Another day of gains for markets in Europe has seen the FTSE100 push back above 7,600, while the DAX has proved to be a bit of a laggard, due to weakness in its industrial sector.
Europe
The tech and telecoms sector has led the gains in the UK today, led by the likes of Auto Trader, which is higher on the back of broker upgrade from Jefferies, while Vodafone and BT Group are doing well, as investors weigh up today’s results from Vodafone, and ahead of BT’s results tomorrow.
Vodafone has been in the news in recent weeks for several reasons with management under pressure to try and reinvigorate the share price, as increasing competition and weaker roaming revenues have hit profits.
Last week the shares hit their highest levels since June last year on reports that it's discussing a deal with Iliad to merge their respective Italian operations, while at the weekend reports surfaced that activist investor Cevian Capital had built up a stake in the business. Today’s Q3 numbers have helped push the shares higher after organic service revenues rose 2.7% to €9.65bn, beating expectations of 2.2%.
The improvement appears to have been driven by a better performance in its Spanish business, which generated €940m in revenue. Total revenue for the quarter came in at €11.68bn. Management maintained their full year guidance of adjusted EBITDA to between €15.2bn to €15.4bn.
Ocado shares have also rebounded from yesterday’s sharp decline, after being upgraded to outperform by Credit Suisse, putting aside the company’s IP claims over AutoStore’s robot technology which a German court ruled were invalid last week.
Chilean copper miner Antofagasta has slipped to the bottom of the FTSE100 on reports that the government in Chile might look at increasing the tax burden to cope with rising social pressures.
US
US markets have picked up where they left off yesterday, as they look to post their fourth successive daily gain, led very much by the Nasdaq 100, after decent results from Alphabet and Advanced Micro Devices after the bell.
Investors also shrugged off a disappointing ADP payrolls report which saw the US economy shed 301k jobs in January, but which also had the effect of driving US yields lower, and thus underpinning the up move in stocks. The miss on the jobs number also makes it much less likely the Fed will go for a 50bps move in March; whatever Fed policymakers say about their more immediate priorities.
Alphabet’s share price surged to new record highs as US markets opened today, after blowing away consensus expectations on revenues and profits. Any concerns that investors might have had that rising costs might impact the profitability of the Google business were comprehensively put to bed yesterday as the company reported record revenues of $75.33bn for Q4, while also improving operating margins to 29%.
The advertising business was once again the standout performer, accounting for $61.24bn of total revenues, with YouTube accounting for $8.6bn of that amount and generating almost $26bn in operating income. This was reduced by losses in its cloud and other bets businesses, although losses in the cloud business narrowed to $890m on revenues of $5.5bn. Other bets posted losses of $1.45bn. The company also announced a 20:1 stock split to help broaden the shareholder base.
Yesterday’s numbers from Alphabet also put a much higher bar on Facebook’s numbers, or Meta as they are now known, when they release their numbers later today.
The chip shortage helped AMD report a decent end to its financial year, helping to push revenues to record levels in 2021, as Q4 sales rose 49% to $4.83bn. Revenue from its gaming console and servers unit rose 75%, due to decent demand for its GPU’s for the Xbox and PlayStation. The company also revised up its outlook for 2022, projection annual sales of $21.5bn.
PayPal shares plunged after the payment solutions provider said that Q4 growth slowed, as consumers changed their habits from online to more store based transactions.
FX
The US dollar has continued to slide hitting its lows of the day, after the January ADP payrolls report showed that companies shed 301k jobs, in a taste of what could be coming on Friday when we get the latest non-farm payrolls report. We’d already been teed up for a poor jobs number by Patrick Harker of the Philadelphia Fed in comments made yesterday, however we’ve still seen a 1m swing between the December and January jobs number, after December’s 776k print, in a market that has 11m job openings.
If replicated in Friday’s payrolls number we could well see a similar sharp fall, potentially by as much as -500k, as Omicron ripples through various US states.
EU CPI for January dealt a minor blow to the transitory narrative of the ECB and Christine Lagarde when it unexpectedly rose to 5.1% in January, confounding expectations of a fall to 4.4%.
While most of the move was driven by energy prices, as core prices fell back to 2.3%, it can surely be only a matter of time before these price pressures start to trickle down into everyday prices. Russia’s actions to limit fertiliser exports won’t do anything to alleviate upward pressure on food prices as we look towards the spring and planting season. If the ECB thinks these price pressures are going to subside quickly, they could well be in for a rude awakening.
Commodities
Brent crude prices initially broke to the upside again after OPEC+ took the decision to proceed with their planned 400k barrel a day increase to daily production starting in March. In this week’s lead-up there had been some speculation that they might look to push for a larger increase, prompting a little bit of caution. Even if they had announced this, there’ s a huge element of doubt as to whether they would have been able to implement such an outcome given they can’t even meet their current thresholds. In any case prices have since slipped back as concerns rise over demand destruction if prices continue to move towards $100 a barrel.
Gold prices briefly dipped below the $1,800 level in early trade but have since recovered as the US dollar has slipped back and yields have softened.
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