Wise IPO: everything you need to know

Equities
IPO

Fintech firm Wise is planning its initial public offering. No date has been set yet, but with the original May deadline now passed, observers think the IPO is coming very soon. Here’s what to watch out for. 

Wise IPO: what to watch 

What is Wise? 

Previously known as TransferWise, Wise is an online money transferring service. The company was founded in London by Estonians Taavet Hinkirus and Kristo Käärmann in 2010 and has since expanded considerably.  

Wise allows customers to send money abroad at real mid-market exchange rates, as opposed to higher bank-transfer rates, plus low fees. 

As an example, Wise charges less than $8 in fees for sending $1,000 to Europe. Going via a bank would cost $26. This is done on a peer-to-peer basis.  

February’s rebranding away from TransferWise lets us see where Wise wants to go. It is no longer just for money transfers.  

Wise now offers a multi-currency account, designed to make it easier for people to relocate and let them pay with local currencies when ordering goods online, alongside a debit card service.  

How is Wise performing financially? 

As of 2020, Wise’s revenues were totalling $300m annually, with a 70% year-on-year growth rate. It boasts over 10 million customers worldwide and employs around 2,200 workers in 11 countries.  

Ahead of the IPO, Wise is valued at an estimated $5bn – but the float may take its valuation as high as £9bn according to some of the more over-optimistic forecasts. 

Looking at financials, Wise appears very healthy. 

Its pre-tax profit for the financial year ended March 2020 to £20m from £10m in 2019. As mentioned above, revenues also jumped 70% between 2019 and 2020.  

Profitability within the tough challenger bank and money transfer spheres suggest Wise’s upper management is pursuing a successful strategy. Impressive y-o-y revenue growth and an expanding customer base reinforce this. 

Because Wise straddles two worlds, challenger banks and money transferring, it has a variety of competitors. In terms of money transfers, Western Union, MoneyGram, WorldRemit, Remitly, and PayPal are Wise’s chief rivals. In the alternate challenger banking space, Wise’s competitors include Monzo, Revolut and Starling Bank. 

Against its rivals, Wise has been praised for the transparency of its fees structure. Offering true mid-market exchange rates is also a big selling point for the brand, reflected in the growing volume of transactions handled by the firm. Wise processed £67bn worth of customer payments in 2020 – nearly double 2019’s £36bn. 

Where will Wise be listed? 

Wise is likely to go public via a direct listing on the London Stock Exchange. This is something of a coup for the LSE, as it could imply incoming rules changes, such as the introduction of a dual-class share structure and lower float requirements, are enticing more tech firms to list in London.  

The London-listing Wise is pursuing will be one of the largest European tech listings since Spotify went public in 2018. 

A direct listing means Wise will be offering shares via the London Stock Exchange without the need for any intermediaries. There are several potential reasons why Wise is pursuing such a strategy. Wise could be looking to avoid share dilution, for example, or might be wanting to avoid lock-up periods. It may be a money-saving move too, as direct listings tend to be cheaper than IPOs. 

Commentators believe Wise could be pursuing a dual-class share strategy – something that has proven unpopular on other London tech listings, such as Deliveroo. Will it prove the same for Wise? 

When will the Wise IPO go live? 

As touched on earlier, the original May 2021 IPO deadline has passed. Even so, the market is expecting Wise to go live on the London Stock Exchange very soon. 

Open your account to start trading Wise IPO CFDs as soon as they go live. 

Trading carries risk of capital loss. Only start trading if you are comfortable taking any potential losses. 

Silver-tongued Redditors drive up prices

Morning Note
  • Silver jumps on Reddit interest
  • European shares rally
  • Fresnillo lead silver miners higher

We’re not in Kansas anymore: Silver prices jumped to 8-year highs as investor interest turned on the metal due to expectations Reddit traders will attempt to squeeze prices higher. Retail traders are herding into silver in the same way they have driven the likes of GameStop over the last week. Prices gapped up from Friday’s settlement at $26.914 to north of $28 and quickly cleared out the daily resistance from the Sep 1st high at $28.91 and then kicked on to $30 by the start of the European session. At send time spot silver was trading +9% around $29.70. That’s about 20% since Thursday and there is clear divergence from gold, which has remained range-bound at $1,865. Could gold be next? I doubt it, but we live in interesting times. What we don’t know is exactly how this is happening – clearing out of shorts by worried hedge funds, retail-driven bid, ETFs flows driving the physical market, smart-money front-running the trade, or a combination of all these.

