Stocks stage mild fightback after Tuesday’s drop, Juventus down 10% as ESL plans collapse

Morning Note

Stocks suffered yesterday as the reopening trade took a hit. We could look to surging cases in India for a sense of alarm or unease, whilst tensions around the Ukraine and Russia are arguably adding a dullness to trade. But a technical pullback from aggressively overbought positioning seems to be more of a factor. I don’t think that the macro picture has altered much since Friday; US 10 year yields are subdued around 1.55-1.60%. Earnings are coming in better than expected or at least in line, and clearing a very high bar in the process. But investors seem content to park gains for the moment and reassess. It’s all about the E bit of the PE ratio now as we can no longer rely on optimistic margin expansion driven by the Fed – it’s all in already. True, travel stocks were badly affected – it looks more and more that international travel is several months behind where we thought it might have been at this stage. The fact that the US State Department plans to slap “do not travel” advisories on 80% countries underlined the way in which vaccines are only going to deliver a true return to normal once the world is inoculated. Earnings are by and large very strong but that’s already been discounted by a stock market that hit a record high last Friday. Similar story for the DAX. The FTSE has a longer path to travel hit its all-time highs again but this only offers hope for progress.

How markets respond over the coming weeks will depend a lot on the vaccine programme and the path of new cases, as well as signals from central banks. The ECB meeting tomorrow carries some degree of risk for markets, particularly if the GC or Lagarde offers any hints of hawkishness – it’s too easy to underestimate the strength of the hawks and the ECB’s willingness to exit pandemic emergency mode before the Fed. The euro will have a free pass to rise if markets think the ECB will exit PEPP before it runs its full course. Bank of Canada rate decision is due today and the Bank of England governor Andrew Bailey is speaking later this morning.

Fiscal stimulus remains a crucial support but this has largely been priced in – albeit not entirely, particularly in Europe. And this morning the German constitutional court dismissed a legal challenge to ratify the EU recovery fund. So a year on we may be about to see if the long-awaited funds can be dispersed. Very little, very late. In comparison with the US it’s paltry. Nevertheless, if we are looking at stock market sectors and markets then the fact is that retail sales growth of almost 10% in the US shows that the US bazooka creates a lot of spillover for the global economy, including Europe.

On Wall Street, the Dow declined by 256 points, its worst day in a month, while the S&P 500 dropped 0.7% and the Nasdaq fell 0.9%, respectively. The Vix closed above 18 after hitting a 14-month low last week. Not exactly elevated, but on the way up. In Europe, the FTSE 100 fell 2% to under 6,900, while the DAX dropped 1.55%. This morning we are seeing something of a bounce with the FTSE 100 up 0.5% in the first 30 minutes of the session, but there is a lot of ground to make up and gains so far look a little tentative. We continue to see the churn – IAG back up today after a drubbing yesterday, JustEat is down over 4%. PensionBee didn’t buzz on its first day with shares flat in early trade. At least it is doing better than Deliveroo, which is steady today at 244p, down from its IPO price 390p. Having tried to consolidate pensions in the past, I am sure anything that actually makes it easier is sure to be in demand. But the market is a little wary of new IPOs at this stage in the cycle.

Total football, total shambles: Shares in Juventus and Manchester Utd fell as the wheels came off the ESL quicker than you can shout ‘sack the owners’. It’s been a total debacle for the clubs – investors may be cautious about investing in football teams; they usually are. Whilst the ‘big’ six English clubs have pulled out, the Italian and Spanish teams are still committed on paper – I wonder how long they can eke this out. Juventus shares tumbled 10% in early trade on Wednesday, taking the stock back almost to where it was closed on Friday as traders saw blood. After dropping 6% yesterday and a further 2% after hours, Man Utd stock is also back to where it was before the weekend bombshell.

Netflix stumbled after hours, plunging 9% after missing on net subscriber adds and offering soft Q2 guidance. Netflix added 4m new customers in the first quarter, short of the 6m expected. Management guided just for just 1m net adds in Q2 and warned of ongoing uncertainty due to the pandemic. The company – and the Street – seem to have overestimated the continuity of demand from a record-breaking 2020. Still, it’s position looks strong even if sequential growth rate is slowing, which was always to be expected anyways. Revenues jumped 24% from the same quarter a year ago to $7.2m. Earnings were up by $1bn from last year to $1.7bn because of production delays lowering costs, but also the significant revenue jump.

