Europe
After a disappointing day yesterday the FTSE100 has bounced back buoyed by a recovery in basic resource stocks, and a slide in the value of the pound, while broader European markets have lagged behind as investors stay cautious about political risk in Europe.
A rise in precious metals prices is helping support Randgold Resources (LON:RRS) and Fresnillo (LON:FRES) while a recovery in oil prices is also putting a floor under the oil and gas sector, with BP (LON:BP) also gaining as a result of a broker upgrade.
The weakness of the pound is undoubtedly acting as a tail wind for UK stocks with dividends in 2017 set to come in at record levels, with special dividends also providing a windfall. Almost half of the FTSE100 currently pays a dividend yield in excess of 3%, and while some of these may be vulnerable to a possible downgrade, it’s unlikely they would be cut completely.
Shell (LON:RDSa), BP, HSBC, AstraZeneca, and Rio Tinto (LON:RIO) all report in US dollars, while companies like Vodafone (LON:VOD) and Unilever (LON:ULVR) report in euros, which means they are all decent plays on a global recovery .
It hasn’t been anywhere near as positive for European stocks which have lagged behind as political risk pushes out spread differentials between German bonds and the rest of Europe, ahead of a key French political debate later today.
Today’s retail reports appear to have a common denominator that of higher prices eroding margins.
We’ve seen this in the share price reaction of ASOS (LON:ASOS) which has slid sharply despite the company reporting that international sales are booming, while the company also upped its forecasts.
Revenues rose 37% with sales from mobile devices taking up a good proportion of that revenue growth. The fall in the pound has boosted its international sales, however its UK margins have come under significant pressure due to heavy discounting in order to maintain market share in both domestic and international markets.
While the company remains optimistic about the future and remains well ahead of the curve in terms of its business model and retail offering, the shares have slipped back sharply from last week’s record peaks of 6,130p, and look on course for their third successive daily decline.
For a retail stock, which at the end of last week had seen gains of over 80% over the last 12 months, and despite the positive outlook, investors have decided that in the current environment a lot of the good news may well be already baked in.
In the food retail sector it’s also been a bit of a mixed bag with the release of the latest Kantar grocery market share figures.
Once again it’s clear that rising prices are proving to be a challenge to the big four UK supermarkets as UK consumers continue to shop around. This retail churn rate has seen sales at Sainsbury decline 0.7%, Asda, down 1.8%, and Tesco (LON:TSCO) decline 0.4%.
The winners were the usual suspects of Aldi and Lidl who saw their market shares rise to new highs in the last 12 weeks, but they weren’t alone, with Co-op seeing sales growth of 0.8%, and Waitrose a rise of 0.3%, furthermore Iceland’s move into non frozen food retail has seen its sales growth expand sharply, up 9.8% year on year.
US
US markets opened lower today despite a strong rebound into the close yesterday helped wipe out most of yesterday’s losses.
The latest February trade balance data showed a big improvement on the January numbers of -$48.2bn, coming in at -$43.6bn, as imports of consumer goods and automotive vehicles and parts declined.
On the companies front Caterpillar is likely to be in focus after being added to Goldman’s conviction buy list.
Verizon also announced that it would be combining AOL and Yahoo under a different brand name called “Oath”. I wonder how many PR gurus it took to come up with that one.
On the retail front Staples share price has also gone for a run to the upside on speculation that it might be a target for a buyout.
FX
The weakness of US yields is continuing to benefit the Japanese yen as uncertainty about the deliverability of the new US administrations fiscal plans keeps investors on the sidelines.
The pound has also come under some pressure after a weaker than expected construction PMI number for March showed that housebuilding activity slowed more than anticipated. It still remains solidly in positive territory but a reading of 52.2, on top of a weaker than expected manufacturing number yesterday, suggests that growth in Q1 could well undershoot expectations, especially if tomorrow’s services number also disappoints.
The Australian dollar has also come under pressure after a rather dovish interpretation of the latest RBA rate meeting where rates were left on hold.
Commodities
Gold prices have had another go at pushing against the 200 day MA as continued uncertainty around the direction of US fiscal policy keeps investors cautious.
Oil prices are rebounding despite higher rig counts and the return of Libyan production. There appears to be an expectation that the next lot of inventory data will support OPEC secretary general Barkindo’s assertion that the oil market is slowing coming back to balance and that we will see a fall in US stockpiles when inventory data is released later today and tomorrow.
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