As European markets opened lower this morning, it’s been a more subdued start to proceedings after another record-breaking session for the DAX yesterday, and a new record high for the Dow.
Even though we've edged back into positive territory, it's becoming increasingly difficult to interpret what effect the continued volatility in tech stocks could have on wider sentiment, after the Nasdaq’s big falls yesterday. While the Nasdaq is showing signs of a rebound in the pre-market, this could merely be a consequence of a softening in US 10-year yields, which are currently lower by 5 basis points.
For now, it would appear we’re seeing a fairly orderly reorientation of risk away from the more expensive areas of the market into cheaper areas of the market. As long as this continues to be the case, then the case for further gains in these cheaper areas of the market is likely to gather pace. The risk is that any further declines in the Nasdaq might start to infect the broader market, and act as an anchor on the wider sentiment, thus affecting risk appetite more negatively.
US 10-year yields have softened a little overnight, which could offer a brief respite in the short term for the Nasdaq, as well as markets in general, however any rebound in the Nasdaq from here could be used as an opportunity to sell into, in anticipation of further declines, if yields continue to head higher.
In company news, Vodafone has announced the price range for the sale of its Vantage Towers Unit at between €22.50 and €29 a share, which would give the unit a value of around €12bn. The IPO will take place in Germany, with Vodafone targeting proceeds of €2.2bn. On the face of it this seems a little underwhelming, given that previous estimates were projecting a sum in the region of €3bn, or above..
There’s been a fairly muted reaction to Standard Life Aberdeen’s announcement this morning that it was cutting its dividend, after fee-based revenues fell to £1.4bn from £1.6bn and adjusted pre-tax profits declined to £487m, from £584m. The decline in revenues has been down to outflows of £3.1bn, with assets-under-management falling to £534.6bn from £544.6bn a year ago. Against this backdrop the cut to the dividend wasn’t unexpected, hence the muted reaction.
It’s been a tough year for ITV, with both sides of the business hammered by Covid-19 in the first half of the year, as restrictions shuttered ITV Studios, as well as impacting advertising revenues. In the first nine months of this year, ITV Studios' revenue declined 19%, though advertising revenues did start to improve, however with various travel restrictions in place for most of the winter months, its main source of advertising revenue from travel firms was much lower than normal. As we look at today’s picture for the overall year, it's clear that ITV Studios has been a major drag in contrast to previous years, with total revenues deteriorating further in Q4 to finish the year down 25%. Total advertising declined 11%, however the picture in Q4 was much more positive, showing much better comparatives from the same quarter a year previously, which could be down to rising optimism about the outlook as the vaccine rollout programme offers hope of a strong summer rebound. Statutory total profit-after-tax declined to £281m from £478m a year ago.
In terms of ITV's on-demand services, by way of ITV Hub and BritBox, subscriptions for BritBox in the UK are up to 500,000 in January 2021, while US BritBox also appears to be doing well. In terms of the outlook, management are cautious about Q1 advertising revenue, and declined to offer any firm guidance, however for Q2 and the rest of the year, there is an expectation of a strong rebound if the loosening of restrictions continues on its current path. To cut costs over the past 12 months the programme budget was cut back, however to augment a recovery in 2021 the programme budget is set to be restored with an increase to £1.1bn.
We’ve seen a decent rally in Domino’s UK shares this morning, as investors get their teeth into a cracking set of full-year numbers. Yesterday the pizza company announced the sale of its Swedish business for £1.8m, as part of plans to focus more on its core markets of the UK and Ireland. Today’s results showed that trading throughout the past 12 months has seen solid levels of sales, as more people ordered from home as a result of the various lockdowns. Sales rose 10.3%, with online sales up 23.9%, helping to push statutory profit-after-tax up to £39.7m, helped by a big increase in cash flow of 73% to £99m.
The US dollar has slipped back today after touching three-month highs yesterday, on a combination of higher yields and confidence in the US economic recovery. Today’s weakness offers a welcome respite to the likes of the euro, which hit a three-month low yesterday.
Crude oil prices have rebounded modestly after yesterday’s falls, however one can’t help feeling that a lot of the recovery optimism may already be priced in, and that sustained moves above $70 may well not be sustainable in the short term.
US markets look set to open higher on the back of the slide back in US yields, with the Dow set for another record high, with the Nasdaq expected to lead any rebound after yesterday’s sharp falls. Tech stocks look set for a decent rebound when markets reopen later given Nasdaq futures are projected to open 2% higher.
On the earnings front the latest Q4 numbers for Dick's Sporting Goods are likely to be another decent bellwether for US consumer spending. As with other retailers, we have seen a pickup in sentiment at the beginning of this year, with a strong rebound in consumer spending in January. GameStop's share price closed over 40% higher after putting Ryan Cohen in charge of its e-commerce turnaround strategy. Yesterday’s move, while welcome for beleaguered shareholders, seems to be a case of hope over expectation, however if management are smart, they may look to take advantage of this move higher in the share price and try to raise some extra capital.