European markets have managed to consolidate the gains we saw yesterday, though there’s been a slightly more defensive bias, with utilities among the better performers, while energy has once again lagged due to lower oil prices.
Airlines seem to be performing quite well this side of the Atlantic, although there does appear to be a bit of a domestic bias, with easyJet and Ryanair outperforming IAG, probably down to the fact that the smaller airlines don’t have exposure to international travel, something that of course British Airways does, and given events in Asia normal service here is likely to take that much longer to return to normal.
Financials are underperforming, with the latest numbers from Credit Suisse acting as a bit of a drag on the wider sector, after the bank reported Q1 losses of $825m, as a result of the ongoing fall out over its exposure to collapsed hedge fund Archegos Capital. The bank has said that it has now got out of 97% of its exposure to the fund, but that further losses were likely in Q2. The $4.7bn trading loss overshadowed what would have been one of the banks best ever quarters for its investment bank. The size of the losses has also forced the bank to raise extra capital to the tune of nearly $2bn to shore up its balance sheet. The Swiss regulator FINMA has also announced it will be launching an investigation into its risk management processes in the wake of the scandal, as well as the banks’ exposure to Greensill, which could see the bank incur further losses. Despite this the shares are only modestly lower as we head towards the close, pulling back from the lows of the day.
Investors have reacted coolly to Taylor Wimpey’s latest trading update. When they reported their full-year numbers in March management pointed to higher costs, and a sharp decline in margins to 10.8% as one of the reasons for a sharp decline in profits, though they did take the decision to restore the dividend. While the decline in profits was understandable the decline in revenues was less so, even if part of the reason was down to lower completions due to the first lockdown. At the time management expressed optimism that volumes in 2021 would come in at 85% to 90% of 2019, with a view to getting operating margins back up to between 18.5% and 19% this year, which seems a big ask, given margins had slipped to 10.8%. Today’s Q1 trading update has served to reiterate these ambitions, saying that good early progress is being made, but without going into too many details, which may go some way to explaining the lacklustre market response. The order book has increased slightly to just over £2.8bn, though the number of homes has declined from just over 11,000 in March to 10,995, with management saying trading is in line with expectations.
Domino’s Pizza’s latest trading update has seen Q1 sales rise 18.7% from the same quarter last year. The planned sale of the Swedish and Icelandic businesses is expected to complete by the end of May.
Today’s pick of the day is construction company Morgan Sindall, whose shares have hit a record high, after a solid Q1 update, which showed that the business was on course to beat its full-year operating profit target of £35m. Its construction business has seen a strong start to the year with its order book showing an increase of 10%, while the so-called “Fit Out” order book has risen 18%. The total secured workload for the group was £8.1bn with the company saying it was on track to deliver a full year performance well above expectations.
After seeing some decent gains yesterday US markets have opened slightly lower today, and appear to be struggling for direction, despite another set of weekly jobless claims which once again pointed to a decent recovery in the US labour market.
American Airlines has followed United Airlines earlier this week, in reporting a huge loss in Q1, to the tune of $1.25bn, while seeing revenue in Q2 lower by about 40%. Southwest Airlines have also said it expects to see an improvement in Q2, with a hope of breaking even by June, after also posting a loss in its first quarter.
Domestic travel prospects appear to be buoying US airlines, with the likes of American and United also finding some support on vague talk that the UK and US might well be able to agree a travel corridor in time for the UK reopening on 17 May. There appears to be a double narrative at play here with airline chiefs more optimistic about the outlook while only yesterday IATA revised higher its estimates for losses in the sector to $48bn.
The euro initially edged higher in the wake of this afternoon's press conference from ECB president Christine Lagarde. In a narrative, not dissimilar to the last meeting, the bank cited risks to the economic outlook, but went on to say there were clear signs of improvement with activity in the services sector showing signs of bottoming out. The customary press conference was a fairly routine affair with President Lagarde pretending to answer questions. The reality is these press conferences are nowhere near as instructive as they used to be, in fact they are becoming so dull they are slowly becoming the equivalent of monetary Mogadon.
The outlook for inflation was likely to see an increase in the coming months. Any gains in the euro proved short-lived as the US dollar reasserted itself with weekly jobless claims improving further, coming in at 547,000 and the lowest levels since 13 March last year.
The pound has had a poor session dragged lower by a slightly stronger euro, as short positions continue to get squeezed, while also sliding back below the 50-day MA and heading back towards the lows this week.
After two days of declines crude oil prices continue to look a little soft over concerns about demand in Asia, and in particular in India which is undergoing a huge surge in coronavirus infections. This remains significant given that India is the third largest market for oil use, and prolonged restrictions, alongside rising inventory levels look set to limit the upside in the short term.
Gold prices have slipped back from their highest levels in two months, falling just shy of the $1,800 level, as profit taking, and a slightly firmer US dollar prompted a little bit of weakness.