WEEKLY FAYRE – Tuesday, 4th May 2021

May 4, 2021

“Nay, nay, sweet England, do not grieve!
Not one of these poor men who died
But did within his soul believe
That death for thee was glorified.

Ever they watched it hovering near
That mystery 'yond thought to plumb,
Perchance sometimes in loathèd fear
They heard cold Danger whisper, Come! —

Heard and obeyed. O, if thou weep
Such courage and honour, beauty, care,
Be it for joy that those who sleep
Only thy joy could share.”

“How Sleep the Brave”

 

Sir Walter de la Mare – poet - 1876-1956

 

 

Saturday’s 2000 Guineas run on Newmarket’s Rowley mile looked a very open affair and so it proved to be, without a Coolmore ‘hot pot’ in the first three home! Punters ignore 79-year-old Jim Bolger’s credentials at their peril. He rarely raids Newmarket for the good of his health and Saturday proved to be no exception. His ‘Poetic Flare’, the son of ‘Dawn Approach’ won in good style at 16/1, ridden by his 54-year-old son-in-law, Kevin Manning.

For Sunday’s 1000 Guineas, it was back to business as usual. However, it was Coolmore’s second string filly, ‘Mother Earth’, ridden by 50-year-old Frankie Dettori, who ran out a comfortable winner to give Aiden O’Brien his third 1000 Guineas winner.

Last week’s European Champions League semi-final between PSG and Manchester City, was for me, the ultimate football match – divine excellence! - What a game of football! - superb! – Mahrez, Gundogan, de Bruyne, Foden, Stones & Silva were all very special. Neymar was a little bit ‘Jekyll & Hyde’ by his own very high standards. Mbappe was unaccountably innocuous! PSG 1 -2 Man City. Today’s second leg at the Etihad promises to be a night to remember!

Sadly, the runes in the sand for Fulham to survive relegation from the Premiership, after their 2-0 defeat to Chelsea, do not look encouraging.

 

INDEX

26th April 2021

30th April 2021

% Loss/Gain

FTSE

6938

6969

+0.45%

DAX

15297

15135

-1.06%

CAC40

6256

6269

+0.21%

DJIA

34044

33874

-0.50%

S&P 500

4185

4181

-0.01%

NASDAQ

14052

13962

-0.64%

SHANGHAI

3484

3446

-1.09%

HANG SENG

29106

28724

-1.31%

NIKKEI 225

28939

28812

-0.44%

 

 

Last week, the Street of Dreams seem to have been provided with all the trappings in terms of encouragement that it could possibly have wanted, for investors to select another gear. FED Chairman, Jay Powell was placatory in his comments after the FOMC Meeting on Wednesday. He discouraged the possibility of any hike in rates in the foreseeable future, despite inflationary concerns later in the year, which could go ‘hand-in-hand’ with the economic recovery process. Technology chips remain in short supply and global transportation costs have risen almost perpendicularly. Initial Jobless Claims are starting to fall with only 557k workers applying for benefits last week. US GDP for the first quarter came in at a mouth-watering 6.4%, significantly ahead of expectations. The vaccine programme is now ‘under a wet sail’, with the mortality rate across all states declining measurably.

The earnings season in the last few days has produced very good earnings, with the likes of Amazon, Apple, Alphabet, Microsoft, Exxon Mobil, and Chevron excelling. Factset informed markets that by 23rd April 2021 84% of S&P 500 companies have reported a positive EPS surprise and 77% of S&P 500 companies have reported a positive revenue surprise. If 84% is the final percentage, it will tie the mark for the highest percentage of S&P 500 companies reporting a positive EPS surprise since FactSet began tracking this metric in 2008. It seems unlikely to many observers that this kind of recovery performance by global equity markets can be sustained.

