European markets have seen some decent gains today, helped by a strong performance from banks, as well as the energy sector, with Royal Dutch Shell shares rising ahead of their Q1 numbers tomorrow.
It’s been a fairly solid day for the banking sector today, with two notable standouts in the form of Deutsche Bank and Lloyds Banking Group, who both beat expectations in their latest Q1 results. Deutsche Bank posted its best quarterly profit since 2014, driven largely by a better performance in its fixed-income division. The investment bank saw an increase in revenues of 32%, coming in at €3.1bn, with the bank avoiding the fallout from the Archegos hedge fund collapse, unwinding its position without incurring any losses. With Germany going into an extended lockdown, the bank also set aside another €69m in form of loan loss provisions. Total revenues in Q1 rose to €7.2bn, while profits came in at $908m, with the bank also lifting its full-year outlook, saying it now expects revenues to come in flat year-on-year, upping their expectations from a decline.
UK banks have seriously underperformed in the last 12 months, for a number of reasons, with the pandemic being one, and concerns over Brexit being another. With Brexit now in the rear-view mirror perhaps it is time to start looking anew at the UK banking sector. Lloyds Banking's Q1 results have seen the share price hit its highest levels in over a year, with the bank posting profits in the first three months of this year, exceeding all of 2020. Leading up to today’s update, there was an expectation, given the improved economic outlook, that we might see some of the provisions set aside in 2020 in respect of loan losses, added back. This optimism was well founded, with the bank adding back £323m, pushing statutory profits up to £1.4bn. Lloyds went on to say it would be accruing dividends with the intention to resume a progressive and sustainable dividend policy. In terms of how the bank sees the UK economy, it's notable that loan demand for housing was strong, but weak elsewhere with credit card spending down 19% over the year, and 6% on the quarter at £13.5bn.
Sainsbury’s full-year numbers have seen the shares slip back after the supermarket swung to a £280m loss after tax, despite seeing an increase in group revenues to just over £29bn. The main reason for the loss was a big increase in costs, as the company spent £485m on various safeguarding measures, as well as other costs related to the restructuring of its Argos business. Underlying profits before tax fell to £356m, a 39% decline from £586m in 2019. In terms of other areas of the business, digital sales rose by 102% to £12.1bn, with retail sales seeing an increase of 7.3% to £28.84bn. Sainsbury was more optimistic about the outlook stating it expects to see profits in 2021 to come in above pre pandemic levels, with expectations of £620m. Judging by today’s market reaction it would appear that investors want their jam today, and not a year from now.
Consumer goods company Reckitt Benckiser latest Q1 numbers have received a rather lukewarm response from the market, with the shares falling to the bottom of the FTSE 100. While total net revenue rose by 4.1% on a like for like basis, all of the gain came from its hygiene division which saw a rise of 28.5%. Health and nutrition both saw sharp falls in revenues of 13% and 7% respectively, which could be a concern for when the world starts to come out of the other side of the pandemic. In terms of the outlook, revenue growth is expected to be flat to 2%, while operating profit margins are expected to be lower, by between 40bps to 90bps.
Markets have reacted fairly positively to the Q1 update from Persimmon, with the housebuilder saying it has made a strong start to the year, with forward sales 23% ahead of last year at £3bn, and also ahead of the same period in 2019, before the pandemic. Average selling prices for orders is £252k, ahead of £244.5k at the same period last year, with the board pledging to pay two dividends of 55p each later this year, one in August and the other in December 2021. In terms of the outlook Persimmon says it expects new home completion volumes this year to match levels seen back in 2019.
It’s been a mixed open for US markets with the main focus on a raft of earnings releases ahead of the conclusion of today’s Fed meeting. The S&P 500 appears to be wanting to have another go at the 4,200 level, as we look towards Jay Powell’s press conference in a few hours’ time.
