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.