What could go wrong, investors were asking? Why might they desist from ‘backing up the truck and filling their boots’? Well, there are three imponderables, which bother the cynical investor on Wall Street. Valuations, triggered by a massive bounce since 23rd March 2021, are starting to look very frothy, especially some of the NASDAQ constituent stocks. Bond yields continue to ‘tick up’, despite FED conciliatory comments. Finally, there was President Biden, speaking to Congress with Vice President Harris and House Leader Pelosi in close attendance, both wearing huge ‘Giaconda smiles’, asking the ‘House’ to agree to an eye-watering $4 trillion spending package to help the recovery, with infrastructure, health, and education to the fore! Could this be a bridge too far, investors ruminated? Unsurprisingly against this climate there was evidence of some risk being taken off the table. In fairness the S&P 500 was all but unchanged at the end of the week, but the mood was not as ebullient, as it had been. Panmure Gordon’s Chief Economist, Simon French, offers a considered opinion that US public spending – should it be approved – will be a significant boost for the US growth outlook. Chinks of doubt as to the sustainability of equity values started to appear in Asia and in parts of Europe last week. Also, it should not be forgotten that the pandemic may still have unfinished business.

The FT reported on Friday that the eurozone slid into a double-dip recession in the first three months of this year as output dropped under the weight of coronavirus lockdown measures, leaving the bloc ‘lagging behind’ other major economies. The 0.6 per cent quarter-on-quarter decline in gross domestic product followed a contraction of 0.7 per cent in the final three months of 2020, plunging the single-currency zone into a technical recession — defined as two consecutive quarters of negative growth. Output in Germany, Spain and Italy fell in the first quarter, though France made a bit of a fist in attempting to rebound. In the UK, car production was encouraging, with the number of cars built in the UK having increased for the first time after 18 months of decline. The SMMT reported that 115,498 cars were built in March, 46% more than the same month a year ago. In March 2020, after only 78,767 cars had factory gates that month.

We are expecting quite an explosive reaction from the UK economy to fuel GDP. Some estimates for 2021 have been increased above 6%. However, there are a couple of niggling issues – retail and hospitality. One in every seven shops is expected to remain closed, as consumers’ focus is now very much ‘on-line.’ Also, restaurants and bars are expected to have difficulty in staffing their operations. In London, it is thought that as many as 10,000 hospitality workers have gone home, due to the lack of support from the Government and the prevailing uncertainty.

The floodgates opened for the US earnings season. Amazon saw sales surge by 44% totalling $108.52 billion for the quarter. Subscribers to Amazon Prime totalled 200 million up 50 million from a year ago. Apple also excelled with sales up 54% for the last quarter with revenues of $89.5 billion. Sales of iPhones were up 65%. Alphabet experienced a 34% increase in revenues with YouTube ‘ads’ growing by nearly 50%, Google Cloud revenue was up 46% to over $4 billion. Earnings from Microsoft and Facebook also caught the eye, as did Tesla, with revenues coming in at $438 million – up 74%. Tesla expects to deliver 750,000 vehicles – 50% improvement on the previous year. Twitter was a rare laggard. Revenue came in at $1.04 billion (+28%) for the last quarter. However, subscriber numbers – up just 7 million to 199 million fell short. The stock was taken down 11% on Thursday after hours. Sadly, Boeing posted its sixth consecutive quarterly loss. Conversely, it was good to see Exxon Mobil and Chevron come back in to the ‘black’ with a vengeance.

European bank earnings took pride of place last week. Deutsche Bank produced a profit of €1.6 billion – an unusual occurrence in recent years, with Paribas, Santander and UBS also making good profits in the last quarter, much of it due to exceptional investment banking contributions. UBS did of course have to make a provision of $774 million for an injudicious loan to Archegos. The market also heard from HSBC (pre-tax profit $4.6 billion +82% on 2020 quarter), Lloyds (pre-tax profit £1.39 billion, up from £74 million in 2020), Barclays (pre-tax profit £2.4 billion) and NatWest (Pre-tax profit £948 million). Year to date their respective share prices have rallied by 22%, 36%, 22% and 24%. Banking for some years, almost since the 2008/9 credit crisis, has been such a disappointing sector for investors, until the turn of this year. With Covid-19 starting to dissipate in Europe, the improving economic outlook has attracted investors. Though very committed to China, HSBC posted a $1 billion profit in the UK. Lloyds Banking lacks a variety of products but is the largest lender to the housing market, which is currently standing it in good stead. Barclays excelled in investment banking, but the market was disappointed that UK banking had seen revenues drift by 8% in its last set of numbers. Investors took the shares down 7% on Friday, even though Barclays CEO Jes Staley was very upbeat about the UK’s economic recovery. It is possible that Mr Staley may stay on beyond 2021 as CEO, which will keep Edward Bramson frustrated in his quest to force the ‘Bald Eagle’ to cut back its investment banking presence.

