Indices finished in positive territory following an increase in volatility in the last few hours of trading.
Europe
The major stock markets started off in rude health, the DAX 30 set a record high, while the CAC 40 hit its highest mark in over one year, equities drifted lower in the afternoon but they managed to register gains by the close of play. A move higher in government yields has applied pressure to stocks. In the past couple of weeks, bond yields have been very influential on equity markets as investors weigh up their options.
Rishi Sunak, the British Chancellor of the Exchequer, delivered his much anticipated Budget. The Conservative party is still determined to support the economy and help steer it through these difficult times. The hospitality sector has been given a boost as the reduced VAT rate, 5%, will remain for another six months. Whitbread, Marston’s and JD Wetherspoon shares are all up this afternoon. The planned increases in tax on beer and spirits have been pushed back too.
Housebuilders, like Redrow, Taylor Wimpey and Barratt Developments are also up on the session as it was confirmed the stamp duty on property purchases up to £500,000 will be extended until June. In addition to that, a government backed scheme of 95% mortgages for first time buyers was confirmed too. Other supportive policies include an extension to the furlough scheme until the end of September. The business rates holiday will run until June.
BT is up over 5% as the huge tax deduction on business investment – 130% - has driven up demand for the telecoms group. The tax incentive will help with its investment in 5G.
The Office for Budget Responsibility predicts GDP growth of 4% this year, down from 5%, but the 2022 forecast has been upped from 6.6% to 7.3%. The FTSE 250 is up over 0.85%, greatly outperforming the FTSE 100.
Optimism in relation to the UK ending the lockdown and slowly removing its restrictions is still in circulation. Traders are rotating out of stocks that outperformed amid the pandemic, so Ocado and Just Eat Takeaway shares are in the red.
Persimmon posted a 25% fall in full year adjusted pre-tax profit to £783.8 million. Construction work was impacted because of the health crisis last year, hence the tumble in earnings. That being said, the housebuilder has been working at pre-coronavirus levels since July and it expects to make a full recovery this year. Operations might have been setback, but forward sales are up 15% on the year to £2.3 billion. In the first eight weeks of the year, average private weekly sales rates rose by 7% on last year’s reading. The housing market has enjoyed a bullish run since it re-opened last summer. Pent-up demand was released, in addition to that the UK government’s decision to scrap stamp duty on property purchases up to £500,000 helped Persimmon and its peers.
Renishaw shares have retreated from their all-time high that was set yesterday – the stock surged following the update that its founders are looking to sell their stakes.
Micro Focus shares jumped on the news that it signed a commercial agreement with Amazon Web Services (AMS). The update was light on detail, but AWS houses its cloud computing business which is a fast growing industry.
Hiscox shares are one of the largest fallers on the FTSE All Share as the group swung to a full year pre-tax loss of $268.5 million from a profit of $53.1 million. The group registered a loss because it incurred a reinsurance claim of $475 million and that was connected to Covid-19 claims. In a bid to conserve cash, no dividend will be declared, but management is aiming to restore the pay-out as long as it has returned to good financial health. Directors will forego bonuses until financial conditions have improved.
Avast, the cybersecurity group, posted solid full year numbers but that didn’t stop the stock from falling. Revenue increased by 2.5% to £892.9 million and adjusted EBITDA ticked up by 2.6% to £495.5 million. The group benefitted from the major rise in working from home in last year. Avast predicts 6-8% growth in organic revenue in 2021. The final dividend was 11.2 cents bring the total pay-out to 16 cents, up 8.8% on the year
US
Like with last week, the rise in government bond yields is encouraging dealers to cut their exposure to stocks. The nudge higher in the US 10-year is weighing on equities, tech stocks continue to underperform.
The ISM non-manufacturing update for February was 55.3, while economists were predicting it to hold steady at 58.7. The employment component and the new order readings dropped but the prices paid metric jumped from 64.2 to 71.8, the sharp rise is fuelling the chatter about higher inflation, and that is linked to rising bond yields.
Lyft reported a rise in ridesharing and the group confirmed the last week of February was the busiest since the pandemic began. Looking ahead to the first quarter, the firm anticipates the loss to be $135 million, while the previous forecast was $145-$150 million.
Las Vegas Sands announced that it plans to sell its Las Vegas properties to Apollo Global – the private equity group – for $6.25 billion. The gaming firm wants to focus more on Asia in terms of opportunities. The businesses in Singapore and Macao accounted for 48% and 35% of total revenue last year, so it clearly wants to pay more attention to the Far East.
FX
The US dollar index is up over 0.2%. It seems as if the upward move US yields are guiding the dollar higher. Also playing into the mix is the weaker sentiment in stocks so the greenback is acting as a destination for safe haven funds. GBP/USD and EUR/USD are down on the day on account of the firmer US dollar.
Commodities
The move higher in the greenback has hit gold as the inverse relationship between the two markets is working against the commodity. Gold has dropped to its lowest level since early June 2020. Should it break below the $1,700 mark, it might retest the $1,670 area.
WTI and Brent crude saw a colossal jump in volatility following the release of the EIA data. The report showed that US oil inventories jumped by 21.5 million barrels and the consensus estimate was for a draw of over 900,000 barrels. On the other hand, gasoline inventories slumped by 13.6 million barrels. Texas, the largest oil producing state in the US, suffered freezing conditions recently and that is probably why oil inventories rocketed by the largest amount since 1982 – a large portion of the refining activity was out of commission. Oil has rallied in the wake of the data updates as the falling gasoline inventories point to rising demand.
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