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News

Europe powers ahead, Wall Street slips

Even though stocks had a soft start to the session, sentiment has improved throughout the day and markets are now showing respectable gains. 

The relatively subdued moves in government bond yields has emboldened traders to buy into stocks, in a similar situation to yesterday. Last week, dealers were a little fearful on account of the upward moves in bond yields, in particular, the US-10 year yield, as it hit a one-year high, but stability returning to the bond market has prompted buying into equities.

The FTSE 100 is clawing back the losses it incurred last week, while the DAX 30 hit a level last seen before the recent sell-off. Rio Tinto, BHP Group and Anglo American are showing solid gains in terms of index points in the FTSE 100, as higher copper prices underpin the rally in mining stocks.        

Taylor Wimpey shares are a little lower even though the company announced it will resume paying dividends. The group intends to pay out approximately 7.5% of net assets, which would equate to an annual payment of at least £250 million. Taylor proposed a final dividend of 4.4p per share. Halting dividends was common practice amid the pandemic as companies wanted to conserve cash but by declaring that it will make dividend payments again, it sends out a very positive message. Construction activity was disrupted on account of the lockdown. House completions dropped by almost 39% to 9,799, hence why profit declined by 67.8% to £217 million. Also weighing on earnings was the 8.8% fall in operating margins to 10.8%. Even though there was a major setback to operations last year, demand is robust as the order book jumped to 10,685 – a record level. The UK’s Budget will be announced tomorrow and there is speculation that further assistance will be granted to the property industry. Last year, stamp duty was scrapped on property purchases worth up to £500,000 and that offer is due to expire at the end of the month, there is talk the deadline will be extended by three months. In addition to that, there is chatter of a government backed scheme for 95% mortgages.

Boohoo shares are in the red as Sky News published an article claiming the fashion house might face an import ban from the US because of allegations of slave labour by its suppliers. The news group said the US Customs and Border Protection (CBP) has enough evidence to launch an investigation. Boohoo announced that it has not had any correspondence with the CBP. Even if nothing comes of this, it has painted the fashion house in a negative light. Last summer, Boohoo’s share price took a knock due to allegations that some of its third party suppliers were in breach of employment law with respect to pay and conditions. Boohoo was not found guilty of any wrong doing but the stock never got back to the level it was at before the allegations were made.           

Fresnillo is one of the largest silver miners in the world. Annual profit jumped by 208% to $551.3 million, topping the $472.2 million forecast. Revenue for the year was $2.4 billion, up from $2.11 billion last year. In the 12 months, silver and gold production fell by 2.9% and 12.1% respectively. The miner issued a cautious outlook because of the impact the pandemic is having in Mexico. The share price fell to its lowest level since July 2020 but it has since recovered. 

Flutter Entertainment, the parent of Paddy Power, posted full year EBITDA of £1.4 billion, topping the £1.275-£1.35 billion forecast that it issued three months ago. The company is making inroads into the US market. It confirmed that it is the industry leader in the US in terms of sports betting as it accounts for 40% of the market, while it has a 20% stake in the gaming sector. The group said it will resume its dividend policy once it delivers on certain goals, the absence of a pay-out is holding back the stock.

Renishaw shares have jumped as the founders – Sir David McMurtry and John Deer are looking to sell their stakes in the business.        

US

The S&P 500 is lower following on from last night’s bullish session where it racked up almost 2.4%. Tech stocks have seen the most selling pressure and they are weighing on the index. The NASDAQ 100 is down over 1%.

Zoom shares are now only a touch higher as the company posted well-received fourth quarter numbers last night.  EPS was $1.22, easily beating the 79 cents forecast. On an annual basis, revenue surged by 369% to $882.5 million, ahead of the $811.8 million that equity analysts were expecting. Video conferencing exploded in 2020 due to the pandemic and Zoom was in a good position to take advantage of the situation. In the fourth quarter, gross margin was 69.7%, up from 66.7% and that shows us it is squeezing more profit out of its revenue. Looking ahead to the first quarter, the firm is anticipating EPS and revenue to be 95-97 cents and $900-$905 million respectively and that was far greater than analysts’ expectations of 72 cents and $829.2 million respectively.           

Target’s fourth quarter results were solid but the stock is in the red. Revenue increased by 21% on the year to $28.34 billion, ahead of the $27.48 billion consensus estimate. EPS was $2.67, beating the $2.54 forecast. Comparable sales rose by 20.5% and that topped expectations. Retailers like Target performed well amid the pandemic as it was permitted to remain open. In addition to that, it already had a well established e-commerce operation. The US government has done a lot to assist the economy. In late December, the Trump administration signed off on a $900 billion relief package, which included stimulus cheques of $600. In January, US retail sales rose by an impressive 5.3%. Judging by Target’s update, it seems that Americans were happy to go out and spend their government cheques.

FX

The US dollar index hit its highest level in over three weeks but it has since rolled over. The greenback witnessed a lot of volatility recently, whereby last Thursday it fell to its lowest level since early January, while today it came close to retesting the February high – which was its highest in two months. EUR/USD and GBP/USD are up on the day as the dollar has handed back its earlier gains and is now in the red.             

Commodities

Gold dropped to a fresh eight month low but it has since recovered a little. The yellow metal has been in a sharp downtrend for two months and should the asset fall through the $1,700 mark, it could find support from the $1,670 region. Gold came under a bit of pressure last week from rising US bond yields and even though yields have cooled, the recent upward move in the dollar hurt the metal. If it can remain above the $1700 zone, it might look to retest the $1,760 area.

Mohammed Barkindo, the Secretary General of OPEC, said there has been a major ‘turnaround’ in oil and he is hopeful that previous fears with respect to the energy market will fade. Mr Barkindo is positive in his outlook. There is a view in the markets the recovery of the global economy will bring about higher demand for oil. On Thursday, OPEC+ will hold its next meeting and the possibility of raising supply might be discussed, so that is likely to act as a cap to any major rally in oil. WTI and Brent crude oil are higher this afternoon.