APMEX released a statement saying it has seen a “dramatic shift” in silver demand in recent days. The US bullion broker said: “For example, the ratio of ounces sold per day was running about two times earlier in the week and closer to four times the average demand by the end of the week. Once markets closed on Friday, we saw demand hit as much as six times a typical business day and more than 12 times a normal weekend day. Combined with the extremely high demand levels, we are also seeing a surge in new customers. On Saturday alone, we added as many new customers as we usually add in a week.”

The fact that such a large and liquid market as silver can be targeted by retail investors says much about the shift we are witnessing., though despite appearances this morning it’s going to a lot harder to squeeze silver shorts as the market is so much deeper and more liquid. We should also note that some bigger smart money may have be front-running this trade to piggyback the rally and further fuelling the move up. (George Soros: “When I see a bubble forming, I rush in to buy, adding fuel to the fire.”) Targeting physically backed ETFs like SLV may be smart, as it will drive physical demand and push up spot prices perhaps more acutely than just by trading futures. I would reiterate that this kind of herding to coordinate a squeeze up is risky and likely to create a bubble that will hurt more than helps on the way down. Whether GameStop or silver, these are purely speculative bubbles that rely on the Greater Fool to keep it going. Examples of these manias litter the history of financial markets: it’s just the same, only in a different wrapping.

Fresnillo, the silver miner, saw its share jump 15% in early trade as a result of the squeeze on the underlying price. Polymetal rallied 6%, whilst Hochschild rose 13%. Tiny Australia-listed Argent rose 60%. Watch the likes of Canada’s Pan American Silver and Fortuna Silver Mines later. BlackRock  iShares Silver Trust (SLV) saw a stunning $944 million net inflow on Friday.

GameStop meanwhile opened up more than 30% in Frankfurt having closed up over 67% on Friday in New York to $325. AMC Entertainment finished 53% higher at $13.26. Both will be open for trading at 14:30 when the US cash markets open.

European stock markets were broadly higher on Monday morning as investors try to arrest a decline over the last fortnight that has wiped out YTD gains made during the first week of January. Wall Street had a tough session on Friday, closing down by around 2%. Meanwhile we have a coup d’etat in Myanmar, strife in Chinese repo markets and a raging pandemic to deal with. This week the focus is on the Bank of England, Alphabet and Amazon earnings, and US nonfarm payrolls.

Chart: Silver gap open, backing off at $30

Silver gap open, backing off at $30

What are the top Nasdaq stocks of 2020?

Indices

November saw a spectacular rally in global equity markets on hopes vaccines will see a return to normality next year. The big theme of the month was the rotation from Growth to Value, with the Russell 2000 small cap index notching its best ever month. The FTSE 100 enjoyed its best month in 31 years and Europe’s Stoxx 600 rose the most in a single month since records began in 1986.

But it’s just worth a little reminder that as far as year-to-date gains go, it’s a story of tech and growth over value, energy and financials. The Nasdaq 100 is up 40% YTD, whilst the FTSE 100 is down 15%.

Here are the top stocks of 2020 on the Nasdaq 100.

YTD
NDX 40.48
  Moderna Inc 680.88
  Zoom Video Communications Inc 603.06
  Tesla Inc 578.41
  Pinduoduo Inc 267.03
  DocuSign Inc 207.49
  Mercadolibre Inc 171.59
  JD.Com Inc 142.27
  NVIDIA Corp 127.82
  Advanced Micro Devices Inc 102.05
  PayPal Holdings Inc 97.95
  IDEXX Laboratories Inc 76.53
  Align Technology Inc 72.48
  Amazon.com Inc 71.45
  T-Mobile US Inc 69.52
  Cadence Design Systems Inc 67.68
  Qualcomm Inc 66.8
  Synopsys Inc 63.43
  Apple Inc 62.17
  Lululemon Athletica Inc 59.8
  Lam Research Corp 54.81
  Autodesk Inc 52.75
  Netflix Inc 51.65
  Seagen Inc 49.05
  Xilinx Inc 48.87
  ASML Holding NV 47.91
  Take-Two Interactive Software Inc 47.44
  NetEase Inc 47.36
  DexCom Inc 46.15
  Adobe Inc 45.07
  KLA Corp 41.42
  eBay Inc 39.66
  Regeneron Pharmaceuticals Inc 37.43
  Workday Inc 36.69
  Splunk Inc 36.33
  Microsoft Corp 35.75
  Applied Materials Inc 35.12
  Maxim Integrated Products Inc 35
  Facebook Inc 34.94
  Charter Communications Inc 34.41
  Intuit Inc 34.39
  Fastenal Co 33.83
  Activision Blizzard Inc 33.76
  Monster Beverage Corp 33.41
  Costco Wholesale Corp 33.29

