European stocks stabilise after yesterday’s sell-off

Europe

After the big declines seen yesterday, European markets have recovered some of their poise today, with the travel and leisure sector looking to find a bit of a base after recent declines, while health care stocks have outperformed, due to a positive read across from US medical devices company Intuitive Surgical, which has sent Smith and Nephew shares to two-month highs.

Airlines were big fallers yesterday with long haul carriers getting hit the hardest, over concerns that extended shutdowns in Asia markets could mean delays to the speedy resumption of long-haul travel. These concerns were borne out after IATA said that they were revising up their estimates for airline industry losses for 2021 to $48bn, from $38bn, presumably on the basis of delays to the resumption of international travel. 

This perhaps helps explain why British Airways owner IAG has found gains much harder to come by today relative to the likes of EasyJet. 

Rising infection rates in Asia, and India and Japan specifically, are raising concerns that any global economic recovery will face significant delays in a region where vaccination rates are well behind those of Europe and the US. It also raises the prospect that the Olympics may well not happen with infection rates in Tokyo and Osaka prompting concerns that authorities may have to implement a state of emergency.  

Heineken shares have moved up to a thirteen-month high after Q1 beer shipments came in better than expected. More encouragingly market conditions look set to improve into the second half of the year, as pubs and restaurants reopen for the summer season.

Gucci owner Kering shares are also seeing decent gains after the company reported Q1 sales that were much better than expected, driven by a rebound in Chinese demand. This has been a familiar trend in the past week or so with LVMH posting similarly upbeat numbers last week. 

Hugo Boss shares are also higher on vague talk of a possible takeover, while reports have emerged that Frasers Group has acquired a 15% stake in the business by way of derivatives which seems to be Mike Ashley’s preferred way of gaining exposure to a business.    

Just Eat Takeaway shares are sharply lower after Uber reported it was launching Eats in Germany, one of Just Eats’ most lucrative markets.

Bunzl shares have also slipped back despite reporting a 1.4% rise in Q1 revenue, with strong sales of Covid related goods helping to offset declines in revenues from other product lines. Management kept full year guidance unchanged, while also saying that the second half of the year is likely to see a weaker performance, when compared to the first half.  

Juventus shares plunged over 12% as the fallout from the European Super League collapse saw all of the gains of the past few days disappear completely, with the shares just above the lows of this year, while in the US, Manchester United shares have stabilised.  

It is hard not to underestimate the damage this has done to football in general, and in particular to the owners who, if John Henry of Fenway Sports Group, owners of Liverpool FC are to be believed, claim rather laughably that they were acting in the clubs’ best interests. This comes across as the errant nonsense we all know that it is.

These people have been in charge of their respective clubs long enough to know how fans in England view their allegiances, and to pretend otherwise is disingenuous. Juventus chairman Andrea Agnelli even went as far as claiming that the UK government and Boris Johnson forced the collapse of the Super League because of a fear it would undermine Brexit, which quite frankly is an even more laughable claim. This was about money pure and simple, with the reference to “legacy fans” a telling reference, and merely serving to highlight the weasel words nature of the various apologies now being trotted out by all and sundry. 

US

US markets started today’s session very much on the back foot, but has since rebounded strongly after the losses of the past two days, with the main focus on a raft of earnings announcements, which by and large have been better than expected.

Medical Devices company Intuitive Surgical saw decent gains after beating on revenues and profits, as did Edwards Lifesciences.   

Netflix shares hit a two-month high yesterday, but have fallen back sharply after the company’s Q1 subscriber numbers fell short of expectations, while its Q2 estimates were also cut back substantially. While disappointing, the numbers on revenues and profits were fairly decent, both beating expectations, while Q2 revenue guidance was estimated to come in above what we saw in Q1’s $7.16bn.  

Apple’s latest product event saw the launch of a new iPad Pro, an iPad Mini, a new iMac as well as AirTags, which are Bluetooth tracking devices which can be attached to other objects and then be located using the Find my App from another Apple device. Markets appear unimpressed, with the shares slightly weaker, though investors may well have one eye on next week’s Q2 earnings announcement.

Manchester United shares appear to have stabilised after yesterday’s losses and the announcement of the departure of Ed Woodward.

United Airlines was one of the biggest fallers yesterday after posting losses of $1.4bn, however it’s having a slightly better day today as investors focus on its domestic travel prospects, along with the rest of the sector.

Verizon’s latest Q1 saw revenues increase by 4% to $32.9bn while profits also beat expectations.   

FX

It’s been a fairly lacklustre day for the pound, with the latest CPI data for March showing that inflation pressures were subdued, with fuel prices and clothing prices offsetting declines elsewhere.

The Canadian dollar has moved higher after the Bank of Canada left rates unchanged but tapered their bond buying program by C$1bn to C$3bn a month. This slight tightening if you can call it that is entirely justified by recent data which shows the jobs market is recovering with the economy set to grow by upwards of 5% over the year.

The US dollar is more or less flat on the day.     

Commodities

Crude oil prices have remained under pressure as surging coronavirus cases in India dent expectations about future demand. This is particularly significant given that India is the third largest market for oil use, and prolonged restrictions, alongside rising inventory levels could well cap the upside in the short term.

The latest US Inventory data showed a surprise increase in stockpiles of 594k, confounding expectations of a 3.7m draw. 

Gold prices have continued to benefit from the relative benign nature of US yields, hitting their highest levels since late February.

Copper prices are also looking quite resilient, on course for its best close in nearly two months.