon was not totally shielded from the health crisis, the physical stores division saw sales fall by 8%. Looking ahead to the first quarter of the New Year, revenue is predicted to be $100-$106 billion, ahead of expectations. Jeff Bezos will step down as CEO and Andy Jassy, the head of the Amazon Web Services division, will replace Bezos as CEO. Mr Bezos is not going too far as he will become executive chairman.            

Alphabet, the owner of Google, also posted well received numbers last night. Fourth quarter EPS came in at $22.30, smashing the $15.90 estimate. On a yearly basis, quarterly revenue jumped by 23% to $56.9 billion, beating the consensus estimate. Advertising revenue in the three month period rose by 22% on an annual basis to $37.92 billion. It is encouraging to see that advertising revenue was robust as there were some mild concerns in July when the second quarter level slipped. YouTube advertising revenue increased by 46% annually to $6.89 billion – topping forecasts. Like with Amazon, Google is keen to gain market share in the lucrative cloud business, and the operation posted a 57% jump in revenue. The cloud unit lost $5.6 billion last year but it is still in investment mode. 

FX

The dollar’s positive run continues as the US dollar index eked out a new multi-week high, narrowly topping yesterday’s high. In light of the tough restrictions in several economies as well as the slow vaccination roll out by the EU, dealers are channelling funds into the greenback due to the belief that the US’s rebound will outstrip that of the EU. The headline CPI rate in the euro area swung from -0.3% in December to 0.9% last month. On the face of it, demand surged, but it is believed a VAT hike was behind the jump in prices. EUR/USD and GBP/USD are lower on account of the dollar’s continued strength.    

Commodities

Silver has settled down in the wake of the major volatility it experienced amid the #silversqueeze craze that was circulating this week. The metal is up today as the dust has settled from yesterday’s painful move lower. Gold hasn’t moved much in this session. As the mania that engulfed silver fades, its volatility is likely to return to the low levels that were seen last week. 

OPEC+ maintained its output as the body is optimistic that 2021 will be a year of recovery for the energy market. WTI and Brent crude oil saw volatility spike in the wake of the EIA report. US oil stockpiles fell by 999,000 barrels while the consensus estimate was for a build of over 400,000 barrels. Gasoline stockpiles jumped by 4.4 million barrels, a far bigger build than expected.   


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