Source: Reuters Eikon, Dec 1st 2020

Markets at a crossroads

Morning Note

European markets were mixed as investors figure out what to do next after the exuberant vaccine-induced rally and following a soft session on Wall Street.

Central bankers warned that a vaccine was not enough to end all the economic challenges, whilst oil fell after a big build in crude stockpiles. The dollar was steady as US 10-year yields declined to 0.88%.

The FTSE 100 dipped under 6,300 and the DAX struggled to hold 13,000. Energy and financials were the weakest, with tech, utilities and healthcare strongest in early trade as investors took a more risk-averse approach.

Yesterday the S&P 500 and Dow Jones both fell 1%.

Whilst there is great hope for next year because of the vaccine, we are from out of the worst of the pandemic – US cases are surging at record levels and lockdown measures persist in Europe.

Airlines and travel fell sharply as profits were taken after some very large moves this week. The question for investors is whether they think there are enough incremental buyers on the sidelines to drive markets higher. The question is really one for the bond market – the wall of cash sitting idle will be deployed if rates stay low and go even lower.

WTI crude oil (Dec) declined to $40 after an unexpectedly large build in crude oil inventories. The EIA said crude stocks rose by 4.3m barrels in the week ended Nov 6th, at odds with the 5.1m barrel draw reported by the API. Shutdowns created by the pandemic are problematic for assessing oil demand and we note that industry groups have revised their demand forecasts down lately, signalling that it won’t be back to normal at least until the second half of 2021.

Donald Trump has taken a step back from stimulus talks, leaving it to Congress as he fights the election monitors. With Republicans arguing for $800bn and Democrats chasing $2.4tn it’s not likely that they will agree anything immediately.

Meanwhile, the president signed an executive order banning American investments in Chinese companies linked to the government or military. Shares in China Mobile, China Telecom and Hikvision fell.

Gold is steady around the $1,880 level and whilst support around $1,850 is there, we may see a deeper correction before prices can start to regain their all-time highs. Goldman has a note out today saying gold can hit $2,300 next year on the reflation angle as real yields get pushed deeper into negative territory.

Gold is steady around the $1,880 level.

FTSE and sterling wobble despite GDP bump, ITV sees improving ad revenues

Morning Note

Some payback and a bit of mean reversion: European equity markets slipped in early trade on Thursday as investors trimmed bets on the reopening trade.

The FTSE 100 declined around 1% at one stage but 6,300 held, whilst the DAX was holding onto 13,000. In the earlier session, the Nasdaq and S&P 500 rose and the Dow and Russell 2000 slipped a touch as investors switched back to some tech stocks – a pause in the rotation trade if you like with value handing back something to growth/momentum.

The dollar has firmed up this week, sending the euro and sterling off their highs, but the greenback was a touch softer in early trade today. WTI broke the 41.50 resistance to briefly touch a 2-month high at $43 but pulled back to the $41.50 region where the past resistance may form support.

The UK economy grew 15.5% in the third quarter as since stalled reopening of the economy saw spending and activity bounce back between July and September.

Nevertheless, the economy remains 9.7% smaller than it was before the pandemic and the November lockdown will smash the Q4 recovery.

Crucially it looks like we are not recovering as quickly as peers. A vaccine cannot come soon enough for the British economy – and for those cyclical components of the market that rely on broad economic activity returning. The good news is that the second wave appears to be cresting in Europe as lockdowns reduce the rate of increase in new cases.

Maybe Christmas won’t be cancelled.

