European stocks slide, as FTSE100 outperforms

Europe

European markets have struggled today sliding back, after the gains of the last two days, however the FTSE100 is defying that convention rising for the third day in a row, helped by the likes of basic resource stocks with BP and Royal Dutch Shell near the top of the index as brent crude prices top $75 a barrel.

Glencore, Anglo American and Antofagasta are also gaining, helped by a rebound in industrial metals prices with copper prices also up for the third day in succession.

GlaxoSmithKline shares are also higher after CEO Emma Walmsley outlined a new growth strategy for the business, by looking to separate the consumer health business, listing 80% of it as separate entity on the London Stock Exchange, while also setting some impressive sales and profit growth targets for every year out to 2026.

The response to this new plan, leaving it with its pharma and vaccines division, while positive has been a little muted, although the shares are still just shy of their highs this year, suggesting that a lot of what has been announced may well be largely priced in. The new business or “New GSK” as it is being called will have to cut its dividend in order to push more cash into R&D, however shareholders will receive some of the proceeds of the demerger.

On the downside Phoenix Group Holdings is lower after the company announced that Swiss Re had sold its 6.6% stake in the business

The housing market has been on fire over the last few months, with the stamp duty holiday, as well as people’s desire for more space during lockdown driving a tidal wave of demand outside the city centres. This trend has hurt Berkeley more than most due to its predominant London presence, where it has over 70% exposure, and where we have seen below trend price gains.

Today’s full year numbers showed that profits rose 2.9% to £518.1m, above the expectations that were guided in March when management said they expected to deliver a similar profit to last year, of around £504m.

Revenues increased 14.7% to £2.2bn, with the company selling 2,825 homes at an average selling price of £770k., both of which were increases on last year’s numbers, a fairly decent performance given the various Covid-19 measures that have had to be implemented.

Forward sales guidance remains unchanged at £1.7bn, with the company saying it expects profits to remain steady over the next two years, while returning up to £280m a year to shareholders by way of dividends or buybacks. Investors don’t seem too disappointed by these numbers even though the shares have slipped back on the day.

US

US markets opened higher as they look to rise for the third day in a row with the S&P500 looking to follow the Nasdaq in setting a new record high.

Even some disappointing US economic data hasn’t been enough to temper the return of enthusiasm this week, with new home sales declining 5.9% for the second month in a row, while the latest flash services PMI fell back from 70.4 to 64.8.   

China trucking start-up, Full Truck Alliance, after a 16% rally on its opening day of trading, has seen its shares slip back below $20 as some of the air comes out from the exuberant rally seen yesterday. The rebound in bitcoin has helped provide a rebound to MicroStrategy and Coinbase shares, which fell back yesterday, with Tesla also seeing an uplift.

FX

The US dollar has continued to retreat, on course for its third successive daily fall with the Australian, New Zealand and Canadian dollar outperforming due to the continued resilience in commodity prices. Markets appear to have absorbed the soothing noises of the likes of John Williams of the New York Fed and Fed chair Jay Powell yesterday that rates were not going anywhere any time soon, and that the Fed was prepared to tolerate slightly higher inflation in the short term, while the jobs market remained weak.

The pound is also doing well as it looks to retest 1.4000 and regain the levels we saw last week, helped by the latest flash PMI numbers, which have seen input prices continue to rise ever higher, which in turn could well see higher prices passed up to consumers. This trend, if sustained, will increase the pressure on the Bank of England to look at cutting back some of its emergency stimulus measures in the not-too-distant future, with the first dissent possibly coming as soon as tomorrow. Given the current trend it wouldn’t be a surprise to see the Bank of England to start tapering before the Federal Reserve

The pound may also be being helped by optimism that the current disagreements over the Northern Ireland protocol will get resolved by way of a more pragmatic approach, between the EU and UK.

Commodities

Yesterday’s dip below $30k for bitcoin turned out to be a bit of a bear trap, with the cryptocurrency recovering to finish the day higher. Ethereum prices also recovered back above the $2k level, as the lack of follow-through on the downside prompted a bout of profit taking. While the China crackdown on bitcoin mining has prompted some weakness its only likely to displace that activity rather than stop it altogether.

Oil prices are continuing to edge higher as tightening supply contrives to drive down US inventories, after the latest API report showed a fall of 7.2m barrels. Today’s EIA data also showed inventories coming in lower than expected, with a decline of 7.6m barrels, and with no prospect of an Iran oil deal in the coming weeks, talk of looser travel restrictions will inevitably provide an upward bias for prices, and a move towards $80 a barrel.

Precious metals prices are also better bid, helped by the weaker US dollar, with palladium and silver outperforming.