Vaccination shares: GSK vs Moderna


Moderna and GlaxoSmithKline represent two interesting paths pharmaceutical stocks have taken this year. We examine the GSK share price and Moderna shares to see which has come out on top – and what the future holds for both.

GSK shares & Moderna

Examining the GSK price

GlaxoSmithKline’s fortunes in 2021 have been up and down. While competitors like Pfizer and AstraZeneca have enjoyed major share price growth across the pandemic, GSK stock hasn’t been so reactive.

At the time of writing, the GSK share price is around £14.35. Before the pandemic, GlaxoSmithKline shares had peaked at £18.42 in January 2020. Since then, it’s been a tale of ups and downs. Shares fell to a new low in February 2021, but as we can see from the current price, progress has been made since then.

News came in June from CEO Emma Walmsley that GlaxoSmithKline is currently in the progress of separating its core pharmaceuticals business from its consumer goods side. New GSK, taking over pharmaceuticals, and the spin off, which will be listed on the London Stock Exchange, will remain linked with New GSK taking a 13.6% share of the new entity.

The whole plan could put GSK share price back on a growth footing. After the separation, New GSK is aiming at annual sales growth of over 5% between 2021-2026. Underlying profit growth is targeted at 10% in the same period, hoping to generate £33bn in sales by 2031.

That’s the mid-to-long term outlook. One thing that may put off investors is the GSK’s updated dividend payment scheme. The company has stated it will pay shareholders a dividend of 55p per share in its new form – down from the 80p investors used to enjoy.

Shares rose 2.8% after the demerger plans were announced at the tail end of June. The plan is ambitious, but some analysts believe this may not be enough to support GSK share prices in the long run. Questions over CEO Walmsley and her senior team are being raised as, under Walmsley’s tenure, GSK has struggled to take off compared with some of its competitors.

What about Moderna shares?

Moderna shares, on the other hand, are having a much better 2021 than GSK’s.

Share prices have risen 125% across the first six months of the year. Moderna’s mRNA-1273 vaccine is one of the most widely distributed inoculants used to combat the Covid-19 virus.

Moderna is nearing an $100bn market capitalisation. Its product revenue has grown from virtually nil at the start of the pandemic to around $1.7bn – purely driven by vaccine sales. Given the company is just 11 years old, Moderna can be considered one of the biggest beneficiaries of the Covid-19 pandemic.

Moderna shares are currently trading at $246.66 – up 4.8% in daily trading as of 15th July 2021.

While this is all amazing in the short term, what about the longer view? Moderna product-generated revenues were small to low at the beginning of the pandemic. While it was able to create a product in huge demand quickly and effectively, there are concerns that revenue growth, flagged at a $21bn top end for 2021, could not be sustainable.

However, Moderna’s executives are hopeful its technologies and research can help provide solutions for other diseases in the future. The company is looking to leverage its Covid expertise into other respiratory disease vaccines such as Respiratory syncytial virus (RSV) and cytomegalovirus (CMV).

Betting on other pandemics, however, is possibly not a smart bet. While Moderna is pushing ahead with trials on some vaccinations that could prove effective should we see other wide-scale breakouts, a lot of its experimental products are still in the early stage.

Comparing Moderna shares & GSK

What can we glean from the above?

A couple of things. Moderna’s ability to capitalise quickly on the Covid-19 situation, helped by emergency authorisation of its vaccine, has led to huge yearly and 6-month gains. The company is close to reaching a new all-time high market cap and will probably remain so.

It’s during the transition out of the pandemic and if Moderna can swing into sustainable revenue generation from its product side to bolster regular operations that will be really telling here.

Switching to GSK, it has come out with a fairly radical plan of action. It has set itself goals that, while ambitious, are fairly achievable for the company’s size and scope. Crucially, in the long term, GlaxoSmithKline doesn’t seem as tied in with the pandemic and its progression as Moderna.

If you are looking into trading or investing in Moderna or GSK stock, then be aware of the current market conditions, share price, and other variables. Only invest if you can potentially afford to take any losses as trading and investing both present risk of capital loss.

Stocks firm as travel gets a boost

Morning Note

The reopening in the US and UK continues apace. More states are opening up bars, restaurants and other hospitality venues at full capacity, whilst Britons are set to resume international travel this month and get back in the pub too.  Europe is catching up fast on vaccinating its population and will be at a similar level by the summer. The vaccines are working. Stimulus is also supporting spending as US personal incomes soared by 21% last month. Dare we consider a return to genuine normality soon? Perhaps, but the picture is very uneven across the globe, as India shows all too clearly.