Shares in Moderna, a US biotech company working on a similar MRNA vaccine to that developed by Pfizer, rose over 8% as expectations for its efficacy grew. Pfizer and Biontech’s vaccine was shown to be 90% effective in phase three trials. Dr Fauci said he would not be surprised to see “a similar degree of efficacy” for Moderna’s vaccine. In a statement on Wednesday Moderna said it has enough data accumulated to report on the vaccine by the end of the month.

Sterling is on the hook to a couple of pressures. Brexit talks rumble on with various sources indicating there won’t be anything until next week. The Irish PM says talks have intensified but I’m not really sure what that is supposed to mean given the proximity to the deadline. Anyway, looks like more of the same political grandstanding and posturing.

But don’t expect a breakthrough this week.

Meanwhile, negative rates hover over sterling like a spectre, but Bank of England governor Bailey said this morning that he does not have a date in mind for negative rates review outcome. In other words, it’s in the toolkit but he’s got no plans to go down that way for now.

GBPUSD retreated under 1.32 having touch a more than two-month high yesterday above 1.33.

We’ll be hearing from Bailey and his ECB and Fed counterparts Lagarde and Powell later on today as the three participate in a panel discussion at the ECB Forum on Central Banking. Riveting stuff. US initial and continuing claims due up this afternoon along with CPI inflation numbers.

ITV was trading lower after it reported a 16% drop in revenues for the nine months YTD with Studios –19% and Broadcast –13%.

Whilst it is seeing encouraging trends heading into Christmas, the outlook remains very tough both from a cyclical and structural perspective. Share of viewing was down 4%, which management blame on the volume of BBC news output – all those Witty-BoJo pressers gobbling up viewer attention for nothing.

Online viewing was down 6% with no Love Island. Maybe ITV could get Johnson and Witty and Valance and Sturgeon to do a Covid Island Special next year?

Advertising trends improved in Q3 with total advertising spend down 7% year on year. July was down 23%, August up 3%, September down 2% and October down 1% – heading in the right direction but ITV could do with some big sporting events to cover and these are not coming soon.

Q4 ad revenues are seen up year-on-year with +6% in Nov as brands compete for sofa-ridden viewer attention. Share have done well to move off the summer lows but remain in the value category.

Wall Street gets more bullish on equities

Indices

Wall Street banks are getting increasingly bullish on the outlook for equity markets as election risks subside and the Pfizer vaccine creates a much rosier outlook for 2021.

Goldman Sachs raised its 2020 target for the S&P 500 to 3,700 from 3,600 previously. This implies a forward PE multiple of 21x, rising to 22x by the end of 2021.

Strategists at the bank say that a vaccine is a more important development for the economy and markets than the prospective policies of a Biden presidency. And the outlook for 2021 is extremely bullish, with the year-end price target of 4,300, implying 16% upside.

It comes after fellow Wall Street investment bank raised its year-end price target for the S&P 500 to 3,600 and said the election outcome created a ‘market nirvana’. JPM also raised its 2021 forecast for the index to 4,000.

For Europe, GS expects a “V(alue)-shaped recovery” in 2021. They see growth making a marked acceleration and expect a strong bounce in STOXX Europe earnings with policy support to remain in place.

On FTSE 100, Goldman sees the improved macro and commodities environment as supportive going forward. The bank forecasts the FTSE 100 to reach 7,200 by the end of 2021, implying 20% total return in GBP.

Since Pfizer announced its vaccine is 90% effective in phase three clinical trials markets have reacted positively though there has been a notable rotation out of growth stocks and into value and cyclical areas. This has best been demonstrated by the rally in the small cap Russell 2000 and decline in the Nasdaq 100. Whether this trend continues remains to be seen but it’s clear markets are on the move again.

Morning Note: Market selloff, Uber tanks again, Vodafone grasps the nettle

Equities
Forex
Indices
IPO
Morning Note

It was another, more brutal sell-off on Wall St led Asian shares lower overnight, setting us up for a nervy session in Europe. Futures right now look positive but we may well see selling pressure re-emerge.

SPX closed 2.41% lower, taking it back to March levels. This was its worst decline since the turmoil at the start of January. The Nasdaq suffered its worst day since December as tech stocks were the worst hit from the fallout of the US-China spat. The Dow shipped over 600 points, to end around 25,324, with some of its biggest hitters affected by the China trade story directly (Boeing, Apple).

