News

Equities buoyant, volatility continues for cannabis stocks

Volatility is low today as there has been little in the way of new news to trigger excitement. 

Europe

Yesterday, Jerome Powell, the head of the Federal Reserve, repeated the bank’s determination to support the economy. The Fed won’t even think about removing the stimulus package until the pandemic is well and truly behinds us. There has been chatter than inflation could undergo a jump due to the extremely loose monetary policy of central banks and the aggressive stimulus plans of government’s but a modest increase in US inflation won’t phase the Fed. Equities are also being supported by the belief the US government will sign off on the proposed $1.9 trillion stimulus package within a month.         

Royal Mail Group shares hit a new 28 month high as the company revealed a strong third quarter update. Trading in the three month period and into January was stronger than predicted, full year adjusted operating profit is now anticipated to be well in excess of £500 million. In November, the firm projected that annual revenue will be £380-£580 million but in light of the robust trading, it now feels that revenue be will easily exceed that forecast. GLS, the courier service, continues to trade well and revenue growth will top the 21-23% growth forecast issued three months ago. Royal Mail was already dependent on the parcel delivery business before 2020, so the surge in online shopping brought about by the lockdowns amped up the importance of the unit. The third quarter was a record for parcels delivered but letter volume dipped by 14%.

AstraZeneca has been in the news a lot because of the Covid-19 vaccine it developed with the University of Oxford. The pharma giant doesn’t want to be seen to be profiting from a pandemic so that is why the drug is sold for the cost of production. It was embroiled in a spat with the EU in relation to the number of doses it can supply so that didn’t help its image but yesterday the WHO said its vaccine is suitable for all patients above 18 years of age so that should give the drug a shot in the arm. Today’s annual figures showed that product sales increased by 10% to $25.9 billion. Profit jumped by 155% to $1.23 billion. EPS was $4.02, up 15% on the year. Next year’s EPS is expected to be $4.75-$5, which would equate to respectable growth on the year but equity analysts were anticipating the forecast to be $5.05. Certain aspects of Astra’s business have suffered a little as a result of the health crisis due to procedures or treatments being delayed. Blood thinning products and immunology sales were impacted. The 2021 revenue guidance does not include the impact of the Alexion takeover or the coronavirus drug, revenue is tipped to experience low-teens percentage growth.             

Commerzbank posted a fourth quarter loss of €2.7 billion – a record for the bank. It was muddling along before the pandemic struck so the situation is now far worse due to the risk of bad debts as well as lower lending margins. As a response to the painful loss, the bank announced it will cut 10,000 jobs as it intends to cut expenses by €1.4 billion over the next two years. The closure of retail branches will be at the centre of the cost cutting programme. Retail banking has been under pressure recently on account of the depressed interest rate environment, prospects are likely to remain weak, so in that regard, the move to reduce its exposure to that sector is sensible. Even though job losses are in the pipeline, the firm is also planning on beefing up its business in Poland, as it is cost efficient. The German lender is aiming to be profitable by next year.

The lockdown has had a terrible impact on Ted Baker as fourth quarter sales tumbled over 47%, the fashion house is assuming that UK stores will remain closed until the end of May. Liquidity stands at almost £200 million and it believes it has ample headroom to see it through until September or October, so even though the near term outlook is bleak, it should be able to soldier on in the months ahead. Ted Baker confirmed that its turnaround plan is still on track despite the current climate so that has cushioned the blow of the dire sales figures. 

Coca-Cola HBC is one of the biggest risers on the FTSE 100 as the bottling group lifted its dividend by 3.2% to 64 cents and it issued a bullish outlook. It anticipates robust demand in 2021.   

US

Yet another intra-day record high was set on the Dow Jones as dealers remain optimistic the Biden government will implement its planned relief package as a way of stimulating growth. Also assisting sentiment, is the reassurance from Jerome Powell that the central bank will do what it takes to help the economy.

The latest jobs data was disappointing as the initial jobless claims reading was 793,000, topping the 757,000 forecasts. In addition to that, the previous update was revised from 779,000 to 812,000. There is an argument to be made that strong fiscal and monetary policies are required to assist the labour market.           

Uber’s loss narrowed from $8.51 billion to $6.77 billion, which is a step in the right direction but at the same time is a long way from breaking even. The fourth quarter loss per share was 54 cents, slightly better than the 56 cents loss per share that analysts were predicting. Gross mobility bookings slumped by 50% to $6.79 billion, but on the other hand, gross delivery bookings were $10 05 billion, up from 130% one year ago. It bodes well for the company that the delivery side of the business is now outstripping the mobility. One could argue that having a market value of roughly $110 billion when you are losing over $6 billion doesn’t add up.

Cannabis stocks like Tilray, Aurora, Sundial Growers and Canopy continue to see a lot of volatility as there has been a buzz around the sector lately. Medical marijuana companies have seen a return to popularity with retail traders – the herd mentality is mildly similar to what was experienced by Gamestop.    

Disney will post its first quarter numbers tonight after the close of trading. The pandemic has worked for and against the company as its theme parks have been badly impacted by the restrictions, there was disruption to the production of TV shows and films too. On the bright side, Disney+, the streaming service saw its user numbers take off. When it was launched in November 2019, analysts were predicting it would rack up 20 million paid subscribers in the first year, when in fact it clocked up more than 86 million. Lockdowns have jolted demand for streaming services. In its last quarterly update, Netflix added in excess of 8 million users, bring the total to more than 203 million paid subscribers. Traders will be wondering if Disney+ can maintain its growth rate.   

Bumble, the dating app, will have its first date with the stock market today. The company is due to list on the exchange, a few days ahead of Valentine’s Day. Lately there has been major excitement surrounding anything that is vaguely tech-focused so it is likely that demand will be high. If Bumble wants to go the distance, it will need to consistently grow revenue.         

FX

The US dollar index is in the red for the fifth day in a row. This day last week, the greenback reached a two month high but it has rolled over since – the underwhelming US jobs report last Friday sparked the bearish move. In a bid to spur on economic growth, the Fed are content to maintain their very loose monetary policy, but that is hanging over the US dollar today. EUR/USD hit its highest level since late January thanks to the slide in the dollar. GBP/USD set a new 33 month high yesterday but today it seems to be taking a breather as is it basically flat on the session.   

Commodities

Gold has retreated a little following four consecutive days of gains. Metals rallied recently but today copper and platinum have pulled back from their multi-year highs. It is interesting that gold is down even though the US dollar is softer, because lately, a dip in the greenback has pushed up the price of the yellow metal.    

WTI and Brent crude oil are showing small losses in the wake of the 13 month highs that were racked up yesterday. Dealers are reducing their exposure to the energy following the jump that was witnessed yesterday on account of the sharp decline in US stockpiles.