European stocks opened broadly higher on Tuesday before easing back to the flatline, with the UK market leading the way in a holiday-shortened trading week. The FTSE 100 rose 0.7% in early trade, testing the 7040 high from last month again before paring gains.  Infineon scrubbed 20pts off the DAX as the German index dropped by around 0.4%. US markets were higher on Monday, with the S&P 500 up 0.3% to 4,192 and the Dow Jones rising 0.7% to 34,113. The Nasdaq lagged, falling 0.5% as big tech names declined a touch following a period of strong gains running into earnings season. Tesla fell 3.5% and Amazon dropped over 2%.  


Profits at Saudi Aramco soared 30% versus last year as higher oil prices lifted earnings. Net income rose to $21.7bn. Crude prices have rebounded strongly in the last 12 months –it’s just over a year since WTI futures dropped into negative territory ahead of expiration. Crude prices have a bullish bias at the start of May with WTI futures (Jun) hovering around the $643.50 area and Brent just a little under $68. Whilst there concerns about the situation in India and implications for demand growth, this is being outweighed by hopes for demand recovering strongly. 


On that front, IAG shares rose over 3% to the top of the FTSE 100 as the US and Europe move to reopen travel this summer and Britons look set to be able to resume foreign travel from May 17th. As US states declare further moves to open things up, the EU is looking to enable people from outside the bloc who have had both their vaccinations to travel freely to Europe this summer. Talks on the plans begin today. Whilst progress is slow, there is hope that by the summer holidays travel will be substantially more possible. Airline stocks were broadly higher. TUI and EasyJet topped the FTSE 250, which rose to within a whisker of its intra-day all-time high this morning. 


Australia’s central bank left rates on hold but upgraded its outlook for the economy. Later this week the Bank of England is expected to do similar. The quarterly Monetary Policy Report should show better growth and higher inflation ahead as vaccines are working and enabling the economy to reopen as planned. The big question is over a taper of bond purchases. The thorny issue for policymakers is whether to use this meeting to announce how and when it will taper bond purchases. The yield on 10-year gilts is back to 0.84%, close to the March peak at 0.87% and could top this should the BoE signal it is ready to exit emergency mode. Policymakers may prefer to wait until June. Ultimately, the question about tightening is really one of timing, but the BoE cannot be blind to the economic data and this meeting could be the time to fire the starting pistol. The fact the furlough scheme is slated to run until September, the BoE has time on its hands and could wait until August. As far as sterling goes, also keep your eyes on the Scottish elections on Thursday, where a majority for pro-independence parties in Holyrood could up the ante in terms of a second referendum. GBPUSD tested 1.380 support yesterday before a rally ran out of steam at 1.3930 as it continues to hold the range of the last 2-3 weeks.


Gold touched the 100-day SMA and pulled back from the $1,800 area. MACD bearish crossover avoided for now but potential double-top at $1,800 could call for a deeper pullback. 

Chart showing gold performance on May 4th 2021.

US agency questions AstraZeneca vaccine, GameStop earnings on tap

Morning Note

You could be forgiven if you suffer value fatigue; it can be a long slog, all this ‘vaccine optimism’ and ‘reopening hopes’, for the beleaguered value investor. You’d also be forgiven for Covid fatigue; I think we have all done more than our bit to ‘protect the NHS’ over the last 12 months. And on this sorry topic there’s another headache this morning for AstraZeneca bosses as a US health agency questioned the Oxford vaccine with the ink barely dry on the company’s press release announcing the very high safety and efficacy of the jab in long-awaited US phase 3 trials. Shares fell 1% in early trade.

The National Institute of Allergy and Infectious Diseases (NIAID) said late Monday it was notified about concerns about initial data from the trials. The Data and Safety Monitoring Board (DSMB) ‘expressed concern that AstraZeneca may have included outdated information from that trial, which may have provided an incomplete view of the efficacy data’. I may have left the toilet seat up, I may not have. It didn’t say much else, except urging AstraZeneca to work with the DSMB to ‘review the efficacy data and ensure the most accurate, up-to-date efficacy data be made public as quickly as possible’. More doubts won’t do the vaccine any favour – another PR problem that will cost lives. This will not do any favours for getting this shot into people’s arms – it’s not just the rollout by government, it’s people’s willingness to get it. And on that note Europe sits on large stockpiles of the Astra vaccine as countries cannot get the jab into arms.

European shares are lower this morning after a muted Asian session with the major bourses off about half a percent in the opening minutes. Travel & leisure stocks were near the bottom of the Stoxx 600 as the UK extended a foreign holiday ban until the end of June. IAG, TUI and Carnival fell about 3-4%. WH Smith – dependent on travel earnings more than the high street these days – also declined more than 3%. US markets closed higher on Monday, led by the Nasdaq gaining 1.2% and the S&P 500 up 0.7%. Futures point to a weaker open later. Powell and Yellen are in front of the House Financial Services Committee to talk about stimulus. FOMC member Lael Brainard also talks later today.