Risks for now seem very much skewed to the downside until we see some kind of equilibrium achieved again. The market is seeing the window for a deal causing tightly, although with tariffs not taking effect yet we could yet see some improvement in relations. If this is the third shoulder of a giant triple top in the market there is a hell of a long way to go lower. But we are probably not at that stage yet. The Fed remains on side – bets on a cut this year have shot up from around 50/50 to around 75%.

Commodities

Gold spiked higher as a risk-off proxy. Prices which had dithered around $1280 level for a while drive up through the big round number at $1300 and was last just down a shade beneath this.

Oil had risen amid escalating tensions in the Persian Gulf. However the reality of the trade war began to hit home later and crude prices slid again. Brent, which had leapt clear of $72, was last holding just shy of the all-important $70.60 level. This is a level we have talked about time and time again and it is proving something of magnet for Brent right – a decisive break in either direction could signal a fresh direction.

FX markets are completely ignoring the whole stooshie, although there a touch of movement in the Chinese yuan, but not a lot. Little movement for now as central bank liquidity is onside to keep volatility low. BoJ now also talking more stimulus should consumer prices lose momentum.

Uber stock reels post-IPO

It was a bruising session for Uber with shares down by more than 10% on the day. Adding insult to injury, they fell further after market to trade below $37.

Following the Uber and Lyft debacles, there are now questions over whether some remaining unicorns choose to lust this year. The likes of Airbnb and WeWork could decide to pull their planned IPOs until there is more certainty.

Moreover current market conditions do not seem favourable for listings right now and companies may prefer to wait for a rebound in the broad market before listing. That said, it’s too easy to lump all IPOs into the same basket and see a read across.

There have been notable positives in the latest round of IPOs – Beyond Meat, Zoom and Levi’s shares rising firmly from the strike price post-IPO. Perhaps it’s just a case of good old fashioned stock picking and valuations after all.

Vodafone cuts dividend

Vodafone has bowed to pressure and cut its dividend. Or rebased to use the euphemism. The dividend was cut from 15 eurocents to 9, which is a very hefty cut indeed and investors will punish this move. Unlike some notable others, though, Vodafone has grasped the nettle and chosen to put the future of the business ahead of short-term returns to yield hungry investors. Now it’s not great news, but at least it shows the new CEO is willing to think longer term and is seeking to manage the debt.

On top of controlling debt, one of Vodafone’s key problems is the very large investment needed for 5G rollout. Auctions in Italy and elsewhere (Sweden, Australia) indicate the enormous costs and further divestments to shore up the dividend whilst still investing enough in capex seems inevitable. It is very likely Vodafone will flog its towers as part of this strategy, or to use another euphemism in today’s update – monetise. Vodafone also announced that it will sell its NZ business for $2.2bn in a move that frees up some cash.

Today’s results were full of euphemisms actually. The raw results showed a 6.2% decline in revenues and a loss for the year of €7.6bn. But instead management is directing us to ‘alternative performance measures’, which show far healthier EBITDA growth of 3.1% and group services revenues rising by 0.3%. Caveat emptor. In addition to the 5G cost, Vodafone faces a number of competitive headwinds in Italy, Spain and South Africa. There’s a lot of restructuring going on amid big changes in the industry with 5G. Management seems to be grasping the nettle and should be allowed time to deliver on the strategy

Apple earnings preview: eyes on services revs, margins and China

Equities
XRay

A whopper of a profits warning at the beginning of January has done nothing to dent Apple’s share price performance in 2019, which is +40% higher this year. So what happens now, with expectations reset lower? Here’s our quick take on what to expect as Apple reports its fiscal second quarter numbers after the close on Tuesday.

It’s all about the pivot away from iPhone unit sales to focus investor attention on Services revenues and the wider Apple ecosystem. Of course, iPhone unit sales won’t be reported. 

Q1 marked a 5% decline in revenues company wide as revenues from iPhone sales declined 15%. Total revenues from everything else plus services was up 19%.

Apple’s guidance

In its Q1 earnings update the company provided the following guidance for Q2: 

  • revenue between $55 billion and $59 billion 
  • gross margin between 37 percent and 38 percent 
  • operating expenses between $8.5 billion and $8.6 billion 
  • other income/(expense) of $300 million 
  • tax rate of approximately 17 percent 

Wall Street is anticipating EPS of $2.36 v $2.73 a year ago, whilst revenues are also seen declining from $61.1bn last year to $57.4bn.  

