Europe

After getting body slammed yesterday, European markets have enjoyed a fairly decent rebound today, with the FTSE100 leading the way higher, moving back above 7,000, although we still have some way to go to reverse yesterday’s losses.

Today’s resilience is all the more surprising given that this afternoons US CPI data came out much hotter than expected, at 4.2%, sending 10-year yields higher across the board.

Amongst the outperformers, BP and Royal Dutch Shell are higher as crude oil prices head back towards $70 a barrel, on rising demand expectations, while consumer staples are also recovering some of yesterday’s lost ground, on the basis that an economic reopening will be good for their profit margins, over the rest of the year.

These types of stocks are likely to do well from the improvement in economic data and a pick up in consumer spending as economies reopen. These value stocks, which have underperformed as a result of the pandemic appear to be starting to gain more favour today, while growth stocks are finding life much more difficult, which explains why US markets are struggling today.     

Drinks conglomerate Diageo, is higher today after it announced that it has seen a decent first half of the year, and that it would be recommencing its share buyback program with another £1bn, in anticipation of a better-than-expected full year performance. The North American market has been one of the better performers, and it is here that it is driving the improvements in the outlook, along with optimism that its markets in Europe will show an improvement in H2, as restrictions are eased.

Darktrace shares have had another good day in the wake of this week’s its partnership extension with Microsoft on an autonomous Cyber Defence self-learning AI.  

It’s been another set of grim numbers for TUI today, as it unveiled its latest H1 numbers, and an 89.2% decline in revenues, which came in at €716m. Losses were also bigger than expected, coming in at €1.31bn, against an expectation of €795m, sending the shares down sharply.

On the more positive side the company was more optimistic about the summer months, with online bookings up 56%, and planned capacity at 75% of 2019 levels. Bookings for summer 2022 were also seeing an increase.

Bookings for this year are still down 69% compared to 2019, pre pandemic, and highlighting the scale of the challenges facing the package holiday industry as we head into the summer season.

Available liquidity as at 7th May 2021 amounts to €1.7bn, with average losses reduced to around €218m per month on an EBIT basis.

Staying with the travel theme Carnival Cruise Lines shares have slipped back after announcing that it was cancelling all sailings on all ships through until the 30th July, and then hoping to restart sailings on three ships from Florida and Texas.

Just Eat Takeaway shares are amongst the worst performers today after Delivery Hero said it was planning on launching a new service in Germany, only two years after withdrawing from the market. The company plans to start in Berlin in June before rolling out in the rest of the country from August.

Compass latest H1 numbers showed that revenues fell 30.4% to £8.6bn, while operating profits declined to £290m, as the catering business looked to resize its business post pandemic. The closure of schools and other catering venues has hit its revenues hard and while it has won new business margins have taken a big hit, down from 6.7% to 3.4%.

This is expected to improve over the rest of the year, with an increase to 4.2% in Q2 expected to be sustained and improved upon over the second half.  The company also said it was going to repay all of its furlough money

Germany’s second largest bank, Commerzbank surprised the markets this morning by posting a surprise profit in Q1, helped by a 35% rise in revenues to €2.49bn, helped by a decent performance from its investment banking division.

The bank also set aside a lower-than-expected figure for loan loss provisions, of €149m, below expectations of €180.2m. Having posted a surprise profit of €133m, guidance for 2021 was adjusted higher for the current fiscal year.

This morning’s numbers are a welcome tonic for a bank that has spent most of the last five years trying to turn around its business model, and saw new CEO Manfred Knof implement a new turnaround plan when he joined at the start of the year.

In February the bank posted a record loss of €2.7bn with the new CEO pledging to reduce headcount by 10,000 in the next two years, along with setting aside €1.75bn in respect of non-performing loans.

US

In stark contrast to markets in Europe US markets are firmly on the back foot, opening lower this afternoon after US CPI for April came in at 4.2%, well ahead of expectations of 3.6%, and the highest level since September 2008, with core prices rising 3%. A big component of the increase was a big rise in used car and truck prices which rose 10%, which is likely to be good news for the likes of Vroom who report after the bell, later today.

Once again, the Nasdaq is leading the fallers, with tech shares feeling the most pain from today’s inflation numbers.  

Vroom shares have been falling for the past few days, however are still well above their IPO price of $22, and which has yet to make a profit since it started in 2012. The company is certainly making progress in terms of selling cars with a rise of 21%, however the company is spending a fortune on marketing, as well as other administration expenses. These expenses increased by $60m to $245.5m in 2020. These expenses increased by $60m to $245.5m in 2020. In January the company completed the $120m acquisition of CarStory, a digital services business that uses AI to help make inventory predictions. Losses are expected to come in at $0.62c a share.  

Last night video games maker Electronic Arts saw Q4 profits come in ahead of expectations, after the bell, while revenues also beat expectations. Total revenue for the year came in at $5.6bn, with profits of $837m, driven by sales of FIFA 21 which had 25m players across PC and console.

Novavax shares are also on the back foot after the company said that it’s Covid-19 vaccine was likely to see further delays, due to various manufacturing issues. This, in turn prompted a downgrade from JPMorgan.  

FX

The US dollar is starting to get a bit of a bid on the back of this afternoon’s hotter than expected CPI print. The Canadian dollar and the pound appear to be holding up better than most with sterling benefitting from some fairly decent economic data this morning.   

The pound has had a fairly decent day, only down against the Canadian and US dollar, after data this morning that showed the UK economy enjoyed a decent end to Q1, as economic activity picked up ahead of the loosening of restrictions at the end of March.

Manufacturing activity showed further strength, rising 2.1%, and well ahead of expectations, while construction output jumped sharply by 5.8%. March GDP rose 2.1%, while output in February was revised higher to 0.7%, despite the quarterly number showing a modest contraction of -1.5%.

Commodities

A larger than expected rise of 4.2% in US CPI saw gold prices initially push higher, and back towards the 200-day MA. The price appeared to have decoupled from US 10-year yields which also edged higher; however, the gains proved to be short-lived as yields advanced further to their highest levels this month.

Crude oil prices look set for their second successive daily rise, as it becomes apparent that supply shortages in the US, and a rising demand outlook help to keep a floor under prices. Falling inventory is also helping in terms of prices with Brent edging back towards $70 a barrel.

Copper prices, which hit new record highs earlier this week, is a little bit weaker, but showing little sign of dipping back that much. Demand for it continues to look strong despite record prices, with todays better than expected economic numbers out of the UK, reinforcing the narrative of a strong economic bounce back as economies slowly reopen.

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