MOAR: Joe Biden’s team is looking a $3 trillion plan for the US economy that will feature massive investment in infrastructure, green energy and education, as well as tax hikes. This fits in with his manifesto pledge, but I thought he may have taken longer to get to this point given the $1.9tn stimulus package for Covid relief has just been launched. This package would be another enormous injection of stimulus to the economy.

Tesla rose 2%, but at one point traded about 10% higher, after a bullish report from ARK Invest. Tesla is a 10% holding in the Innovation ETF (ARKK). ARK says Tesla will reach $3000 by 2025. That is not even the bull cash ($4,000), whilst the ‘bear’ case implies a mere doubling or more to $1,500. ARK uses a Monte Carlo simulation to get there, which is aptly named since it is basically a case of spinning the wheel and see what number you land on. Actually it’s more like keep spinning until you get the number you want. Investing should not be a game of roulette. You can read the full report here. If you like this I have a bridge to sell you.

GameStop reports earnings tonight. Analysts expect revenues to rise 2% year-on-year to $2.2bn, with earnings per share seen up 15% at $1.46. Dry earnings figures don’t really do it justice; these are the first earnings since the Reddit-inspired trading frenzy sent the stock skywards, sank Melvin Capital, put RobinHood in the dock and made Roaring Kitty famous well beyond the /wallstreetbets crowd. No one really cares about these earnings; they do care about what resource will be required for turning GameStop into the ‘Amazon of gaming’ – the more the board seeks to raise the better in many ways. Traders will be wanting to hear about any plans for capital raising, and more about the new ecommerce strategy.

Meanwhile, the FT reports WeWork announced losses of $3.2bn last year as it pitched for a SPAC listing and $1bn investment. Get this though: WeWork’s losses narrowed from $3.5bn burnt in 2019 because it slashed capex to the bone because of the pandemic. Investors who might have got swept up in a WeWork IPO in 2019 will be grateful the listing got pulled. Now SPACs mean it’s even easier to go public and I’m sure they will find some willing backers for this serviced office provider tech platform. Barge pole springs to mind.

Bitcoin is lower, testing the bottom of the recent range around the 23.6% retracement level after Federal Reserve chair Jay Powell warned that the asset is not a good store of value. “They’re highly volatile and therefore not really useful stores of value and they’re not backed by anything,” Powell said at a digital banking panel. “It’s more a speculative asset that’s essentially a substitute for gold rather than for the dollar.” ‘More a substitute for gold’ supports a certain bullish thesis we’ve been noting for some time, albeit the only reason you own Bitcoin is in the hope it will rise in value.

Bitcoin is lower, testing the bottom of the recent range.

Gold is trading sideways as yields are not doing an awful lot so far this week.

Gold is trading sideways as yields are not doing an awful lot so far this week.

Cautious start to trade ahead of FOMC’s game of join the dots

Morning Note

Boy the food at this place is really terrible – and such small portions! France’s suggestion it could sue AstraZeneca over a lack of vaccine deliveries rather smacks of not wanting a cake and not eat it. Cases across France and Germany are rising fast and with the vaccine rollout so shambolic across the Eurozone, it creates worry about the pace of economic recovery in the bloc. That has not massively dented the mood in the markets yet – stocks are not the real economy etc, plus rebounding car sales are a boost (see BMW, VW) and plans for a vaccine passport should spur travel this summer – but it could be a problem for the currency.

A cautious mood prevails in global stock markets this morning ahead of the Federal Reserve meeting. Stocks are hugging the flatline in early trade, whilst US futures are flat as really nothing matters today except the Fed, its dots and what Jay Powell says in the presser after.

Uber shares are lower in the pre-mkt after it announced some measures to comply with the UK Supreme Court by offering drivers employee-like status. I say some measures since it looks like drivers won’t be entitled to a minimum wage whilst logged on waiting for a client, but only when they have a fare or are going to pick them up. I don’t think this complies fully with the court’s ruling and Uber could face fresh action. Sticking with cars and it is very interesting to see VW and BMW come back strong and this poses very clear challenges to a certain Tesla stock, which fell another 4%.

Yesterday the FTSE 100 managed to close above 6,800 for the first time since mid-January. The Dow Jones industrial average declined 130pts, or 0.4%, from its record high. The S&P 500 was 0.16% lower, ending a 5-day win streak. The Russell 2000 small cap index fell 1.7% and the Nasdaq rose. US 10-year rates nudged up above 1.63% despite strong demand at a 20-year auction. The Vix – the ‘fear gauge’ – declined to its lowest in a year.