The main focus has been on big tech, with both Microsoft and Alphabet posting numbers after the bell that beat expectations, and which has seen Alphabet shares open sharply higher at new record highs, after announcing a $50bn share buyback. Q1 revenues saw a rise of 34%, largely driven a big rise in advertising revenue on Google search. Profits also jumped to a record $17.9bn. Advertising revenue came in at $45.6bn, a big rise from $33.76bn over the same period a year ago, though it ought to be mentioned that last year saw a big drop due to being in the early stages of Covid-19. YouTube was also a big winner with everyone stuck at home with advertising coming in at $6.01bn, a 49% increase from last year. Cloud revenue also rose significantly coming in at $4.05bn, although this segment recorded a loss.
Microsoft saw its revenues come in above $40bn for the second quarter in succession, posting $41.7bn for Q3, slightly down from the previous quarters $43.1bn while profits came in at $14.8bn, a 38% rise from the same period last year. The company saw decent gains across all of its segments, with cloud computing up 23% to $15.1bn, productivity and workplace subscription services, up by 15% to $13.6bn, while personal computing and gaming saw a rise of 19% to $13bn helped by the launch of the new Xbox X gaming console. Huge demand for PC’s also helped boost the numbers here. Despite this outperformance the shares have fallen back suggesting an element of profit taking given that the shares hit a record high yesterday.
Boeing today posted its sixth consecutive quarterly loss, losing another $561m in Q1, however it was a big improvement on the $8.4bn loss in its Q4 numbers. Revenues came in at $15.2bn, with the commercial aircraft division unsurprisingly being the main drag, though there are encouraging signs of a turnaround with a pickup in orders.
We’ve also got Q2 updates from Apple after the bell, which are expected to see a bit of a slowdown after the bumper results in Q1, when the company reported $111.4bn in revenues. This time last year Apple reported $58.3bn for Q2, while this year expectations are for a number of around $77bn, with the new 5G iPhone expected to drive sales, along with the reopening of a lot of its stores. Services are also expected to do well, with its new Apple One subscription likely to be a key focus, as it looks to take on Amazon Prime, and other streaming providers. Profits are expected to come in at $0.98 a share. Guidance for Q3 will also be interesting in light of the new products, and upgrades that were announced earlier this month, with the launch of a new iPad Pro, an iPad Mini, a new iMac as well as AirTags, which are Bluetooth tracking devices which can be attached to other objects and then be located using the Find my App from another Apple device.
Facebook is also reporting its Q1 numbers, with the company warning earlier this year of a tougher 2021, due to a slowdown in advertising revenue, as well as privacy changes in the latest iOS14, though yesterday’s numbers from Google may well temper some of these concerns. They also mentioned the risks around future regulation, with the company already facing two antitrust investigations, one from the Federal Trade Commission, and another from a host of local state attorney generals.
The US dollar has continued to edge off its recent two-month lows, with the sharpest gains being seen against the Japanese yen and the pound. Whether this is indicative of a stabilisation after a run of three weeks of losses, or merely a pause before another move lower remains to be seen, however today’s Fed meeting might tell us more.
While currency markets appear relaxed about today’s Fed decision, bond markets clearly are not if the recent sharp move higher in US 10-year yields is any guide. In the last week yields have risen 10 basis points from lows of 1.53%, though some of that move may also have come about as a reaction to President Biden’s rather ambitious tax plans, which are expected to be outlined in more detail later today.
We’ve seen a welcome decline in corn and wheat prices after the big rises seen in the past few days, as some of the heat comes out of the recent rally in prices.
Crude oil prices have spent most of the day edging higher, helped by the better tone in equity markets, which is being driven by earnings numbers that are generally beating expectations. While there are concerns about events in India, markets appear to be making the calculation that it may well be contained. The latest inventory data showed that US crude stocks rose by 90k barrels.
The sharp rise in US 10-year yields is weighing on Gold today, with prices hitting a one week low ahead of today’s press conference from Fed chair Jay Powell, as the Federal reserve concludes its latest two-day policy meeting.
Ethereum prices have made new fresh record highs again today, while bitcoin prices, having recovered back above $50,000 are now treading water. The growing popularity of ethereum appears to be being driven by reports that the European Investment Bank is looking to sell €100m of ethereum-backed bonds. Interest from major banks in the ethereum blockchain network is also helping drive gains, as speculation grows that future upgrades to the network could drive further flows and push up the price.
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