UK stocks slip back ahead of next week’s lockdown easing

Europe

It’s been a solid week for UK stock markets with the FTSE250 making new record highs, while the FTSE100 managed to move above its early year peaks that we saw in January. 

Today’s price action has seen a fairly low-key end to the week, characterised by some light profit taking ahead of the weekend, as the UK gears up for the reopening of non-essential retail stores, and pubs and restaurants outdoors next week.

We’ve some modest weakness in travel and leisure stocks as it becomes apparent that a return to normal travel wise is likely to face significant barriers in the short term. The announcement of a new traffic light system for overseas travel which is set to start in May will in all likelihood mean that anyone contemplating a holiday in Europe may well not be able to do so, due to the low vaccination rates there. 

As things stand now the only countries on the green list are Israel, with the likes of France, Italy and Spain well short of being added. While being on the green list is preferable that doesn’t mean that there won’t be associated costs in order to travel. Travelling abroad will still require a negative test before you leave, and another test on the return to the UK. 

Countries on an amber list will require returning passengers to quarantine for 10 days, as well as be subject to testing.   

TUI shares have come under pressure after announcing a new convertible bond offering, while the new UK government traffic light system on overseas travel probably hasn’t helped either, due to placing additional obstacles to overseas travel.

Mike Ashley’s Frasers Group this morning announced that it was setting aside another £200m in relation to further impairments to its real estate portfolio, due to what it perceived was the risk of further restrictions being imposed in the coming months.   

The pain has continued for Deliveroo shareholders, with another decline to new lows to round off its first full week of trading. The shares are now down over 30% from its listing price.

Housebuilders are amongst the best performers today after the latest Halifax house price survey showed that annualised prices rose by 6.5% in February. The extension of the stamp duty holiday is likely to keep the markets buoyant in the short to medium term, with the likes of Persimmon, Taylor Wimpey and Barratt Developments leading the gainers.

JD Sports is also higher ahead of next week's full year numbers, after having its price target upgraded to 1,100p by Berenberg, over 15% above its current level.

US

Having set another record high yesterday the S&P500 and other US markets slipped back slightly on the open, after US March PPI came in slightly hotter than expected at 4.2%. Coming on the back of this morning’s slightly hotter than expected Chinese PPI numbers, we’ve seen US 10-year yields edge back up again, reversing the move lower we saw yesterday.

This rise in yields still hasn’t prevented the S&P500 from pulling off its opening lows to push above 4,100 to record yet another record high, as well as record week. While the S&P500 has maintained its resilience, the Nasdaq has drifted back, in line with the rebound in yields.

These worries over whether we are starting to see inflationary pressures starting to build is now morphing into concern over whether any increase in price pressures will be transitory or not. It's an argument that rather misses the point given that any rise in inflation needs to be put in the context of wages, and if wages don’t rise at the same time then consumers' disposable income will shrink. It is therefore anything but transitory. The big test will be how bond markets react next week if we get a big jump in US CPI and retail sales next week.

Levi Strauss posted a better-than-expected set of Q1 numbers which showed that sales declined quite sharply at the start of the year, but were boosted by on-line sales, helping to push the shares higher in early trade. The decline in sales really shouldn’t too surprising given that most retail stores in Europe have been closed, however the company did raise its outlook for sales and profits, for the rest of the year, with CEO Chip Bergh optimistic that an economic reopening will see a resurgence in sales and spending on the part of consumers.

Boeing shares opened lower after it reported that it was grounding a number of 737-MAX aircraft over some newly identified electrical issues. 

FX

The Canadian dollar has been the best performer today after the latest payrolls report showed that 303.1k new jobs were added in March, with 175.4k of those being full time. More importantly the unemployment rate dropped sharply from 8.2% to 7.5%, while the participation rate rose to 65.2%, from 64.7%. On all key metrics the numbers beat expectations showing that the Canadian economy, just like the US is undergoing a significant rebound as we head into the spring months.  

The US dollar has stabilised somewhat at the end of what is still expected to be a negative week, with the pound the only other currency that has declined more over the course of the last five days. Maybe the weakness in the pound goes some way to helping explain why the FTSE100 and FTSE250 have also done so well this week.    

Commodities

After several days of gains on the back of falling US treasury yields, gold prices have slipped back, after strong factory gate prices from China and the US, pulled US 10 year yields off their lows, and in the process knocked gold prices back down. The 50-day MA appears to be acting as a minor resistance for gold at the moment, along with the fact that the $1,760 level was a key support level back in February, and is now acting as resistance.

Crude oil prices are also on the back foot as it looks to close lower on the week against a backdrop of a slow increase in supply, against concerns about the demand outlook in Europe, as governments face a race against time as they accelerate their vaccination programs against a backdrop of rising infection rates.