Fed preview: Join the dots

The market will be watching this very closely indeed. This is going to be a tough one for the Federal Reserve and its chair as it’s going to be a hard sell to contain yields and inflation expectations. The problem is that the market is already pricing in a big recovery but the Fed is trying to say ‘not yet’, we’ve still got some way to go. This dichotomy exists largely because employment has become the Fed’s go-to measure of monetary policy outcomes, which is new, and not really what markets are looking at (earnings, GDP). Doublespeak is a risky game – the ECB has been tying itself in knots over its communication. Jerome Powell has been much clearer and has been sticking to his guns ahead of this meeting, despite the greatly improved economic outlook, the rapid rollout of vaccines in the US and – crucially – a spike in bond yields. Coming into the meeting we note 10-year Treasury inflation-protected securities breakeven inflation rate hit 2.303%, the highest since July 2014. 5-year breakevens are at the highest since 2008.

Overall, the Fed is still in very much in accommodation mode – keeping the punchbowl filled up and will want to not let the market think it is bringing forward its rate hike expectations or tapering bond purchases. The Fed has made it clear that its goal is maximum employment and will keep the punchbowl filled up until it gets there. Powell will stick to the script but the market will make up its own mind about what this means for the path of rates and inflation – and the US dollar.

Key questions for the Fed today

Do enough members move their dots to a point where the market sits up and reacts? It seems unlikely that enough members will bring their dots forward to move the median plot much nearer than the first hike of 25bps occurring before the end of 2023, which is still short of the current market positioning which indicates a hike in 2022. An additional 5 members of the total 18 would need to pencil in a hike 2023 to move the median dot. So really this ought not to have much impact on the market – a signal that more than 6 policymakers – say around half or even a majority – are thinking early 2023 would be noteworthy.

Table: Current dots from December

Current dots from December

Is the Fed more likely to lean on long yields (eg a Twist operation) or appear happy to let then run higher and then chase with hikes? The economic fundamentals and cyclical upswing in growth and inflation suggest the latter – the Fed has been talking more about yields being a function of recovery than worrying about inflation. But it won’t want to signal that it’s really bringing forward hike expectations too rapidly, either.

Does it extend supplementary Leverage Ratio (SLR) relief for banks beyond the March 31st deadline. I think it’s unlikely but there may be some action to try and prevent dumping on Treasuries onto the market and the volatility this could generate. I should note that the excellent Zoltan Pozsar of Credit Suisse argues that it won’t be a problem anyway since the vast bulk of Treasuries which are currently exempt from SLR are booked at bank operating subsidiaries, not broker-dealer subsidiaries. “The market assumes that the SLR exemption is what has ‘glued’ the rates market together since 2020, and that the end of exemption means that large US banks will have to sell Treasuries. That view is wrong.” We will find out.

What does transitory really look like in an inflation context? How much above 2% and for how long would warrant action? I think on this we will find out more come June when the prints start shooting higher.

Stick: On March 4th, Powell said the Fed would need to see a broader increase across the rate spectrum before considering any action and stressed that the current policy stance is appropriate. He didn’t signal the Fed was in any rush to do anything about rising yields – there was not the slightest hint the Fed was looking to control the yield curve or carry out a twist operation. The closest hint of concern was this: “We monitor a broad range of financial conditions and we think that we are a long way from our goals,” Powell said, adding: “I would be concerned by disorderly conditions in markets or persistent tightening in financial conditions that threatens the achievement of our goals.” Powell stressed that the Fed is a long way from achieving its goals of full employment and averaging 2% inflation over time.

GDP and inflation expectations have risen since the last dot plot in Dec, and this should be reflected in the forecasts. The OECD raised its growth outlook for the US this year, as have some investment banks. Goldman Sachs raised its forecast to 8% this year, while Deutsche Bank raised its forecast to 6.6% growth, up from 4% seen in November. The 4.2% projection for 2021 GDP growth projection looks outdated for sure.

The OECD raised its growth outlook for the US this year.

But a much stronger economic outlook is not going to stop the Fed from holding fire for now. Powell has spoken enough times about the ‘real’ unemployment rate being closer to 10%. And the Fed is no longer looking at the inflation dynamics and Philip’s Curve – it’s on a mission to right wrongs and get employment back. The Fed will not move on rates and will continue to purchase $80bn of Treasuries and $40bn of mortgage-backed securities each month. Any significant move is unlikely to occur before June, when we might start to see the Fed respond to rising employment levels by voicing a more optimistic economic outlook that warrants a tapering of asset purchases.

Does the Fed signal that inflation will be more than just transitory? If not, can it convince us it will be temporary? Inflation remains the elephant in the room – does it materialise in force and how long does that last. Things could get uncomfortable for the Fed from a market perspective over the coming months as base effects lead to a pickup in inflation readings, which will undoubtedly create upwards pressure on yields whatever amount of rationalising about the data. The Fed will want to use this meeting to reiterate that it is happy with this – indeed AIT implies running a hot economy/inflation to counterattacks years of systematic undershooting of its target.

