Europe

European markets hit new record highs today with the DAX and Stoxx600 both building on last week's gains.

The FTSE100 also moved higher, hitting its best levels this year, and its highest levels since 24th February 2020, before drifting back as US markets opened.

The resilience in oil prices may well be helping here with prices hit two-year highs providing a tail wind for the likes of Royal Dutch Shell which is leading the gainers on the FTSE100, though today’s boost for Shell may have more to do with reports it is considering the sale of shale assets in Texas, in a move that could offer proceeds of $10bn.

On the downside, travel and leisure stocks have continued the underperformance we saw at the end of last week, ahead of this evening’s likely extension of some restrictions beyond next Monday’s 21st June lockdown easing deadline.

Rolls Royce is amongst the biggest decliners as it becomes increasingly apparent that airline flying hours are unlikely to rebound as quickly as anticipated. In its March update Rolls Royce management estimated a free cash flow outflow of £2bn for 2021, which was based on wide body engine flying hours of 55% of the levels of 2019, with an expectation of turning cash flow positive at the end of the second half of this fiscal year. On current trends this looks an increasingly tough target to achieve.

Also lower we have the likes of airlines with IAG, Ryanair and easyJet all lower. The likes of Wetherspoon, Restaurant Group and Hollywood Bowl are also seeing losses; however, these could well be temporary if some of the easing measures expected next week are merely deferred.  

It’s been a slow road back for Ted Baker, rocked by bad press over the behaviour and departure of its founder, and various stock accounting errors, new management have taken great steps to try and keep the business above water. In February the company said retail sales fell by nearly 50% between 1st November and last January as various restrictions and the January lockdown hit footfall. Management said that it didn’t expect to see a significant pickup in sales until the end of May, as well as forecasting an extra £5m of costs due to extra duty and import costs related to Brexit.

Since its last update in February the share price has recovered quite well, rising over 50% on expectations that it will continue to improve its digital platform, while its collaboration with Next has expanded beyond childrenswear, to include lingerie and nightwear.

Today’s full year results have served to paint a bleak picture as far as losses are concerned, however the numbers were still better than expected. Revenue declined 44.2% to £350.2m while losses before tax rose to £107.7m up from a loss of £77.6m in 2020.

The one bright spot was e-commerce sales which rose 22% to £144.9m with e-commerce channels seeing growth of 30.2%. The company also provided an update on current trading and here the pattern was the same with e-commerce the only growth area, with Covid-19 restrictions impacting sales in the UK, Europe and Canada, with Q1 revenue down 19.9%. The outlook appears much more encouraging than was the case in February with ecommerce margins rising 250bps while the deals signed earlier this year in the Middle East with Al-Futtaim, to cover the likes of Qatar, UAE, Bahrain and Saudi Arabia, are expected to offer an additional uplift.

US

US markets have seen a little bit of a mixed open with the Russell 2000 edging higher, while the Dow and S&P500 appear to be underperforming, as US 10-year yields edge backup after last week’s big drop to a three-month low.

Novavax shares jumped to a six week high before slipping back after the company announced its Covid-19 vaccine is 90% effective and that it plans to submit its data to the US FDA in Q3.

The pain has continued today for Lordstown Motors its shares sliding another 17% on the open. Last week the electric vehicle maker reported that it might not be able to continue trading, as it didn’t have enough funding to launch its new electric pick-up truck, Endurance. Today it’s been announced that its CEO Steve Burns and CFO Julio Rodriguez have both stepped down after the board found evidence of inaccurate statements over pre-orders. Having been bought by SPAC DiamondPeak holdings in August with a value of $1.6bn, the proceeds of last year’s deal were supposed to be for the production of the Endurance shares, on the basis of pre-orders valued at $1.4bn. With this figure now in doubt, questions may follow Burns to another one of his company’s, Workhorse Group which has also seen a great deal of volatility in recent weeks.

Ferrari shares have also come under pressure after being downgraded to “sell” by Goldman Sachs over concerns that higher EV transition costs would hit its margins.  

FX

The US dollar has trodden today, ahead of this week's Fed decision. It has had a much firmer tone of late, largely over some concern that while US monetary policy is unlikely to see much in the way of tightening in the short term, there is an acknowledgement that it is probably too loose in the current environment and that we could start to see talk of a tapering of bond purchases before the end of this year, starting this week.

The pound has held up reasonably well given that the next stage of lockdown restrictions isn’t likely to take place as expected next week. That’s possibly as a consequence of an expectation that it is only a temporary setback to help bolster population immunity on the second dose front, before reopening sometime in July. It still seems a big ask that we’ll see restrictions disappear completely, whether it be in two weeks’ time, or in a months’ time.  

Commodities

Brent crude oil prices have hit another two year high today, despite concerns over a possible Delta variant third wave of coronavirus infections. Car vehicle use is starting to return to pre-pandemic use in the US and Canada, while in the UK it already has returned to levels just prior to the pandemic as less people use public transport and use their own vehicles to move around. While this is likely to see higher gasoline demand, this should be offset to some extent by lower demand for aviation fuel due to there being less air travel. Talk of Iranian sanctions being lifted may well be acting as a bit of a headwind, however its unlikely that Iranian capacity will come back fast enough to slow the advance towards $80 a barrel. The IEA also said it expected oil demand to return to pre-pandemic levels before the end of 2022, ahead of previous predictions.

Bitcoin prices have also been on the receiving end of a double lift. Over the weekend Tesla CEO Elon Musk said that the company could allow transactions again if it was mined by way of clean energy methods, while this afternoon the crypto currency got a further lift when legendary investor Paul Tudor Jones said it was a good portfolio diversifier.   

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