Europe

European markets have been mixed today, with the FTSE100 underperforming, weighed down by weakness in the energy sector, despite today’s continued resilience in the oil price.

We could be seeing an element of profit taking on the likes of Royal Dutch Shell and BP after a decent run of gains and a solid start to the year. Even with today’s declines BP is still up over 17% year to date, and Shell is up 12%. Lloyds and NatWest group are also softer as well.

Also weighing on the UK benchmark is GlaxoSmithKline after Unilever said it wouldn’t be raising its £50bn bid for the company’s consumer healthcare division.

Unilever shares initially bounced higher, after confirming that they wouldn’t be raising their offer for GlaxoSmithKline’s consumer business, drawing a sigh of relief from their shareholders over a concern that they might have been saddled with high levels of debt, or be diluted by a possible fundraising.

Even so this morning’s early gains were short-lived, with shareholders entitled to ask how an attempt to try and boost the profitability of a business that is struggling to boost its margins, has resulted in the shares falling to their worst weekly decline since July last year.   

Primark owner Associated British Foods has seen its shares slide back after reporting a 16% rise in group revenues compared to a year ago.

For the group’s retail operations sales were 36% higher compared to a year ago when all the stores were closed. UK sales were down 10% from pre-pandemic levels, with management confirming that footfall in December was impacted by the Plan B restrictions imposed just before Christmas.

In Europe, the retailer said it expects to see a sales loss of £30m due to the store closures in Austria and the Netherlands.   

The US business showed the biggest improvement with overall sales up 37% from pre-pandemic levels. Total Primark sales were still 5% lower than pre-Covid.

All the other businesses improved on their revenue performance from a year ago, with the exception of Grocery, which saw revenues of £1.2b, down from £1.22bn. Sugar saw a 12% rise in revenues, agriculture a 7% increase, and ingredients, up 6%.

On current trading, costs have been rising, and some of these are being offset by price increases where necessary, while expectations for Q2 Primark sales are expected to be well above last year’s levels, with the outlook for full year revenues and profits unchanged.

The Deliveroo share price has managed a decent rebound off its record lows after reporting a better-than-expected performance in Q4, and confirming full year proforma GTV of 70%, at £6.63bn, at the top end of its updated guidance in Q3 of 60% to 70%.

Ladbrokes and Corals owner Entain shares have underwhelmed despite lifting its full year profits outlook, after a decent performance in Q4. Full year net gaming revenue increased 7%, with the BetMGM business returning NGR of $850m. FY21 EBITDA now expected to come in between £875m and £885m     

US

US markets have opened higher, with the Nasdaq 100 leading the rebound higher as it rebounds off its 200-day MA, after closing at three-month lows yesterday.

US weekly jobless claims unexpectedly rose to a three-month high of 286k last week, while continuing claims also edged higher to 1.63m, edging higher after hitting their lowest levels since 1973.

On the earnings front American Airlines Q4 numbers have seen the airline report a loss of $931m as a result of the travel disruption over the quarter caused by the Omicron variant, and other travel disruptions. For Q1 the outlook does look better, however total revenue is still expected to be over 20% lower compared to the levels it was pre-pandemic

Netflix is set to report Q4 numbers after the close, amidst expectations of an increase in revenues to $7.7bn, against a backdrop of a slowing in user growth numbers, and a reduction in margins from 23.5% to 6.5% due to higher spending on content. Profits are expected to fall back to $0.80c a share.    

FX

The US dollar has found itself under pressure against the commodity currencies again, although the strength of the Australian dollar may well have more to do with the fact that the unemployment rate fell sharply from 4.6% to 4.2% in December, with strong gains in both full time and part time employment. The strength of the rebound, along with rising inflation expectations, could mean the RBA may well have to shift its time horizon when it comes to rate hikes.

The euro has underperformed after ECB President Christine Lagarde rejected calls for the central bank to take faster action on rising inflation, after December CPI was confirmed at a record high of 5%. She continued to peddle the line that the recovery in the EU was behind that of the US and as such there was no urgency. This rather ignores the fact that the Fed is being heavily criticised for being behind the curve, and this morning’s PPI numbers from Germany that saw PPI rise by 5% on a month-on-month basis, and by 24.2% on an annualised basis. Unfortunately, the ECB is in a trap of its own making when it comes to rates over concerns about keeping a lid on the borrowing costs of heavily indebted governments who can ill afford higher yields.     

Commodities

Oil prices continue to look buoyant, as the predictions for a move towards $100 a barrel in the coming weeks get ever louder. With the UK dropping recent covid restrictions, expectations over demand as we head into the spring have continued to rise, while supply chain constraints serve to limit the downside.

After three days of strong gains silver prices are closing in the 200-day MA which has capped its gains since August last year, with a break higher potentially targeting a move towards $26. Platinum prices are also acting in a similar fashion, threatening to take out the down trend that has been in place since last year's peaks in February 2021.

Gold prices have broken through the $1,830 level, helped by the pullback in US 10 year yields over the past couple of days, and a slightly weaker US dollar.   

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