Travel stocks rally, China PPI shrugged off for now

Morning Note

European markets opened mixed but broadly remain calm as they have for the whole week. Everyone’s waiting for signals on inflation – investors seem to be largely shrugging one from China today. Having led the way higher yesterday, the FTSE 100 is weaker today, whilst European indices are just in the green as they chop sideways ahead of tomorrow’s ECB and US CPI double-header. The Tiggerish outgoing chief economist of the Bank of England, Andy Haldane, said this morning that the UK economy is going gang-busters and inflation pressures are strong.


It was a mixed bag over the US in yesterday’s session as the Dow slipped a modest 30pts, the S&P 500 stayed flat as it struggles to make a new all-time high, and the Nasdaq rose 0.3%. The S&P 500 rose by less than 1pt to 4,227.26, a whisker below the record 4,238.04 reached on May 7th. 10yr Treasury yields slipped to 1.513%, the lowest level in a month. Remember payrolls data last week showed strong but not too strong job creation – enough to keep tapering talk at bay, or at least so the market seems to think. Yesterday’s huge JOLTS jobs openings report highlighted that the US economy is booming but a shortage of the right labour in the right places could a) force up wages and b) restrain growth (stagflation?). But, in the words of Mario Draghi, this is a ‘high class’ problem to have.


China’s producer price index, a key leading indicator of global inflation, rose at its fastest pace in 13 years as base effects from last year’s pandemic and a boom in commodity prices fed into higher prices paid by businesses. PPI in China rose at 9% in May, the highest it’s been since 2008, and a signal that inflationary pressures are not going away soon. It’s not a major surprise – expectations were for 8.5%: we know inflation is here right now. The question remains about the degree to which this is a transitory force or a lasting shift. There is another question: can companies pass these on to the consumer? If so, it runs the risk of stagflation; if not it could means slowing earnings growth. Does this favour the value trade still? We’ve seen a big rotation already, but growth and inflation this year ought to continue to be supportive. Cathie Wood of Ark thinks otherwise. “The rotation back to growth is probably close at hand,” she said at an Ark Invest webinar on Tuesday.  


Travel stocks popped up a touch on news the EU parliament has approved vaccine passports to ease travel this summer. We saw the likes of TUI, IAG, EasyJet and Ryanair all jump as the news broke on the wires. WH Smith also ticked higher, dependent as it is now on travel sales. SSP, the operator of food and beverage outlets in travel locations worldwide, should also be pleased. It reported a £300m loss this morning as revenues declined by almost 80%. Management say they don’t think sales will return to pre-Covid levels until 2024. Shares dropped at the open on the big loss but turned higher as the EU travel news broke. Meanwhile, the US eased travel restrictions for 61 countries, but not the UK. Nevertheless, there is a real sense that vaccines are working to open up the US, EU and UK to travel this summer, albeit not quite how it once was.

Oil pushed to fresh highs ahead of the EIA inventory report later and tomorrow’s OPEC monthly report. WTI drove on beyond $70 to mark an almost-three-year high overnight amid encouraging signs of demand recovery. Meanwhile fears of Iranian supply hitting the market later this year subsided after the US secretary of state Anthony Blinken said hundreds of sanctions would remain on the regime in Tehran, even if the two countries reach a nuclear deal. Whilst vaccines and the reopening of economies have left the market in deficit, helping to drive prices up 35% this year, the persistence of cases in some parts of the world combined with ongoing travel restrictions in Europe/US means there are still doubts about how quickly demand will recover this year.  Nevertheless, prices hit their highest since Oct 2018 after the API reported a draw of 2.1m barrels last week. 

Thursday sees the release of the latest OPEC monthly oil market report.  Last month’s report saw the cartel reiterate its belief in a strong recovery in world oil demand in the second half of 2021. This month’s report is not expected to show much change from the previous version, which said demand will rise by 5.95m bpd this year, up 6.6% from 2020 levels. Ahead of this, traders will look to today’s inventory report from the Energy Information Administration (EIA). Last week’s EIA inventory report showed stockpiles declined by 5.1m barrels, a larger-than-expected draw that helped to support the bullish view on oil prices as demand in the US recovers. Analysts expect a draw of 3.3m barrels to be posted today.

