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Rising rates weigh on equity markets

Trading floor

European markets have once again flattered to deceive today, starting off in promising fashion, before slipping back into the close, with US markets, and rising bond yields acting as a little bit of a drag.

While rising US yields have been attracting the most attention, we’re also seeing some evidence of a tightening of financial conditions here in Europe, with sharp rises in government borrowing costs from Germany to Greece.

The European Central Bank certainly appears to be becoming concerned about just such a scenario with Chief economist Philip Lane saying that the ECB is prepared to buy bonds flexibly in order to prevent just such a fiscal tightening. The problem the ECB has is that the bond market doesn’t appear to be listening.

Spanish markets are outperforming after O2 owner Telefonica saw Q4 revenues beat expectations, coming in at €3.75bn, while net income came in at €911m. In a surprise move the company cut the dividend to €0.30 from €0.40, however while not particularly welcome from a shareholder point of view, it is a sensible move for a company whose debt levels currently sit at €35.2bn and like most other telecoms providers faces the challenges of investing in 5G technology, as well as competing in a market where margins are wafer thin and competition is fierce.

The best performer today on the FTSE 100 is packaging company DS Smith, which has jumped sharply on reports that sector peer Mondi is mulling a bid.

Mondi shares are slightly lower, as investors absorb that news along with the company’s full year numbers which showed that group revenues declined 8% over the year to €6.66bn, on lower selling prices. As a result, profits before tax fell by 30% to €770m, with higher costs eating into its margins.

Mining stocks are higher after Anglo American reported preliminary full year numbers which were better than expected, pushing the shares to 52-week highs. Revenues saw an increase of 3% to $30.9bn, while adjusted earnings also beat expectations, on the back of the recent surges in copper, iron ore and palladium prices.  

It’s been a turbulent year for Aston Martin, this morning the company said that Q4 revenues came in at £341.8m, well above expectations, helping to push annual revenue up to £611.8m, well above average estimates of £565m, though this was still well below last year’s £980.5m. The outperformance in Q4 hasn’t prevented the company seeing its losses increase to a hefty £466m, but in terms of revenues at least they appear to be going in the right direction.

In terms of the outlook trading is in line with expectations, with deliveries of the Valkyrie on track for H2 2021, with the company saying it expects to almost double vehicle production to 6,000 for 2021. All in all, the update offers some encouragement that the worst could well be behind it, however a lot of faith appears to be being put into the new DBX SUV, where orders are currently looking strong. This still comes across as a risk given that most Aston Martin owners are probably not your typical SUV buyers.

Continued resilience in oil prices, though they have since slipped back from 13-month highs, is also helping to underpin BP and Royal Dutch Shell, though reports that OPEC+ might be considering a relaxation in production curbs from April could limit the upside.

On the downside, Standard Chartered shares have fallen back despite becoming the latest UK bank to restore the dividend after reporting its full year numbers this morning. In addition to paying a dividend of $0.09c a share, the bank also said it would be buying back $254m of its shares despite missing expectations on earnings and profits.

While the restoration of the payout is welcome the slide in the share is probably due to the bank posting a bigger than expected Q4 loss of $449m, which served to pull its full year pre-tax profits down to $1.6bn, a decline of 57%. The loss did include a restructuring charge of $248m, while total provisions for non-performing loans for the year rose by $391m to $2.3bn.

The bank went on to say that further restructuring charges of $500m were likely over the course of the next few years, related to changes in the way the bank does business.

Also losing ground is Hikma Pharmaceuticals despite seeing a huge surge in profits due to supplying emergency drugs for Covid patients. Revenues rose 6% to $2.3bn, while profits rose to $566m due to increased supply of dexamethasone, one of its many drugs that have been used to treat Covid patients. The shares have slid back due to some disappointment over its forward earnings projections.     


US markets slipped back on the open with the tech heavy Nasdaq leading the way lower, as the more highly valued parts of the US tech sector act as a drag against the more modestly valued sectors that tend to do better during economic recovery or rebounds.