The other big elephant in the room is issuance – if the Fed really is eyeing a tapering of asset purchases this year (not to be signalled today), then where does that leave long-end yields as Biden – fresh from his $1.9tn Covid relief- swivels his attention to a potential $3tn green/infrastructure bill. How is the market going to absorb all this extra issuance if the Fed is not there to hold the bag? As I suggested yesterday, I think this implies structurally higher bond yields and inflation.

So, it’s interesting to come to the latest BoA Fund manager survey, which reports that the biggest risk seen by investors is inflation or a taper tantrum. This is the first time the pandemic has not been the chief risk for markets in over a year. We have turned a corner for sure – but shouldn’t investors be welcoming economic growth? The consensus from the survey seems to be that 10s hitting 2% would spark a 10% correction in equities and that a 2.5% yield makes bonds more attractive than stocks.

Oil – WTI futures dipped under $64 for a week low yesterday as the nearest months flipped into contango, indicating a slightly looser market than we have been discussing. That seems in large part down to inventory builds in the US as the effects of the weather event in Texas etc refiners were shut in. It may also reflect some worry about tax hikes and global demand worries in light of the European situation. On the whole, the market remains pretty tight this year and should be reflected in higher prices after this period of consolidation. Futures recovered the $65 handle though as the API reported a draw in crude oil inventories of 1 million barrels for the week ending March 12th. Draws on gasoline and distillates were also reported, though much smaller than in previous weeks. This could indicate the US situation is stabilized and we return to a period of healthy draws on inventories as the market tightens.

Ahead of the Fed, gold will be one to watch – continues to trade in a narrow range and failing to break the upside resistance at $1,740. The Fed is likely to deliver action here.

Ahead of the Fed, gold will be one to watch

Stocks pause, dollar comes under more pressure ahead of inflation data, central bank speakers

Morning Note
  • Stocks pause for breath
  • Chinese factory gate prices climb
  • Dollar under the cosh

“I am not a cat”. A Texas lawyer who left a kitten filter on during a call with a judge has delivered us with perhaps the finest ‘Zoom fail’ of all time and has become an internet sensation in the process. Sometimes you feel the need to state the obvious and yet manage to come across more than a little foolish. It can be a bit like writing about the markets.

Stocks pared gains on Wall Street yesterday, whilst European markets are trading mixed around the flatline this morning. Stimulus hopes, vaccines, fiscal and monetary stimulus…all are part of the equation. Chinese New Year holidays start tomorrow and last until February 17th. Brent holds above $60, ahead of today’s EIA inventory data expected to show a draw of nearly 1m barrels. Gold is making steady gains but yesterday’s high at $1,848 will act as the near-term resistance and the downtrend remains in force. Bitcoin made a new high at $48k yesterday but failed to hold gains and was last at a little above $46k. A 23.6% retrace from the highs take Bitcoin to around $38,400 – see chart below.

Chinese factory gate prices, which tend to lead global CPI numbers, rose for the first time in a year on a year-on-year basis. US CPI numbers today are expected to show +1.5% yoy, on +0.3% mom. I’ve expended many pixels on these pages explaining why inflation is coming this year for good or ill. To some degree, whether it’s reflation or stagflation depends on what governments do with their vaccine programmes – do they unleash pent-up demand or keep us wrapped in cotton wool? It doesn’t matter how many you vaccinate if you do nothing with it and continue to restrict people’s activities. It’s not the size of the vaccine programme that counts, it’s what you do with it.

UK quarantine rules and international travel restrictions seem set to last. In fact, the more the UK charges ahead with vaccinations the greater the risk of political (and perhaps real) damage from allowing new variants to sweep in. Britain’s rare success with vaccines means it is not about to open up international travel soon – at least don’t think you’ll be able to waltz in and out without spending a week in a hotel at your own cost and require to take multiple tests during your vacation. Hardly my idea of relaxing break. I would therefore tend to be more careful around travel & leisure names that it was thought would benefit from a ‘back to normal’ trade this year. IAG is down again this morning. Domestic tourism will boom.

In FX, the dollar remains under the cosh, lifting sterling to its fresh 33-month highs. GBPUSD breached the key 1.3450/60 area, the last line of resistance before the round number target for bulls at 1.40. The bullish MACD crossover on the daily chart also confirmed. Meanwhile, EURUSD has made further gains as the dollar retreats. I’d be surprised not to see 1.25 before long, at which point the unloved dollar will start to become a favourite again. CPI numbers for the US will be in focus but we also have Fed chair Powell speaking at 19:00 GMT, two hours after Bank of England counterpart Andrew Bailey hits the wires.

The dollar remains under the cosh, lifting sterling to its fresh 33-month highs.

