European markets were initially struggling for direction in early trade this morning, before rolling over after comments from Federal Reserve chair Jay Powell that suggested the Fed was much more confident in the prospect of an economic rebound as the combined effect of fiscal and monetary stimulus helped signal a faster recovery.
Reading between the lines, markets appear to have taken that to mean the Fed might feel compelled to pare back some of its own extraordinary measures sooner than expected, thus prompting some further profit-taking from recent peaks. This seems a little counterintuitive when you look at where the biggest decliners are, namely in energy and basic resources, which are lower on the back of weaker commodity prices and a stronger US dollar. We’re also seeing weakness in the likes of travel and leisure stocks, as concerns about reopening timetables in Europe take further froth off the recent rebound in these sectors. Weakness in oil prices is weighing on the likes of BP and Royal Dutch Shell, while copper prices are also under pressure, back below $4.
These two rather contradictory narratives have fed into today’s weakness, with US markets selling off on the potential for a quicker than expected withdrawal of Fed support, while European markets are weaker on concerns over a slower-than-expected economic reopening. Confused? You’re not the only one.
NatWest Groupshares are also sharply lower after its Ulster Bank subsidiary was fined €38m for serious failings over mortgage irregularities, with the shares also going ex-dividend.
Cineworld’s share price has taken knock after the company announced a $2.6bn loss and a sharp drop in annual revenues. None of this should be a surprise, however the perilous state of its finances along with the prospect of limited capacity constraints for when it reopens, is once again causing investors to question how it will be able to ever get back on an even keel, when their debt pile is still at an eye-watering $8bn.
AstraZeneca this morning updated the efficacy rates of its latest trial data on the Oxford vaccine, after the numbers were queried by independent US regulators, adjusting the overall rate down from 79% to 76%. In terms of the over 65s, the efficacy rate increased to 85%, while at the same time, and this is the most important part, reiterating the 100% efficacy against severe or critical disease requiring hospitalisation. While all of this is welcome, and AstraZeneca’s PR people probably need to give their heads a wobble after a series of missteps, one can’t help feeling that all of this could have been avoided if US regulators had been slightly more nuanced in pointing out that some of the data might not be as up-to-date as it should be. The fact that the data was only up until 17 February may well have been noteworthy, but it's highly unlikely it would have changed the results that much to be significant, given that the vaccine has already been given to millions of people, with little evidence of any serious problems.
It’s hard to estimate how much additional damage this episode has done to a vaccine that has already been criticised by politicians in Europe, yet shown to work, and where take-up continues to be questioned. The whole saga also makes it much less likely that any pharmaceutical company will do anything like this again, and forego their profits to make a lifesaving vaccine.
Boohoo shares have edged higher today after management took the decision to drastically cut back on the number of suppliers it uses in its supply chain, as it looks to shore up its battered reputation. Last year, it was reported that a number of its suppliers were employing staff at levels well below the minimum wage. While Boohoo was exonerated by an independent investigation, the company was criticised for not acting quickly enough. This was probably down to the fact it was proving difficult to provide sufficient oversight to a supple chain of hundreds. Boohoo announced this morning it was cutting this to 78 approved factories, down from over 200.
H&M has seen its share price come under pressure on reports that it might face a Chinese boycott of its products after a statement came to light from last year that saw the company express concern about forced labour in Xinjiang. Burberry shares are also sharply lower for the same reason, after the China Global Times including the fashion brand in its criticism.
US markets
US markets have slipped back on the open, carrying on from yesterday’s sharp sell-off, despite the latest weekly jobless claims data coming in at 684,000, the lowest level since the second week of March 2020, and a post-pandemic low. Continuing claims also fell below 4m, coming in at 3.87m, also a post-pandemic low. The improvement in the job numbers could somewhat perversely hit sentiment further if markets start to price in the paring back of monetary support sooner rather than later.
Nike shares are also in the market’s crosshairs in a similar way to H&M, over similar comments from last year about forced labour in the Xinjiang region of China, and a boycott of cotton from the region.
Darden Restaurants, owners of the ubiquitous Olive Garden chain of restaurants, has seen its shares gain in early trade after posting Q3 numbers that were better than expected. Revenues were still quite a bit lower from a year ago, not altogether surprising given the pandemic, however sales were only down -26.7% against an expectation of -29.6%. Q3 profits beat expectations at $0.98 a share, well above expectations of $0.70. Q4 profits were also expected to come in well above expectations at $1.60 to $1.70 a share.
Boeing shares are pulling off their lows of the day after the company said it was resuming deliveries of its 787 Dreamliner, as soon as this week.
FX
The euro has continued to struggle today, hitting a four-month low against the US dollar, as confidence around the outlook in Europe continues to diverge away from both the US and the UK. The euro also looks weak against the pound, with the prospect of further weakness against both as the bloc’s vaccine programme continues to struggle, and infection rates rise.
Talk of vaccine controls haven’t exactly helped, however both sides appear to be pulling back from such a damaging outcome, nonetheless even if Europe were to get all the vaccines it says it is due, there is still the issue of the ones that still haven’t been used.
Having undergone four successive days of declines, the pound is enjoying a bit of a rebound today as some of the recent heat between the EU and UK over vaccine exports starts to subside a little.
The unfolding drama at the Suez Canal continues to pull oil prices every which way, as continued concerns about rising infection rates in Germany and France outweigh concerns about a supply pinch as a result of the blockage. After yesterday’s rebound reversed Tuesday’s big falls, oil prices are now lower on the day, and still lower on the week, as recovery concerns outweigh the impact of the Suez blockage. We have started to pull back off the lows of the day on reports that an Iranian missile has been fired at an Israeli ship in the Arabian Sea.
Gold prices are finding some support on the back of softer US treasury yields, however if the recent rebound in the yellow metal is to gain traction, it needs to move above last week's peaks and the $1,760 level, to signal a short-term base is in.
Bitcoin prices are also finding life a little difficult at current levels as it looks to retest $50,000, and potentially slip back below it.
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