On the data front, UK inflation came in at 0.7%, a little lighter than expected but notably up from 0.4% in February as base effects from the pandemic start to enter the data. Higher fuel and clothing costs were the chief drivers of the increase.

Sterling pulled back as the dollar made gains following Monday’s move lower. After touching 1.40 in early trade yesterday, GBPUSD trades pretty steady to start the session at 1.3920, testing the old resistance of the top of the Apr 6th outside daily candle. As explained earlier, Monday’s sharp move way beyond the top Bollinger called for a pullback, which we have seen. Momentum remains with the bulls just but could swing if it turns under 1.39. As long as this holds we ought to see a return to the 1.40 area and break out may be forthcoming. EURUSD trades lighter at 1.20250, whilst USDJPY dropped further under 108 to its lowest since early March.

Juventus shares rally 7% on ESL move, Man Utd +4% in US pre-mkt, European stocks mildly higher

Morning Note

A slow-ish open for European stock markets but all the major bourses are just about trading higher this morning. The FTSE 100 trailed, trading 0.1% higher, whilst the DAX rose 0.3% to north of 15,500. The DAX has hit record highs, whilst the FTSE 100 is at its highest in over a year. US futures are a little lower this morning after the S&P 500 and Dow Jones closed at record highs on Friday, with both advancing more than 1% last week. UBS raised its forecast for the S&P 500 to hit 4,400 by the end of the year, or around 5% above the current all-time high.

Global stock markets remain supported by a combination of the very strong cyclical impulse as vaccinations and better economic resilience to lockdowns spur activity, ongoing monetary policy support and some pretty large fiscal stimulus in some parts of the world, most notably the US. As highlighted by Moody’s, the $5.4tn in excess savings, which is worth around 6% of global GDP, is not to be ignored as consumers come back to the fray. US bank earnings and the release of bad loan loss provisions show the extent to which aggressive policy action has stopped a lot of potential damage to the economy. A retreat in US yields has helped calm nerves but value stocks remain the play as the global economy reopens. Discretionary spend is the name of the game.

Shares in Juventus rose 7% after it was one of the ‘dirty dozen’ football clubs to announce plans for a breakaway European Super League. The financial incentive for the clubs is plain to see, with a multi-billion dollar package at the heart of the scheme, albeit it would forever break the integrity of the club game. The sort of additional revenues the ESL will deliver would need to be offset by a potential material decline or total loss of existing earnings from media deals through national leagues and UEFA. Watch for Manchester United shares to open in the US later – currently being called to open 4% higher in pre-market trade. Shares in Borussia Dortmund and Ajax are higher, although they are not currently among the 12 founding clubs.

Looking ahead to this week, it’s going to be a busy period for corporate earnings as ten Dow components and more than 70 S&P 500 names report in the coming days. Coca-Cola (KO) reports today and is expected to show a 2% decline in earnings per shares to $0.50 year on year, whilst revenues are seen flat at $8.6bn. KO shares are still well short of the pre-pandemic levels around $60, but this probably reflects the company’s reliance on demand stemming from big events, full stadia, festivals and concerts. Without the return to pre-pandemic levels for sporting and entertainment event attendance, Coca-Cola may struggle to get much higher. IBM and United Airlines are also reporting today.

Bitcoin tumbled over the weekend, dropping from around $62,000 by our Friday close to gap about 10% lower at the Sunday open. Prices were around 15% below their all-time highs hit last week in the runup to the Coinbase IPO but have pared losses in the last few hours to trade roughly 10% off their all-time high. Numerous other crypto assets also fell sharply. Prices had fallen on Friday as Turkey moved to ban the use of cryptocurrencies, whilst rumours later circled about the US Treasury looking to charge several financial institutions for money laundering using cryptocurrencies. A lot of this may be down to speculative froth coming off the boil in the wake of the Coinbase IPO.

Elsewhere, sterling is higher this morning with the dollar on the back foot. The Dollar index has opened up fresh lows at 91.40, its weakest in a month. GBPUSD moved to 1.38680 where it is testing the 50-day simple moving average resistance. A break higher calls for a return to 1.40. The euro is also on the advance and testing big resistance at 1.20. Gold is making good on its promise and is now through the top of the downwards channel after last week’s breach of the 50-day SMA. RSI trend resistance is important and may offer some scope for a pullback from the top Bollinger band.

Gold is making good on its promise and is now through the top of the downwards channel after last week’s breach of the 50-day SMA.

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