Bitcoin futures: parabolic moves tend to retrace a fair bit under their own weight

Bitcoin futures: parabolic moves tend to retrace a fair bit under their own weight

Italy taps Super Mario for PM, risk bid with yields up, ‘memestocks’ hit

Morning Note
  • Risk on again as stocks extend rally
  • GME sinks 60% as shine comes off the ‘memestocks’ trade
  • Italian banks rally as country taps Mario Draghi for PM

So, while the EU drags its feet, points blame, raises threats of vaccine export controls and criticises the Oxford University vaccine for being ineffective and suggests the British were taking risks with rushing approvals, the UK is quietly getting on with it. 10m vaccinated and counting. And new research suggests the AstraZeneca vaccine is not only very effective but also slows the spread of the virus. The impact on transmission matters a lot to making things normal quicker as it means you don’t need to vaccinate as many.

Super Mario to the rescue: Former European Central Bank Governor Mario Draghi has been asked to form a government of national unity in Italy. He’s a highly skilled operator, a consummate politician and we know he’ll do ‘whatever it takes’ to steer Italy out of its worst economic and health crisis since the war. As far as technocrats go, you won’t find a better one. Italian banks like the idea of Draghi as PM – shares rose 6% in the major names. His expertise in this area is clearly a positive. Italian 10-year bond yields sank 7 bps to 0.585. The FTSE MIB rallied 2% as banks rose and investors discounted the political risk. I think many of us who watched every ECB presser for the last decade will think Italy has secured a top operator. If you need a technocrat, you won’t do better.

So, the Reddit /wallstreetbets traders got burned. Hardly a surprise – as consistently warned in this column, however you dressed it up, it was a greater fool speculative bubble, which would only end one way. The party for so-called memestocks was always going to be wild but ultimately rather short-lived. Sooner or later the music stops. Cheerleader Dave Portnoy sold down all his ‘memestocks’ for a $700,000k loss. The losses were bruising – GameStop –60%, AMC Entertainment declined –41%, BlackBerry fell –21%. GME and AMC both trade about 8-10% lower in pre-mkt. Silver is back under $27 after touching $30 briefly amid the frenzy, with COMEX raising margin requirements. Other metals also slipped, with gold testing the 38.2% Fib support around $1,830.

More importantly, at least for the broader market and economic outlook, rates are climbing, Wall Street futures are up 5% from their Sunday night lows and the US dollar has broken higher (thought that might not last). European stocks extended the week’s rally in early trade, rising for a third straight day following a strong lead from Wall Street. The S&P 500 rose 1.4% whilst small caps rose 1.2%.

Reflation back on? US 10-year yields have marched back up to 1.12% as the Treasury market appears to be loading up for reflation again, whilst 30-year yields are back to 3-week highs. Moves seem to be associated with progress on Joe Biden’s $1.9tn stimulus programme whilst, as flagged yesterday, we are seeing inflationary pressures feed through into the latest US and UK PMI surveys. Indeed, even Europe could be getting on the act – the final composite PMI for the bloc this morning said inflationary pressures – especially in manufacturing – intensified during January. Input cost inflation accelerated to the highest in two years.

Alphabet and Amazon smashed expectations, but the news that Jeff Bezos will step down as CEO of the latter took the shine of a record-breaking quarter. Amazon Web Services boss Andy Jassy will replace Bezos, overshadowing a stunning quarterly update in which the company posted $125.56 billion in sales. Earnings per share smashed expectations at more than $14 vs $7 expected. Guidance for the next quarter suggests a slowdown but still operating at +33%-40% year-on-year. Cloud revenues rose 28% but this was a little short of forecasts. Bezos will still be pulling strings – I don’t think this is material concern for the stock as it continues to deliver numbers that continue to exceed even the most bullish estimates.

For Alphabet, it was another exceptionally strong quarter. Shares surged over 7% after-hours following its quarterly update delivered EPS of $22.30 vs $15.90 expected on revenues of $56.9bn vs $53bn expected. Core advertising +23% remains strong and shows pandemic trends supportive of digital advertising remains positive, whilst YouTube ad revenue rose 46% and underlined the increasing part this division plays in driving sales.

Crude gains: Positive sentiment around vaccines, stimulus and a big draw on US stocks helped lift oil prices to fresh highs. WTI trades above $55 this morning, around a year high, after the American Petroleum Institute (API) said US crude oil inventories fell by 4.3m barrels in the week to Jan 29th, vs expectations for a build of 446k barrels. Gasoline stocks fell by 240k barrels,  vs an expected draw of 1.1m barrels, while distillates  fell by 1.6m barrels, which was also larger than expected. EIA data today expected to show a draw of just –0.6m after last week’s -9.9m draw. We also look ahead to the OPEC Joint Ministerial Monitoring Committee (JMMC) meeting scheduled for today.

In FX, the dollar just held gains as previous resistance now acts as support. But I fear this apparent short squeeze on crowded short dollar positioning could be a dollar bull trap and EURUSD will recover to 1.25 before the year is out despite the tardy vaccine rollout and underperformance vs the US economically meaning short-term pain for euro bulls. Short-term look for the 91 level on DXY to provide support. Final PMI data out of the Eurozone this morning point to a mixed picture. Manufacturing production rose for a seventh successive month, though at the lowest rate in that period. Only Germany saw a rise in private sector output last month, whilst “solid falls” were seen in France and Italy.

