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FTSE 100 slips back from 2-year highs, as energy drags

BP Oil storage facilities

Despite a positive open, European markets have slipped back from their intraday highs with the FTSE 100 briefly hitting a new two year high, before slipping lower, with a decline in oil prices acting as a wider drag on the energy sector. 

Europe

BP shares initially pushed higher after the oil company posted better than expected profits in Q4 and raised the prospect of further buybacks in the months ahead. Full-year profits attributable to shareholders came in at $7.5bn, in welcome news for shareholders, as the oil company continued the slow road back after its $20.3bn loss in 2020. Today’s numbers also heralded the almost inevitably predictable calls from opposition politicians for a windfall tax, as if that will somehow magically make life easier for everyone.  The shares have since slipped back, along with Shell, probably due to an element of profit taking, as investors lock in some profit after solid gains so far year to date. Even with today’s declines, both are up over 20% year to date. 

Also on the slide, Ocado shares have slid to 22-month lows, despite improving full-year revenues to £2.5bn, a decent improvement on last year's £2.3bn. However, a big increase in costs has seen group EBITDA fall to £61m, while losses increased to £176.9m, a big fall from last years £52.3m loss. Higher capital expenditure of £680.4m over the year, along with higher spending of £ 800m for 2022 has raised concerns as to the timeline of when shareholders are likely to see the business return a profit.

FTSE 100 new boy Airtel Africa shares have also slipped sharply after investors sold 1.5% of shares in the business at a discounted 140p.

On the FTSE 250, TUI shares have slipped back despite reporting a 406% rise in revenues for Q1. The gradual easing of restrictions in Q1 has prompted a surge of interest in people wanting to get away, however TUI losses are still high, and could remain high for a while, particularly given that travel costs are rising. The surge in bookings does bode well for the wider sector, helping to push airlines in general quite a bit higher, led by easyJet whose shares are back at levels last seen in early October, while IAG is also higher.

Anglo American is among the better performers on the back of a rise in Aluminium prices to their highest levels since 2008.

Vodafone shares have seen little in the way of a follow-up reaction to yesterday’s reports that French mobile carrier Iliad has made a bid for 100% of its Italian operation, which came just prior to yesterday’s close. There are currently no details on the price being offered, with Vodafone share price pushing up to 9-month highs, before slipping back.

US

Rising US yields are continuing to keep US markets on the back foot with the Nasdaq 100 opening lower, while the Dow is higher. US bond yields are continuing to push higher with 10-year yields up above 1.95%, and the US 2-year above 1.3%, as we look ahead to this week’s January CPI numbers.

Nvidia’s decision to abandon the ARM deal was confirmed earlier today by Softbank, although most people had already given up on it ever happening, due to the various regulatory hurdles standing in its way.

Peloton’s share price has shrugged off another downgrade to its revenue guidance for 2022, with the shares surging despite an awful set of numbers. At the end of Q1 management slashed full year revenue guidance from $5.4bn, to a range of $4.4bn to $4.8bn, which at the time was somewhat of a surprise. Today they’ve gone even further after a dismal Q2, cutting it further to $3.7bn to $3.8bn. Q3 revenue is now expected to come just below $1bn, with an EBITDA loss of between $125m to $140m.

CEO John Foley is set to be replaced, kicked upstairs to the position of executive chairman to be replaced by Barry McCarthy who used to be CFO at Netflix. Peloton said it is also cutting 2,800 jobs as it looks to make savings of $800m as it restructures the business. With the shares up for the second day in a row, and with Foley still on the board, is there a risk that we are seeing a shuffling of the deckchairs, rather than an increased possibility of a takeover?

It’s no secret that Pfizer has done extraordinarily well from the global vaccine rollout over the last 12 months. When the company reported in Q3 it raised its outlook for the full year, with the company upgrading its Covid-19 vaccine full year revenue up to $36bn, from $33.5bn. It turns out this was a little too conservative, as total Covid revenue came in at $36.8bn. For Q4, overall revenue fell short, largely due to underperformance in its hospital segment. For the full year Pfizer generated $81.3bn in revenues.

Its 2022 guidance fell short of market expectations, which helps explain why the shares have fallen back, but it’s still a big jump from where it was in 2020. Revenues are expected to rise to a record $102bn, with over half expected to come from its new Covid pill, and the vaccine, to the tune of $54bn, an absolutely eye watering sum, while profits for 2022 are expected to rise to $6.35-$6.55c a share. Pfizer says it expects to spend $11.5bn in R&D this year. 

FX

The US dollar has continued to rebound from some of last week’s heavy losses, with the euro slipping back further as ECB rate-hike bets get pared back after ECB president Christine Lagarde’s comments yesterday to the European Parliament. This message was reinforced by Spanish ECB governing council member Pablo Hernandez de Cos, who said any policy normalisation must be gradual.

The pound is slightly firmer after BRC retail sales in January bounced back strongly after a weak December. The rebound in spending bodes well for a decent rebound in next week’s ONS retail sales numbers, despite concerns over rising prices and lower consumer confidence.

Commodities

Oil prices have slipped back from yesterday’s seven-year highs, with a stronger US dollar and a lack of momentum prompting a bit of a pullback. While some are suggesting the resumption of US-Iran nuclear talks is acting as a drag, the reality is, even if there was an agreement it’s not immediately obvious how quickly this would translate into more supply. Ultimately, we’ve been here before so its unlikely that we’ll see any tangible progress in the short term. It’s more likely that a modest lessening of tension on the Russia-Ukraine border is prompting a little relief. 

Gold prices have continued to shrug off rising yields as it continues to rediscover its traditional qualities as an inflation hedge.


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