Dial back to the Jan warning from Tim Cook and it was China where the real trouble lay. We would expect some improvement here to be seen in this quarter’s numbers with demand for iPhones picking up again in the wake of price cuts. 

Services in focus

On Services, clearly the marked it eyeing another bumper jump in revenues, which were up 19.1% in the first quarter. But the impact on overall margins will also be important. The higher margins here should deliver ongoing support to group margins. For Q1, it reported Services margins of 62.8% against 58.3% in the year before.  

We’ll also be looking for anything relating to its suite of new products launched in March – credit card, streaming service, News+ and Arcade. Whilst only News+ was available after the launch event, we may get more of a feel of how these services will affect the bottom line – pricing will be of particular importance. Don’t hold out for much detail in the earnings report, although there could be something in the earnings call.  

Markets will also be eyeing capital returns. A year ago the company committed to $100 in buybacks and dividends over a two-year period. We may well Apple outline further capital returns via an increase in the dividend (10% is being talked about, against a 16% rise last year) and more buybacks. Even if the number are a touch soggy the prospect of more capital returns should keep investors on side. 

Average price target from the 36 analysts we track suggests a 3% downside to the current price at a little short of $200. Following a strong showing so far in 2019, Tuesday’s earnings may result in some changes to price targets on the upside. 

Key focus: Are Services revenues really going to continue to accelerate enough to offset the plateau in iPhone sales? Is there evidence of a bounce back in China?

Brexit compromise, dire PMIs, a lift for Facebook and a drop for Lyft

Equities
Forex
Morning Note

Facebook up on Deutsche Bank Instagram note, Lyft receives first “Sell” rating

Despite the negative news-flow swirling around Facebook as it battles concerns over privacy and extremist content, stock has continued to climb today, registering a 3.3% gain. A new note from Deutsche Bank states analysts believe that Friday’s addition of a Checkout on Instagram feature for the image-sharing platform could bring in revenue of $10 billion by 2021. Facebook is currently trying to move away from its reliance on ads, which currently generate 98% of revenues.

Finding alternative revenue streams is important for the company as it faces pressure to clamp down on who it is allowing to advertise, especially as the platform comes under scrutiny for the role of paid ads during elections and other political events.

At the other end of the spectrum is Lyft, which yesterday closed below $69.00; under its IPO price. The stock has been hit by its first “sell” rating. Michael Ward of Seaport Global has set a target price of $42 per share, claiming the current price represents a “leap of faith” in the willingness of consumers to forgo car ownership in favour of ride-hailing services.
Executives at rival ride-hailer Uber may not be looking forward to their upcoming float as much now. Lyft’s performance could significantly dent the price investors are willing to pay; it seems that holding a company valued at many times earnings and yet to post a profit isn’t quite the golden opportunity many first believed.

Looking at the wider markets, sentiment remains positive after fresh signs that the US and China are nearing a deal to end the months-long trade war between the world’s two largest economies. Recession fears are easing and global stocks climbed to six-month highs, while a move out of safety pushed the German ten-year yield back above 0%.

Asian shares hit a fresh seven-month-high, with the Hang Seng up 0.9% to break above the 30,000.00 handle before consolidating around 29,950.00, and the Nikkei 225 up 1.3% to flirt with 21,800.00.

European shares are also higher; the DAX has registered a 1% gain. Signs that the UK government may be moving towards a softer Brexit have helped nudge the FTSE up nearly 60 points; resistance remains around 7,400.00.

Cable caught between Brexit compromise and service sector stumble

Having exhausted all other Brexit options, Theresa May last night announced that the UK needed another short Article 50 extension, and extended an offer of talks to Labour leader Jeremy Corbyn. May still doesn’t want the UK to take part in European Elections, but wants to avoid a no-deal Brexit; currently scheduled for April 12th.

It marks a significant change in strategy, and cable responded positively. Sterling was up 0.5% against the dollar this morning, but gains were trimmed following a dire reading from the March services PMI. Analysts expected the reading to drop from 51.3 in February to 50.9, but the sector instead recorded a contractionary 48.9.

Taken together, the PMIs are waving a red flag for the UK economy. Only the manufacturing sector continues growing, and that is because of companies stockpiling ahead of Brexit.

