Quiet start for European stocks, Warner and Discovery set to take on Netflix

Europe

It’s been a cautious and subdued start to the week for markets in Europe, on disappointment over the latest China data, and new restrictions being imposed in parts of Asia prompting a little bit of caution amongst global investors.

With the UK embarking on the next stage of its economic reopening, travel and leisure stocks have had a disappointing day with the likes of EasyJet and IAG slipping back, along with Ryanair shares after the airline posted a record annual loss.

An annual loss of €815m, wasn’t all that surprising given that revenues and passenger numbers fell 81% from a year ago. Revenues came in at €1.64bn, as passengers fell to 27.5m. On the plus side revenue per passenger rose to €22 due to higher spends on the likes of priority boarding and reserved seating.

On the outlook Ryanair expects to see traffic volume to be in the region of between 5m and 6m in Q1, with no guidance offered for the rest of the year, apart from the previously ascribed range that full year traffic is likely to be between 80m and 120m passengers. The airline also said they expected the current fiscal year to come close to breakeven, assuming an easing of travel restrictions in time for July, August and September.

Other areas where we’ve seen declines are in the likes of Hollywood Bowl, Premier Inn owner Whitbread, pub chain JD Wetherspoon and Wagamama’s owner Restaurant Group, as rising cases of the Indian variant, raise concerns that the full relaxation in June might get pushed back.

House builder Vistry Group has seen a decent start to the year, with strong demand across all areas of its business, helping to push the shares to 14-month highs. The company said it is well on track to deliver 6,500 completions in the current year, as it looks to deliver a FY22 target of £1bn in revenue. Profit expectations for the current fiscal year have also been upgraded to £325m from the previous £310m, with forward sales now at £2.7bn.  

Asia focussed banks HSBC and Standard Chartered have slipped back due to uncertainty over the tighter restrictions being imposed in Singapore and Taiwan as well as disappointment over weaker than expected China retail sales numbers for April.

Rolls Royce shares are also under pressure over concern that its flying hours guidance form last week looks a little on the optimistic side. On the plus side the company signed a deal last week with the US Navy to supply its MTU naval generator sets to the Constellation class frigate programme, which includes the option of up to 10 ships in phase one.

US

US markets have started the week on the back foot, weighed down by this morning’s weakness in European markets.

On a more positive note, the main focus has been on this morning’s big M&A deal between AT&T and Discovery, which has seen the respective share prices of both move higher, with Discovery seeing big gains back towards its April peaks. 

AT&T today confirmed a deal with Discovery to merge its Warner media assets, which it paid $85bn for a few years ago, with AT&T only getting $43bn back of that money back, though it will still retain a 71% stake in the combined business.

That’s still quite a write-down over 3 years, but nonetheless offers the prospect of creating another big player in the streaming space to take the fight to Netflix, Amazon and Disney. The deal which merges Warner Brothers, HBO and CNN, with Discovery would be yet another consolidation in a sector that has seen the likes of Sky bought by Comcast, while Disney has also moved into the sector with its Disney+ offering, while also owning Hulu and ESPN.

It also means that the newly merged business will have a laser focus on optimising its streaming output without the distraction of running a telecoms business, which is AT&T’s speciality.

This move by AT&T could well be another headache to the likes of Netflix and Amazon Prime who still remain the leaders in this space, but where the gap is closing rapidly, with Discovery and WarnerMedia having joint revenues of around $41bn.  

This morning’s deal has a termination clause of $1.8bn which puts in a high bar to anyone else looking to muscle in on the action.

On the flip side of the deal, both Comcast and Netflix shares have slipped lower.  

Tesla shares are also slightly softer on speculation, subsequently denied by CEO Elon Musk that the company has sold its bitcoin holdings.  

Coinbase shares are also lower, falling below the $250 indicative price of its initial direct listing to a new post IPO low below $240.    

FX

It’s been a fairly uneventful day on FX markets today with little in the way of drivers in either direction. Weakness in the commodity sector is weighing on the likes of the Australian and New Zealand dollar.

The pound has barely moved all day, as we look ahead to a host of data points later this week, starting tomorrow with the March unemployment numbers, followed by April CPI on Wednesday and retail sales on Friday.

Commodities

Bitcoin has seen a sharp slide below $50k on weekend reports, subsequently denied that Tesla had sold its holdings in the crypto currency. Ethereum is also sharply lower as in the short term crypto falls out of favour.

Gold prices have hit their highest levels in four months, edging above the 200-day MA, however to make further progress it really needs to push above the $1,865 area, and trend line resistance from the record highs back in August last year.

Crude oil prices are marginally higher, on hopes that large parts of Europe will soon be able to follow the UK on easing restrictions further, thus driving up demand over the next few weeks.