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News

Shell and BP boost FTSE 100, oil surges

The FTSE is being greatly helped by big oil stocks and that has given it the edge over the markets in mainland Europe, where lockdown worries are hurting sentiment. 

The rally in the underlying oil market has boosted BP and Royal Dutch Shell and in turn that has lifted the FTSE 100. The index isn’t as strong as it seems though, because over half of its gains in terms of index points are being derived from Royal Dutch Shell and BP. The wider mood is a little downbeat as tougher lockdown restrictions in countries like the UK, Germany and Denmark have dampened the sentiment. In the near term, the economies of Europe will be constrained by the virus, hence the negative move in continental markets, but traders are also aware of the longer-term prospects of vaccines so the declines are not too big.      

Next posted a well-received trading update covering the nine weeks until 26 December. Full price sales dipped by 1.1%, which is not ideal but the fashion house had predicted an 8% fall, so that sparked a flurry of buying. In October, the company upped its full pre-tax profit guidance to £365 million. Today the firm said the new forecast is £342 million, but if it wasn’t for non-reoccurring items, it would have been £370 million – further proof that the company is rebounding. In the nine week period until 26 December, total online sales grew by 38%, UK and international sales grew by 36% and 43% respectively. Next’s solid e-commerce performance helped counteract the dreadful high street business, which saw sales tumble by 43%. The short-term outlook is gloomy in light of the lockdowns but throughout 2020 the company has proved that its online capabilities are robust. The Next share price hit its highest level in over five years.

Morrisons was the first big supermarket group to reveal its post-Christmas update. The company confirmed that group like-for-like (LFL) sales over the Christmas and New Year period grew by 9.3%. There was an 8.1% rise in LFL sales that excluded fuel for the 22 weeks until early January. Within that metric, the retail and wholesale divisions registered growth of 7.2% and 0.9% respectively. Fuel sales were impacted because of the tougher restrictions, and the metric slumped by over 23%. LFL sales excluding fuel rose by 7.1% in the third quarter and they increased by 7.3% for the first nine weeks of the fourth quarter. The e-commerce business outperformed as digital sales for the first nine weeks of the fourth quarter jumped by over 24% on a LFL basis. Last month the supermarket group revealed that costs relating to the pandemic were £40 million and today it said that expenses will rise by another £10 million. Morrisons is still predicting that pre-tax profit will be in line with the previous forecast of between £420 million and £440 million, prior to the £230 million associated with the repayment of the business rates. 

Ferrexpo shares hit a 33-month high as the company declared a special dividend of 13.2 cents. In this financial year, total dividends were 33 cents and that is a 66% rise on last year’s total payout. Ferrexpo’s board of directors will also consider declaring a final dividend too and that decision will be made before the full year numbers will be posted in mid-March. Aveva was upgraded by UBS to buy from neutral. British Land shares are a little lower as it was downgraded from equal weight to underweight by Morgan Stanley, but at the same time the bank lifted its price target to 410p from 380p.               

US

The Dow Jones and the S&P 500 are a touch higher today as politics will be in play. The state of Georgia is in focus as the dual Senate race will determine whether the upper house will be controlled by the Republicans or the Democrats. President-elect Joe Biden has big plans with regards to taxation, energy and infrastructure but if the Republicans maintain control of the Senate, he is likely to find it difficult to peruse his aims.       

Micron shares have been given a hand by Citigroup as the bank upgraded the stock from sell to buy. The Wall Street titan predicts that there will be an uptick in demand for DRAM chips.

Moderna’s Covid-19 vaccine has received approval from the health regulatory in Israel – making it the third country in the world to sign off on the drug. 

China Telecom, China Mobile and China Unicom are all up today on the back of the news that the NYSE will not delist the stock – which is a U-turn for the exchange. 

The ISM manufacturing reading for last month was 60.7 – the fastest growth rate since August 2018. 

FX

The CMC GBP index is largely flat on the session in the wake of the sizeable fall that it incurred yesterday. There we no major economic reports from the UK today, although the British government announced a £4.6 billion support scheme for businesses that are impacted by the lockdown. The new restrictions for England are likely to remain in place until mid-February or March.

The US dollar index is in the red but it is above the lows of yesterday - when it fell to its lowest level since April 2018. Lately, the dollar has been in a bearish trend mostly because of the stellar performance of global stock markets – the currency has suffered during risk-on sessions, and partially because the Fed is more than happy to do what it takes to assist the economy.

EUR/USD has been lifted by the weaker dollar. The German retail sales reading for November jumped by 1.9% on a month-on-month basis and that hammered the -2% forecast. Germany’s jobless rate for December was 6.1% - in line with economists’ forecasts. 

Bitcoin is up in the session and it is now over the $32,000 mark and keep in mind it traded north of $34,000 over the weekend.            

Commodities

Gold is broadly flat on the session and keep in mind it enjoyed a bullish run yesterday. Earlier today the yellow metal eked out an eight week high but it is now off the high of the session. The dip in the dollar has helped gold, copper and silver.

Brent crude oil and WTI are showing solid gains as there is talk that OPEC+ are edging towards a compromise whereby the current output level will be maintained. Russia is in favour of lifting production, while Saudi Arabia offered to cut output. It was reported that the group is concerned about lockdowns impacting demand in the months ahead.