Traders are in risk-on mode as Joe Biden will be sworn in as the next US president later today. Mr Biden is keen to stimulate the economy.
Europe
Last week, he announced a $1.9 trillion relief package but the spending won’t stop there as he also has big infrastructure, energy and education investment plans. There is a view in the markets that more spending is in the pipeline, after all, Mr Biden will want to start his presidency on a positive note. Even though tighter restrictions have been announced in the Netherlands and France, European indices are set to finish higher as the Biden hopes circulate.
JD Wetherspoon shares hit their highest level in 10 months on the back of the news it raised almost £94 million from a share offering. The hospitality sector has been one of the hardest hit due to lockdowns. Wetherspoon confirmed that all of its pubs have remained shut since 31 December 2020. As of last week, the group’s liquidity position was just over £139 million, so in light of the equity financing, it should now be more than £230 million. Wetherspoon has managed to reduce their outgoings amid the tough restrictions, and the cash burn rate is £800 million per week. The group assumes that pubs will remain closed until the end of March but judging by its finances, it is well equipped to see through the harsh months ahead. In the current climate, the focus is on survival so that is why traders have reacted well to the update. The near-term outlook is grim but Wetherspoon can roll with the punches.
Dixons Carphone posted an 11% rise in like for like sales of electrical goods for the 10 weeks until 9 January 2021. The UK & Ireland unit registered 8% growth, while the international business saw sales increase by 14%. The Greek unit was the notable underperformer as sales fell by 13% but that was blamed on a national lockdown. Online electrical sales now account for 53% of total sales, which is a huge increase on the 27% last year. It is encouraging to see the group can handle the increased e-commerce activity as that side of the business is likely to be more important in the years ahead. Even when restrictions are in place, Dixons can be flexible too, the click and collect service has proved to be popular. Uncertainty persists in several markets due to lockdowns but it still expects to deliver full year profit in line with expectations. The medium targets were left unchanged too. Dixons shares are a little lower but yesterday the stock hit a five week high so it seems that hopes were elevated ahead of today’s update.
Burberry’s exposure to the Far East has helped offset the poor results from the rest of the world. Asia Pacific comparable sales in the third quarter rose by 11%. Mainland China has been an important market for the group in recent years, so its recovery from the pandemic has helped sales. The Americas registered an 8% fall in sales, while Europe, the Middle East, Africa and India suffered a 37% slump. Lockdowns not only dented sales from tourism, but excess inventory led to items being sold at marked down prices, also hurting sales figures. The fashion house is making progress with respect to its strategic objectives for the fourth quarter. In addition to that, margins are tipped to improve in the next quarter as full price sales should rise.
Pearson said that revenue in the past 12 months fell 10%. The closure of schools and exam centres due to the lockdowns has negatively impacted the publishing house. The firm achieved incremental benefits from the 2017-2019 restructuring plan, it aims to make an additional £50 million in cost savings this year. Full year operating profit is on track to be £310-£315 million, which would be in line with market expectations.
US
The S&P 500 hit a new intra-day record high as bullish sentiment is doing the rounds as traders look ahead to the Biden inauguration.
Netflix shares are showing strong gains on the back of last night’s stellar fourth figures. The company added 8.51 million new subscribers, easily beating the 6 million forecast. The streaming service now boasts more than 203 million subscribers. Revenue was $6.64 billion, marginally topping expectations. It wasn’t all good news as the EPS was predicted to be $1.39 but it came in at $1.19. Netflix is optimistic in its outlook as it expects operating margin to be 20% and it is aiming to be cashflow positive by the end of 2021. Depending on its performance, it might carry out share buybacks. Since the pandemic has set in, streaming services have surged by popularity. It speaks volumes about Netflix that it can draw in new customers at a time when there is so much choice – Apple TV+, Disney+ and Amazon Video Prime. It indicates their original content, like The Crown, continues to be a cut above the rest.
Morgan Stanley shares hit their highest level since the early 2000s as the fourth quarter figures were better than expected. EPS was $1.92, which smashed the $1.27 consensus estimate. Revenue was $13.64 billion, while equity analysts were expecting $11.54 billion. Equity trading, bond trading and wealth management topped forecasts.
FX
Earlier today, GBP/USD hit its highest level since May 2018 but it has since retreated a little. Sterling has rallied across the board as the increase in UK inflation speaks to rising demand. The headline CPI reading jumped from 0.3% in November to 0.6% in December. The core CPI update is considered to be a better gauge of underlying demand, and it came in at 1.4%, up from 1.1%.
The US dollar index has been muted in the past 24 hours. Yesterday, Janet Yellen, the future Treasury Secretary, said the US will not seek a weak dollar policy to get a competitive trade advantage over other nations. The commentary is very different from the Trump administration, which regularly talked down the dollar.
The Bank of Canada kept rates on hold at 0.25%, meeting forecasts. The report that followed the interest rate decision commented that inflation is a little firmer, which put pressure on USD/CAD.
Commodities
Gold is often a popular hedge against inflation and there has been chatter than we are in for higher inflation in 2021 and beyond as the various stimulus packages are likely to lift prices. The future Biden administration is keen to unleash spending schemes as a way of assisting the US recovery. Silver, platinum and palladium are higher too as Biden has big infrastructure and green energy plans.
Brent crude oil and WTI are higher too as commodities across the board have been lifted by the hopes the US’s economic recovery will be given assistance by spending programmes from Biden’s future government. Oil seems to be eyeing last week’s highs – which were 11 month highs.
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