The uncertainty facing businesses is an anchor on the UK economy, but can May and Corbyn craft a deal between them that appeases Parliament? The move certainly signals the Prime Minister is ready to consider a softer Brexit, but will anyone buy it?

During normal times, a consensus between Conservative and Labour leaders would have a strong chance of uniting the house. But we have to remember the circumstances and the leaders in question. Tories aren’t likely to vote for anything with Corbyn’s fingerprints on, while the Labour party isn’t exactly Corbyn’s biggest fan either.

Cable remains higher – a deal that potentially avoids further economic damage is clearly better than no deal that threatens even more (so markets believe). A soft patch for the economy can be overlooked if things get cleared up quickly, and hope this is the case has kept GBP/USD supported around $1.3175.

Market Commentary – China, Brexit and easyJet

Equities
Morning Note

Markets distracted by Chinese manufacturing growth, Brexit votes continue, easyJet issues profit warning 

Data showing surprise growth in Chinese manufacturing during March has stoked gains for equity markets today. Asian stocks are leading global indices higher; the Hang Seng gained over 500 points, while the Nikkei rose 300 points. European equities followed suit, led by Germany’s DAX, which broke through 11,700.00 before trimming gains to trend around the 11,650.00 handle. US futures indicated a higher opening, with the Dow above 26,100.00 and the NASDAQ indicated 1% higher around 7,470.00. 

China’s Caixin manufacturing PMI climbed into positive territory for the first time in four months, printing at 50.8 against analyst expectations for a reprint at 49.9. Even more notable was the rise in staffing levels in Chinese factories; the first recorded since 2013. 

Progress in US-Sino trade talks has helped increase external demand, but the bulk of new activity was as a consequence of renewed stimulus by the Chinese government. But one positive reading from China does not a crisis avert, and markets might want to take a look at the latest numbers from the Eurozone before dropping bonds and rushing back into equities. 

Manufacturing in the euro area saw its largest decline in almost six years last month, with powerhouse economy Germany leading the drop. The German PMI tumbled to 44.1 – lowest since July 2012 – while the aggregate currency bloc indicator fell from 49.3 in February to 47.5 in March. 

US manufacturing data is set for release this afternoon; February saw a worse-than-expected decline – another could slam the brakes on the equity rally. 

UK parliament ready to vote on further Brexit options 

Cable has found strong bid this morning, with 0.5% gains taking GBP/USD back towards the key $1.3100 handle. However, positive moves for sterling are less to do with developments in the UK political sphere and more to do with a move out of safe-havens as described above. The dollar is also down versus the euro, Aussie, and Kiwi. 

MPs are getting ready to hold another series of indicative votes today, with some of the defeated motions returning for a second attempt, although others have been replaced with new options. On the menu are everything from ruling out a no-deal exit to demanding a no-deal exit, a referendum to prevent a no deal, and a referendum on any deal passed by Parliament. 

It’s hard to see any of these options gaining a majority after the events of last week, which leaves us awaiting a fourth vote on Theresa May’s Withdrawal Agreement. The Prime Minister may threaten a general election should the proposal fail, which seems unlikely to sway many who opposed the deal, considering most of them are the opposition parties and even many Conservative MPs have openly called for one. 

Turbulence for UK airlines as easyJet issues profit warning 

Rising costs and Brexit have hammered easyJet’s bottom line. The company announced it expects to make a pre-tax loss of £275 million during fiscal 2019 – up from an £18 million loss in the first half of 2018. The company also stated that it was “cautious” with regards to the H2 outlook. 

Bookings for early summer have seen revenue per seat rise slightly, but in the first half the metric is expected to have dropped 7.4% in line with guidance issued in January. Increased passenger numbers are forecast to have pushed revenue 7.3% higher to £2.34 bn, in-line with the analyst consensus. 

First-half costs are guided 19% higher thanks to the cost of fuel and investment in measures to minimise summer disruption, with preparations including spare planes and crew. 

EasyJet shares dropped 8% on the news, with read-through seen across the sector. Ryanair fell 3.2%, while IAG – owner of rival British Airways – slipped 1.5%. 

For easyJet, the damage from Brexit uncertainty is the impact it is having upon consumers; the company itself is well-prepared for even a no deal Brexit. The EU Parliament has approved air connectivity legislation and the UK has confirmed it will reciprocate – allowing UK and EU air carriers to continue operating. 

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