Elsewhere, Bitcoin trades at $34k after touching $31k yesterday. A SEC official expressed concern about the US financial regulator’s push to enforce stricter rules around cryptos. GBPUSD continues to hold below 1.42, but a breakout of the triangle to the upside needs to be monitored with MACD (1hr) crossover still supportive of a nudge up to 1.42 – failure at 1.4180 could beget a drop to the 1.4120 area.

Soft start for stocks, Deliveroo sets price for IPO, Turkish lira falls

Morning Note

European stocks stumbled out of bed this morning after a weak close on Wall Street on Friday and mixed picture in Asia, whilst rising coronavirus cases and fresh lockdown measures are sapping confidence. Germany is considering extending lockdown as the number of new cases exceed the rate at which ICU bed start to run out, whilst France has already reimposed restrictions. But after an hour of trade the DAX traded about 100pts off its lows, just in positive territory, whilst the FTSE 100 also recovered some poise over the first hour of trade but remains negative. On Friday, the Dow closed more than 234pts lower as JPMorgan and Visa weighed. The Nasdaq rose 0.8% as investors chose to buy the dip in tech stocks. US 10-year Treasury yields rose to 1.72% after the Federal Reserve said it would not extend SLR exemption but are a tad under 1.69% this morning. 


The US trial of AstraZeneca’s vaccine shows the jab is both safe and very effective. Astra reports this morning that the phase 3 trial showed 79% efficacy at preventing symptomatic COVID-19, and importantly delivered 100% efficacy against severe or critical disease and hospitalisation. This ought to help the rollout in Europe, but you can take a horse to water and all that…a survey from YouGov shows that the constant undermining of the vaccine has hurt confidence in the jab among people in Spain, Germany, France, and Italy. Hopefully, this puts to bed any doubts, but I suspect it won’t. Shares rose about 1% in early trade.  


Airlines and travel stocks fell as it becomes increasingly likely that the travel season will be impaired by the pandemic as cases in Europe stubbornly rise and the UK could extend its international travel ban. Government aides have suggested that summer holidays this year will be ‘extremely unlikely’ because of the risk of bringing variants home. The current roadmap for exiting restrictions has May 17th as the earliest start date for foreign travel to resume, however it looks as though this may be pushed back by some weeks and may well depend on the vaccination progress in Europe above all. IAG –6%, EasyJet –6%, TUI –7%, Ryanair –6% in early trade. A lot of these travel stocks have had a healthy run up in recent months due to hopes that the summer season would be fine – increasingly it seems international travel is going to be badly affected this year despite the vaccine success.  


At the other end of the FTSE 100 this morning, Kingfisher rose over 3% following another strong set of results as consumers continue to focus on DIY during lockdown. Sales rose 7% in the year to January, while adjusted profits were +44% higher. This was a very strong performance across both the UK & Ireland and France. However, management warn that sales growth will slow this year. 


Deliveroo set the price range for its initial public offering in a range of £3.90 to £4.60 per share, implying an estimated market capitalisation of between £7.6 billion and £8.8 billion. This is higher than previously expected and makes it the biggest IPO in London for some time. The prospectus will be released later today. Accompanying this update, Deliveroo said the total value of transactions (GTV) were up 121% year on year in January and February. This marks a significant acceleration from the +64% growth run rate through 2020 and indicates that the £5bn estimated GTV in 2021 could be easily exceeded. (GTV is one of those new metrics that tech firms like that you will need to get used to for Deliveroo – it is defined as the total value paid by consumers, excluding any discretionary tips. GTV comprises the total food basket, net of any discounts and consumer fees. 