The US 10-year yield continued to push higher, hitting a one year high of 1.48%, with 2-year rates also starting to push higher as well.

US Q4 GDP came in at 4.1%, while the latest weekly jobless claims numbers fell back to 730k, however it’s not immediately clear how much of this fall was down to the cold weather shutdowns, which kept a lot of people at home.

The “stonks” rally is back in focus after GameStop shares surged into the close last night, and opened sharply higher today, as the Reddit surge of a few weeks ago takes centre stage again. Having opened over 80% higher, the shares have subsequently slipped back by over half of that, probably as a result of some stale longs bailing out of their positions from lower down. AMC Entertainment, which also got caught up in those events is also sharply higher.

Twitter shares also surged on the open to new record highs, after the company said they expected to turn over $7.5bn in revenue by 2023, almost double from the levels now, while growing its daily active users to 315m.

Investors liked the look of Moderna’s latest Q4 numbers, the shares rising over 6% after revenues rose strongly, coming in at $570.7m, well above expectations of $287m, and a huge jump from $14.1m a year ago.

Despite this big jump, losses widened to $272.5m, or $0.69c a share, from a loss of $0.37c a year ago. The bigger losses appear to be as a result of Moderna boosting its productive capacity as it looks to deliver 1bn does in 2021, with R&D expenses for Q4 amounting to $759m. The company said it plans to spend $350m to $400m of capital investments for 2021, however with $18.4bn of vaccine deals in the offing this seems like a good trade-off. The company also said that Chief Medical Office Tal Zaks will be leaving in September.

On the renewables front, after the bell we get the latest Q4 numbers from First Solar. While the share price is down around 10% year to date the shares are still quite a bit higher over the last 12 months, by over 150% from the March lows. Last October the company turned a Q3 profit of $0.29c a share on revenues of $546.8m. The company makes solar panels that are primarily used in solar farms, with the US market making up to 85% of its sales. Profits are expected to come in at $1.26c a share on sales of $720.5m.


The US dollar is getting clobbered today, sliding back to five-week lows against the euro, even as US long term yields have continued to rise, with the US 10 year hitting its highest level in over a year.

The euro has finally shaken off the shackles of the 1.2170 area and looks set for a retest of the highs of the year as European yields also start to push higher. ECB Chief economist Philip Lane has insisted that the ECB is prepared to buy bonds flexibly in order to prevent a fiscal tightening, however there is some scepticism that they have the tools to actually achieve such an outcome.

The Australian dollar has continued to move higher touching the 0.8000 level, and a three year high for the first time since February 2018. The move higher in metals prices has been one factor behind the rise in the Aussie, with copper prices at their highest levels since 2011, along with the weakness in the US dollar.


Crude oil prices hit new 13-month highs earlier today before starting to slip back. The move higher in prices that we’ve seen over the last few weeks looks to be starting to create the first signs of splits in the OPEC+ consensus on the current level of production curbs. While on the one hand there is a concern that US supplies may take a while to get back to normal levels the big question now is whether some OPEC+ members start to ramp up production to take advantage of the rise in higher prices. This may well start to limit the potential for further upside in the short term.  

The rise in copper prices this month has been absolutely astonishing, on course for its single biggest monthly move since April 2006. This month’s move appears to be predicated on the belief that demand is likely to outstrip supply for years to come as the focus inexorably shifts towards renewables, and as a highly efficient generator of electricity, as well as heat, it will be in high demand in the production of solar, thermal and wind energy systems, as well as electric vehicle production.

Quite simply there is nothing that comes close, though we have also seen decent gains in the prices of tin and nickel, both of which are also used extensively in the production of electric vehicles.

As US bond yields continue their relentless march higher the price of gold continues to lose ground, with the yellow metal starting to slip back towards support at $1,760 and the lows this year and last November’s lows.

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