EURUSD holds losses after breaking key support at 1.2050

EURUSD holds losses after breaking key support at 1.2050

Dollar index – trend resistance at 91 becomes support

Dollar index – trend resistance at 91 becomes support

Sluggish start for stocks

Morning Note
  • Biden plans bonfire of the vanities in first 10 days
  • China growth picks up in Q4, retail sales soft
  • News around vaccines and cases weigh on sentiment

A sluggish start for stocks after a choppy and nervous second week of trading in 2021 highlights concerns about the trajectory of global economic recovery this year. European stock markets nudged lower as investors wait for new bullish catalysts amid renewed COVID-19 worries with cases in China on the rise and delays to vaccine rollout in Europe. Joe Biden’s $1.9tn stimulus package has now been discounted, and in Europe we are still waiting for the €750bn rescue package to be disbursed, which won’t be assisted by political upheaval in the Netherlands, Italy and Germany, as Armin Laschet won the race to succeed Angela Merkel. Oil prices slackened amid the broad risk-off tone, with WTI back to a $52 handle and Brent under $55, despite economic growth in China picking up in the fourth quarter. Gold tracked a little higher around $1,830 after a test of $1,800 overnight, with US bond markets shut for the day.

Losses should be limited with US markets shut for the Martin Luther King Day holiday after closing down on Friday to end a choppy week. Indeed the DAX in Frankfurt nudged gently into the green after an hour of trading, with other major bourses paring earlier losses. On Friday, the S&P 500 declined 0.72% to 3,768, whilst the small-cap Russell 2000 dropped 1.5% as the reflation-rotation trade reversed slightly as retail sales numbers disappointed. US retail sales declined by 0.7% in December from November, indicating much slower consumption growth than expected.

We’re getting lots of noise around vaccines, which is to be expected and is likely a factor in some of the nervy price action. For example, Pfizer is temporarily cutting supply in Europe as it upgrades its Puurs facility in Belgium. Meanwhile, AstraZeneca will deliver Britain with 2m doses a week from mid-Feb, later than the end of Jan timeline envisaged. Meanwhile, lockdown restrictions get tighter. All this, of course, is rather by-the-by, as the underlying narrative remains that vaccines will deliver a return to near-normal sometime this year. It might be a bit slower in some places, but for the market, the fact it is going to happen is all that really matters.

The dollar nudged up with the WSJ reporting that Janet Yellen is expected to reaffirm the US administration’s commitment to market-determined foreign exchange rates and will not actively seek a weaker dollar. This may not matter too much, but if she were not to stress this point it could see USD weaken. GBPUSD sank to session lows at 1.35250, the lowest since Jan 12th. EURGBP also bounced off the key horizontal support at 0.8866-67, the line that has held since last June. EURUSD is testing support at the Dec 9th low around 1.2060.

China’s economy grew by 6.5% in the fourth quarter of last year, better than before the pandemic. This helped the world’s second-largest economy notch 2.3% GDP growth in 2020. But the backwards-looking data is probably less important for the market right now than the fact cases are on the rise again and China has locked down 28m people to combat the spread. And consumers remain circumspect – despite the pickup in growth in Q4, retail sales in China declined by 3.9%.

Market attention will swing to the inauguration of Joe Biden this week. Violence is a concern, but the US authorities won’t allow a repeat of the Washington mob. Biden himself plans a bonfire of the vanities, with a series of executive orders in his first 10 days designed to wipe away the sinful past of the Trump era. This will also see the president take greater control of vaccinations.

We’ll also be watching the ECB meeting on Thursday for signs of concern about the pace of recovery in the Eurozone. Clearly, the picture has worsened since the ECB last met, but there is not a lot more Christine Lagarde and co can do for the real economy. The central bank expanded and extended its pandemic emergency purchase programme last time and doesn’t have much ammunition left. Getting the €750bn recovery fund out to where it’s needed is proving painfully slow.


Earnings season on Wall Street hits full speed this week. Netflix (NFLX) reports tomorrow Jan 19th, with average earnings per shares (EPS) estimated at $1.40 on revenues of $6.6bn, up 20% year-on-year. Whilst the company has been a big winner from the pandemic as subscriptions leapt with consumers stuck at home, there are worries about the service going forward.

One, is it as good as it used to be? The library content is shrinking, and competition is far more intense these days. Churn is a big concern with one survey showing 32% of respondents indicating they are likely to cancel Netflix in the next three months. This is well up on previous levels and indicates perhaps a degree of subscription fatigue among consumers. Whilst Netflix remains first among equals (people with more than one VOD subscriptions almost invariably have a Netflix account), it’s facing much sterner competition from the likes of Disney, which is throwing some serious effort into new content and has the advantage of established brands and intellectual property like Star Wars.