Trouble in Turkey: the Turkish lira tumbled after president Erdogan removed the country’s hawkish central bank chief. USDTRY rose to a high of 8.20, up 14% from Friday’s close around 7.20. The sacking of Naci Agbal raises fears about the path economic and monetary policy, with market participants prepared for rates to be cut and for the re-emergence of ‘Erdonomics’. It raises all sorts of questions about the government’s ability and competence to handle the economic issues facing Turkey. Agbal’s efforts to raise rates to counter inflation, which is still running at above 15%, helped to boost confidence more generally in the country’s assets. The Turkish central bank raised rates by 2% last week on top of 675bps of hikes last year. Shares in some banks with big Turkey exposure like UniCredit, BBVA and ING fell. 


Looking ahead to this week, the focus will remain on bond yields and inflation. In the wake of the FOMC last week the market is toying with just how far rates can go and how fast. This week we have Jay Powell’s testimony on the CAREs Act with Janet Yellen, as well as speeches from Fed members Lael Brainard and Richard Clarida, both of which deal with the “Economic Outlook and Monetary Policy”. They will reiterate how the Fed plans to stay in full accommodation mode until its employment goal is achieved. 

Is now a good time to invest in travel stocks?


Travel stocks have taken a Covid-shaped battering over the past year, but things could be about to change. Is the time right to look at investing in travel shares again? 

Should you invest in travel stocks? 

Travel shares & lockdown 

We all know the score when it comes to lockdown and travel stocks. They plummeted at the height of the pandemic, but with sensational vaccine development, approval, and rollout, they have started to respond again. 

In our look at airline stocks, for example, we’ve seen Ryanair, IAG, and EasyJet shares make substantial gains across the second half of 2020 and into 2021. 

The UK recently announced it had roadmap to get the country out of lockdown. That also gave travel stocks a shot in the arm. Britain’s vaccination programme has been one of the best in the world, and, if all goes according to plan, all social restrictions could be lifted by the end of June. 

On that news, announced on Monday 22nd February, we saw some airline, travel agent, and hotel stocks jump: 

Airline shares roar on high optimism.

Here you can see how sensitive travel stocks are to a reopening timeline with the shares leaping in the early part of the London session immediately after Johnson unveiled the roadmap. It’s not just air carriers whose stock price has benefited. German travel group TUI saw stocks rise by over 7%, while IHG rose at a more subdued, but still positive, 3%. Even cruise liner Carnival, which operates in a sector that has been bludgeoned by the ongoing pandemic, saw a small stock price jump. 

What we don’t know at this stage is how international travel will be affected. Will countries be open to UK visitors that have been vaccinated? Will borders remain closed to all but essential travel while they sort their own vaccine regimes out? Time will tell. 

Other stocks have also increased in value across the year. Expedia, for example, has rallied more than 200% since its March lows. Airbnb, however, has had a bit of a wobble, as its latest earnings call, its first as a publicly traded company, failed to match expectations.  

Still a bit of a mixed outlook. But in the words of Boris Johnson, we’re looking at a crocus making its way through the winter frost. A thaw is on its way, which may lead to a real rally in travel stocks.  

Of course, this is the markets. Anything can happen – especially in the topsy-turvy, pandemic-ridden world we live in. Make sure you do your proper analysis when looking at travel stocks, and make sure you’re picking the right stocks for you. 

 Travel stocks to watch 


EasyJet has so far regained 44% of its value since grounding most of its fleet and restricted flights thanks to the pandemic. What it does have going for it is very strong cash reserves, enough to keep going for a year and half under current lockdown restrictions, plus its balance sheet has been backed by a £.15bn government loan. 

While uncertainty still remains in the airline industry, EasyJet was one of the UK’s most popular pre-pandemic carriers. Price-conscious tourists may choose to return to EasyJet to whisk them away to warmer climes. This looks like it’s already happening. Upon PM Johnson’s proclamation the UK is on a “one way road to freedom”, EasyJet UK outbound flight bookings grew 337% while package deals took fight, soaring to 630%, compared with the previous week. You probably wouldn’t expect that to be sustainable, but it’s an indicator that short-term gains could be there with EasyJet stock. 


As we touched on earlier, Expedia stock has enjoyed 200% growth since its collapse in March. It is not yet back up to pre-pandemic levels, but few if any are anywhere near close to that level. But why is Expedia of potential interest to investors interested in travel stocks? 

