Budget optimism buoys the FTSE100

European and US markets had divergent fortunes yesterday, with US markets slipping back, while Europe finished the day higher.

With Asia markets taking their cues from Europe’s positive session yesterday, these gains for Europe have continued this morning, ahead of what is going to be a key day for the UK economy, as the Chancellor of the Exchequer unveils his latest budget.

The FTSE100 and DAX appear to be leading the way in early trade, with the DAX posting a new record high, with consumer retail and travel leisure stocks helping to underpin the UK benchmarks.

Leading the early gainers on the FTSE100 are the likes of Premier Inn owner Whitbread, no doubt buoyed by the extension of furlough until September, at the same time as looking forward to the prospect of a decent summer of domestic bookings, along with the prospect that it will be a notable beneficiary of any extension to the help for business in this afternoon's budget. Also higher are the likes of Holiday Inn owner Intercontinental Hotels Group, British Airways owner IAG.

On the subject of the budget, the pound is expected to be in focus as we look ahead to today’s announcements by Chancellor of the Exchequer Rishi Sunak. While a lot of what we can expect looks to have been pre-leaked, including the extension of the furlough scheme through September, we can still expect to see significant movements in the likes of house builders, travel, pubs and the retail sector as he outlines a series of measures to support those sectors that have borne the brunt of the three lockdowns, and who will need further assistance into the summer months, and possibly beyond that.

Last night it was announced that furlough had been extended until the end of September, with up to 80% of salary capped at £2.5k a month, while up to 600k of self-employed workers will also be eligible for help as access to grants is widened.

There has been some talk of a rise in corporation tax, however that doesn’t seem likely, though the Chancellor may look at signalling an increase from 2022. Any sooner than that and you might as well pull the rug out of the UK stock market right now.

A failure to extend the various support measures like the reduction in VAT to 5% would also exert upward pressure on inflation, which would also be self-defeating. A fuller budget review can be found here.

Having heard from Taylor Wimpey yesterday, today it's Persimmons turn to report its latest full year numbers in a year that has seen a lot of disruption to the housing sector as a result of the pandemic. Unlike Taylor Wimpey, Persimmon has been able to make up some of the lost ground caused by the shutdowns during the first lockdown.

New completions are only running slightly below the levels of last year at 13,575, while average selling prices came in slightly higher at £230.5k, however that hasn’t been enough to prevent a slight drop in revenues to £3.33bn.

Forward sales on the other hand are running well ahead of last year at £2.3bn, helped largely by buyers looking to get in ahead of the expiry of the stamp duty holiday at the end of this month, though we could see this extended later today when the Chancellor of the Exchequer lays out his budget.

Having paid a limited dividend of 110p so far this year, management have said that they are committed to a total return of £2.35 per share in 2021, subject to continual review.

Packaging provider DS Smith, who were on the receiving end of a £5bn bid approach from Mondi last week has issued a Q3 trading update for the period since 10 December 2020. Trading has been in line with expectations, though input costs have increased, which has prompted the company to increase its own prices to compensate. There was no mention in the update about last week’s Mondi approach, with the shares slipping back in early trade.  

Avast is one of those companies that you’ve probably never heard of but whose products you know quite well. It’s an antivirus and security company, and whose better-known subsidiary is AVG Technologies. Today they reported their full year numbers for 2020, and all told it’s been a positive one with an increase in group revenues of 7.9%, largely driven by a 10.6% rise in its consumer desktop solutions segment. The company also increased the dividend to 11.2c a share while guiding that it expected to see 2021 revenue growth in the range of 6% to 8%. Initial indications suggest a somewhat ambivalent market response, with the shares slipping back slightly in early trade.    

Asset managers and reinsurers haven’t had the best of times in recent months with the sharp falls, and subsequent rebounds in financial markets.

Prudential’s full year numbers for 2020, appear to show that the company saw a better H2 than was the case in H1 when the business was hit by a decline in Asia sales of 24% year on year due to the problems in China and Hong Kong.

Full year adjusted operating profit came in at $5.51bn, with gross premiums coming in at $42.52bn, with the company declaring a second interim dividend of 10.73c a share, bringing the total dividend for the year to 16.10c, sending the shares to a one year high.

In August management announced its intention to IPO its stake in its US operation Jackson National, which now looks set to complete in Q2 of this year. Prudential also confirmed they were continuing to mull the possibility of a capital raise of around $2.5bn to $3bn to help take advantage of future growth prospects in Asia.

Hiscox Insurance this morning announced a full year pre-tax loss of $268.5m largely as a result of having to payout $475m in Covid-19 related claims net of reinsurance, largely as a result of the cancellation of major events and business disruption. In view of the loss the company took the decision to cancel the final dividend for 2020 sending the shares sharply lower, to 5-month lows, though management did say they hoped to restart the dividend in 2021, when conditions dictated. The executive directors would also be forgoing their cash bonuses until such time the dividend is reinstated.    

On a more positive note, net premiums were higher at $2.75bn, which suggests that underlying business is still fairly resilient.  

International software and IT company Micro Focus shares have seen a decent jump in early trade after the company signed a commercial deal with Amazon Web Services, which involves the rollout of Micro Focus technology across the cloud-based production environment.  

US markets slipped back yesterday, with the Nasdaq leading the losses giving back a good proportion of the decent start to the week on Monday, though bond yields were slightly softer after permanent Federal Reserve governor Lael Brainard said that the recent moves in the bond markets had caught her eye in an acknowledgement that some of the moves weren’t all for the right reasons. She went on to state that if the moves persisted, she would be concerned and that the Fed would act to counter them.

Having seen a negative session yesterday, we could well see a modest rebound later today, however US investors still appear to be caught in the crosshairs of concern about the recent sharp rise in bond yields, ahead of today’s latest ADP jobs report for February. This is expected to see a significant improvement on January’s 174k.     

Ride sharing app Lyft upgraded its loss estimates for Q1 after the bell, saying it expects its losses to come in lower at $135m, after 3 straight months of average ride share growth. The latest ride share volume for the February 28th week was the best in 11 months.

We’ve also got Q4 earnings numbers from Vroom, the online car retailer that IPO’d last year at $22 a share, and still has yet to turn a profit. In Q3 these losses came in at $0.29c a share which was slightly better than expected, however its guidance for Q4 was for losses to increase to between $0.35c to $0.41c a share. Q4 revenues are expected to come in between $372m and $414m. While the idea of an online car business seems a compelling idea, one only needs to look at sector peer Carvana’s recent numbers to see that this particular market is a challenging one.

We’ve also got the latest Fed Beige Book which could well paint a more optimistic picture of the US economy than was the case in the previous survey, at the end of last year. The overall picture is also likely to see a rebound in retail sales spending if the recent retail sales data is any sort of guide, however we could also see signs of a rise in inflationary pressure if the latest prices paid data is any guide. With new stimulus measures also on their way, the latest Beige Book is likely to see a much more optimistic outlook than the one in January, especially given that vaccinations are now much more advanced than they were back at the beginning of the year.    

Dow Jones is expected to open 190 points higher at 31,581.

S&P500 is expected to open 24 points higher at 3,894.