Two, we’re heading into the other side of the massive pull-forward in demand that really drove the 2020 subscriber growth. Paid net adds hit 26m in the first half but had declined to just 2.2m in Q3. Netflix ended Q3 with 195m paid subscribers and expects a further 6m net adds in Q4 to reach 201m in total. Key will be the subscriber growth in Latin America and Asia Pacific, where growing broadband penetration rates are supportive of ongoing growth. Whilst Netflix has had some notable local-language successes, it will need to keep repeating these to keep growing – content remains king.

Major US earnings releases


Mon 18 Jan Tue 19 Jan Wed 20 Jan Thu 21 Jan Fri 22 Jan
Bank of America Corp (BAC) Morgan Stanley (MS) Intel Corp (INTC) Schlumberger Ltd (SLB)
Goldman Sachs Group Inc (GS) Procter & Gamble (PG) International Business Machines (IBM)
Netflix Inc (NFLX)

Brexit heads to conclusion, European shares bounce after Wall St records

Morning Note

All eyes are on the Brexit talks as they reach the denouement of what’s been an over-long episode featuring as many twists and turns as an Agatha Christie mystery. Heading to Brussels today, Boris Johnson, a rather puffed-up Ustinov in the role of Poirot, is gathering the players for the final reveal: what is Britain willing to do to turn this insoluble mess into a constructive deal? Will the EU, faced with this revelation, say ‘alright gov, it’s a fair cop’ and give way too?

The government’s decision to ditch controversial clauses in the internal market bill may be an olive branch, but it does not solve the key hurdles on fishing etc. Sterling traded higher on some positive noises from Michael Gove early this morning, as he said there is room for compromise on fishing and that the UK could be ‘generous’ on who enters its waters. GBPUSD pushed back above 1.34 on the headlines but remains on the hook for less confident-sounding updates. The EU Council meeting begins tomorrow and really the bloc would prefer to focus on things like its budget and the pandemic, as well as future ties with the US.

Chart: GBPUSD trades higher above 1.34, resistance at 1.3540.

GBP is stronger on potential positive Brexit news.

A positive session on Wall Street set the tone for a firmer open for European bourses even as the clouds of Brexit cast a pall over the market and lawmakers in the US struggle to find agreement over much-need fiscal stimulus. The Dow Jones rallied over 100pts, or 0.4%, to close at 30,173.88, achieving an intraday high of 30,246.22 in the process. The S&P 500 rose 0.3% to 3,702.25 to close above 3,700 for the first time. Tesla shares rose again despite announcing another $5bn share sale. More cash for capital expenditure is viewed as a positive despite the dilution. In early trade on Wednesday, the FTSE 100 rallied almost 1% to above 6,660 to set another fresh post-pandemic high.

Vaccines are still the magic wand: As the UK’s vaccination programme begins, the Oxford University and AstraZeneca vaccine has been confirmed as being safe and effective in a Lancet study. The news further underpinned confidence in the reopening trade. Meanwhile the FDA has confirmed the efficacy and safety of the Pfizer/BioNTech vaccine, clearing the way for its imminent approval for use in the US.

Getting Washington to agree a stimulus package is appearing as intractable as Brexit. The latest offer from the White House is a $916bn package that has the support of Senate majority leader Mitch McConnel but was rejected by Democrat leaders in Congress who bemoaned the lack of enhanced unemployment benefits. A bipartisan package worth $908bn is still on the table.

British American Tobacco shares failed to rally despite a positive update and upgrade to full-year forecasts. Constant currency revenue growth is now seen at the upper end of the 1-3% range, with the US now expected to be flat versus previous guidance of -2.5%. Global sales seen at -5% vs -7% previously thanks to the sales ban in South Africa being lifted sooner than expected, whilst volumes held up well in developed markets and grew in emerging markets. Lockdowns have not been the ideal backdrop for smokers to kick the habit – many are even taking it up again. Combustibles delivered an ‘excellent’ performance, management said today.

Howdens shares leapt 8% after the company said FY2020 profits would be 10% above the top end of expectations, currently in the range of £123m to £152m. This implies profits of about £167m and comes after a very strong performance in November, with revenues up almost 19%.

Broker Upgrades/Downgrades PT
Wood & Company Wizz Air Cut to Sell 4,440p
Berenberg Cairn Energy Raised to Buy 200p
SSP Rated New Hold 335p
RBC Initiates Cranswick with sector perform 3,900p
Hilton Food Rated New Sector Perform 1,040p
Peel Hunt Bunzl Rated New Add 2,600p
SSP Cut to Hold 375p
Citi National Grid Raised to Buy 970p
HSBC Royal Mail Reinstated Buy 430p


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