One thing there is a big cost cutting programme coming. Now, this might not be music to all investors’ ears, but there is a reason why that may pique your interest. In 2019, Expedia’s operating income totalled $903 million. CEO Peter Kern suggested in December, Expedia will be looking at cutting between $700-750m in fixed costs, and a further $200m in variable revenue cuts based on 2019 levels. If it can pull this off, then Expedia’s earnings potential may effectively double. 

With lower travel restrictions in places like the UK in the rest of the year, Expedia may be able to secure more advance online bookings now too, as holidaymakers prep for trips the second half of 2021. This could very well support Expedia share price growth. We’ll have to wait and see but given the stock has already risen dramatically across the year, it might be worth looking at for those interested in travel stocks. 

France quarantine knocks travel & leisure stocks

Morning Note

European markets turned south on Friday led by a decline in travel and leisure stocks after the UK added France to its 14-day quarantine list. Yesterday, US stocks dipped after a run at the all-time highs failed again – the S&P 500 finished the day down 0.2%, but the Nasdaq eked out a small gain.

Asian markets ticked up amid a mixed bag of data and economic indicators and European stocks slipped in early trade after falling across the board on Thursday. After a decent start to the week it looks like equity markets are finishing off rather meekly.

Travel & leisure weaken as UK adds France to quarantine list

With France being added to the quarantine list for the UK, travel & leisure is under pressure.  Shares in IAG, Ryanair, Tui and EasyJet were all sharply lower as the move will force a large swathe of cancellations right at the peak of the summer holiday season for one of the largest markets for UK tourists. Half a million Brits are thought to be in France right now. Related stocks were also hit.

WH Smith – purveyor of overpriced sweets and free Evian – slipped down the board as a result. Apart from the immediate damage this will do at the height of the school holidays and peak summer season, the quarantine decision also underlines the inherent risk you take in booking a holiday abroad right now, which will do nothing for consumer confidence.

US jobless claims under 1m

US jobless claims fell under 1m for the first time since the pandemic devastated the labour force, but unemployment levels remain exceptionally high and there remains the fear that too many temporary layoffs will become permanent. Initial unemployment claims dropped to 963k from almost 1.2m a week before, whilst continuing claims fell to 15.5m from more than 16m the previous week.

Unemployment fell but remains above 10% and the twofold worry remains – after the initial resurgence upon reopening, the sustainable pace of recovery is too slow, and that some portion of the labour force is lost forever. The situation in the UK looks even more stark as the life support machine of furlough gets switched off.

Later today comes the US retail sales report for July, which are expected to drop back sharply to +2% from +7.5% the prior month, with core +1.3% from +7.3%. A smaller increase in retail sales is expected as pent-up demand drove the unusually high demand in May and June following the collapse in March and April. Going forward, the destruction in the labour market will force consumers to tighten purse strings – unless there is free money ad infinitum.

On that front, progress is slow to non-existent – Congress has broken up for the summer recess with no fresh stimulus deal in the offing. The improvement in the jobless numbers and apparent improvement in some of the other high frequency data may make it even less likely that US politicians can agree to a package, particularly with the election starting to dominate thinking.

China posts surprise retail drop, Eurozone GDP to confirm sharp Q2 slump

Chinese retail sales slipped in July, declining 1.1% after a 1.8% drop in June, whilst industrial production rose a solid 4.8%, although this was also short of expectations. The disappointing retail sales number hit the luxury sector this morning but also underscores the weakness in the demand side of the recovery. Eurozone GDP figures later today are expected to confirm a sharp contraction in the second quarter as lockdown measures were in full force. This data is now pretty historic and won’t do anything for markets.

Gold is holding around $1950 but the bearish flag on the chart looks like there could be a further corrective move in the long-term uptrend. As US rates seem to be inclined to roll higher there is a risk of a further downswing. The yield on US 10yr Treasuries are above 0.7% and TIPS creep higher.  Longer term you would feel that gold continues to be a strong winner from the pandemic.


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