Investors were also cheered by significantly improved earnings from the FTSE 100 energy giants – BP and Royal Dutch Shell. The rising price of oil was the catalyst, but the measurable cut in their respective debt was also greatly appreciated. BP’s shares have risen 19% year to date and Shell by a rather parsimonious 4%. J Sainsbury saw full-year operating profits down by 39% at $356m, despite like for like sales being up by 8.1%. There was a charge for Argos and costs caused by the pandemic had increased. Persimmon and Taylor Wimpey also produced creditable efforts. Unilever posted underlying sales growth of 5.7% on sales of £12.3 billion – a splendid effort in current conditions. After a tricky start to the year shares are up 13% in the last two months. In the past year Whitbread posted a loss of £1 billion, courtesy of the pandemic, with sales especially associated with Premier Inns down 70%.

Investors must not judge Astra Zeneca earnings, announced last Thursday, in isolation, despite sales being up 15%. This brilliant company, run by Pascal Soriot has devoted much of its resources in attempting to save humanity with Covid-19 jab (no profit). Regrettably, parts of EU do not appreciate the situation and are suing. This is a very sad ‘state of affairs.’ The outlook remains very positive, Sadly the same cannot be guaranteed for Glaxo SmithKline. GSK’s CEO Emma Walmesley is under attack by Elliott Management, which has taken a large minority stake in GSK, for failing to deliver on strategy, earnings and consequently share price. Dame Emma is fighting her corner ferociously as the drug giant comes to terms with its diagnostic and vaccine division, drug, and healthcare operation. Health care is due to be sold off later this year. GSK’s share price performance in the last 5 years has been pitiful – down 7%.

Since Lord Livingstone’s stewardship at BT Group in 2016, the telecom operator’s share price has fallen from 460p to 165p on Friday, having been as low as 98p in October of last year. BT’s sortie into sport has cost £9 billion and the return has been limited. It has also damaged the earnings of its core business and BT has underperformed with its Wifi and broadband operations, which the country is so reliant on. CEO Philip Jansen and the board have agreed to sell BT Sport. ITV are favourites to buy it, though it might be folly to rule out Amazon and maybe Apple. Nestle served notice to close its factory in Newcastle, which may cost 600 jobs, focusing its production of confectionary in York and Halifax.

Darktrace’s IPO looks to have been a great success. The Cambridge-based cyber security operation saw its share price rally 30% to 330p in conditional trading on Friday, ahead of unconditional operations commencing this week. The share price was cut to 250p, dropping the value of the company by £1 billion. Mike Lynch remains a director and shareholder despite his possible forthcoming extradition to the US to face fraud charge allegations, which he vehemently denies.

As for investment regulatory requirements, it is understood that the UK is looking to axe MiFID II research and best ex reporting rules. A feasibility consultation has been set up to investigate the practicalities of this proposed initiative.

UK companies posting interim results this week – Wednesday – Virgin Money, Direct Line, Thursday – Barratt Development, Mondi, Aviva, BAE Systems, Costain, Genel Energy, IMI, Invidior, Melrose, Morgan Siddall, Rathbone, Reach, Friday – Numis, Intercontinental Hotels, IAG

US Companies posting interim results this week – Monday – Loew’s, Estee Lauder, Tuesday – Bunge, Caesar’s Entertainment, MetLife, Pfizer, Zimmer, Warner Music, Hyatt Hotels, Dupont, Wednesday – ADT, Barrick Gold, PayPal, Uber Technologies, Thursday – Liberty Global, Moderna, Peloton, Square, Friday – Cigna, Johnson Outdoors

Economic data to be posted this coming week – Tuesday – UK Mortgage Approvals, UK PMI Manufacturing, UK Consumer Credit, US Factory Orders, Wednesday – EU PMI Composite & Services, EU PPI, US MBA Mortgage Applications, US PMI Composite & Services, US ISM Services, US Crude Oil Inventories, Thursday – RICS Housing Survey, US PMI Services, BoE MPC Meeting, EU Retail Sales, US Jobless Claims, Friday – UK PMI Construction, US Consumer Credit, US Wholesale Inventories, US Non-farm Payrolls (EST: +780k), US Unemployment rate (EST: 6%)