News

Stocks soldier on despite restriction woes

Sentiment in Europe is a bit fragile but the major indices are in positive territory following the negative start this morning. 

The Turkish lira has managed to pull back some of the enormous losses it suffered last night when currency markets opened. Last week, the country’s central bank hiked interest rates but the head of the bank was suddenly replaced over the weekend, which sparked worries about potential capital controls, hence the volatility in the lira, as well as mild uncertainty in European stocks.

Last week, there were concerns about rising Covid-19 cases in several large European countries, such as Germany, Italy and France. The situation has deteriorated as those counties have extended restrictions, so that has pushed back the prospect of their economies being reopened. It was confirmed that Germany’s lockdown has been extended until 18 April, but the DAX 30 and the majority of other European indices are set to finish higher today. 

For now, governments are back rolling out the vaccinations as normal but later this week the EU might look to ban exports of the AstraZeneca-Oxford vaccine and its ingredients to the UK. Such action would be drastic but it seems that Brussels is determined to play catch-up with respect to vaccinations rates. The EU has vaccinated approximately 10% of its population while the UK’s rate is above 40%. Airline stocks are at the forefront of selling pressure due to worries about continental European economies enduring extended lockdowns and the possibility of the EU banning AstraZeneca vaccine exports to the UK. TUI and easyJet are both down over 5%.

Kingfisher shares briefly hit their highest mark since October as their full-year results were well received. Sales increased by 7.2% to £12.3bn. Adjusted pre-tax profit jumped by 44.4% to £786m as adjusted pre-tax profit margin rose by 170 basis points to 6.4%. On account of the lockdowns, there was a jump in activity of people carrying out home improvements. Cash flow surged by 391% to £938m and net debt dropped from £2.52 bn to £1.39bn. Kingfisher resumed its dividend policy with a proposed total dividend of 8.25p. The payment isn’t huge but it sends out a big message. Trading remains strong but the group cautioned that the environment in continental Europe is uncertain, it also feels that second-half sales might find it difficult to measure up to the robust reading posted this year. 

AstraZeneca shares are in demand after a US trial revealed the vaccine is 79% effective and 100% effective against severe disease or hospitalisation. This data is encouraging but in recent months there have been a growing number of people in Europe who are sceptical of the vaccines, so that could be another problem for the region.

Deliveroo said it's looking for an IPO price of 390p-460p per share, which would deliver a market capitalisation of up to £8.8bn.                   

US

Traders are taking their cues from the bond market, yields have edged lower, and that has paved the way for equities to move higher. Stocks suffered towards the end of last week due to higher bond yields, tech stocks lost the most ground, but now the situations have been reversed. The S&P 500 and the NASDAQ 100 are up 0.7% and 2% respectively.       

Tesla’s share price is motoring along as ARK, the investment group operated by Cathie Wood, issued a price target for the auto maker of $3,000 per share by the year 2025.   

FX

EUR/USD is up over 0.4%, which seems odd in light of the fact the US dollar index is only down 0.15%. Let’s not forget the renewed concerns in the euro area due to restrictions being extended. GBP/USD, like most currency pairs, it is experiencing very low volatility, it is basically flat on the day. 

Last night, the USD/TRY jumped to more than 8.4, its highest since late October. Fear the country could impose capital restrictions hammered the Turkish lira but the currency has settled down. The new appointment of a central bank chief is at the root of the lira’s uncertainty, until traders are confident that capital controls will not be imposed, the lira might struggle to recoup all its recent losses.                 

Commodities

Gold can’t catch a break today, a lot of factors are going in its favour but it is still in the red. The US dollar rallied earlier this morning due to the risk-off sentiment sparked by the volatility in the Turkish lira, but the greenback has since cooled. Also, Bitcoin is a little lower too. If gold can’t muster a rally on a day like to today, it will probably suffer declines when the dollar and bitcoin rally – both have been trending higher lately.      

Despite growing worries about the impact of tighter restrictions in several European countries, oil is higher this afternoon. Last week, the energy took a hammering and that was partially due to fear about future demand levels in Europe. It would appear that a lot of the negative news has already been baked into the price. Friday’s Baker Hughes rig count showed that nine new rigs are active, bringing the total to 411 – the highest level since April.