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European stock markets made broad gains in early trade on Wednesday, buoyed by a strong lead from tech after a rally in the US and a positive handover from Asia. The FTSE traded above 7,600 again, trading +0.6% or so, having nursed a small loss on Tuesday despite the positive open saw it trade at its highest intra-day level since the pandemic began.

GSK results out, shares flat: Upbeat tone overall but investors need more about the strategy. Pharmaceuticals sales +4% £17.7 billion, vaccines -3% to £6.8 billion, adjusted operating profits -1% lower at £8.8 billion. Guidance for 2022 – increased investment in R&D, sales to rise between 5 and 7 percent, operating profits seen +12-14%, excluding any contribution from Covid-19 solutions. Dame Emma Walmsley, CEO, touted “a step-change in growth” as well as “multiple R&D catalysts, including milestones on up to 7 key late-stage pipeline assets”. Really investors are waiting for the capital markets day at the end of Feb to see what the new strategy looks like; oft repeated but the shares have done nothing over the last 5 years in terms of capital appreciation. Smurfit Kappa shares rose over 2% on solid final year results: revenues +18%, EBITDA growth of 13%, margins at 16.8%, down from 17.7% last year due to strong input cost inflation. PZ Cussons (PZC) rallied 5% as reported profit doubled in the half-year to the end of November. Revenues from continuing operations declined over 9% but the company showed good pricing power as it improved margins. Despite significant commodity, freight cost and FX headwinds, gross margins improved 40bps.

US markets rallied on some decent corporate earnings; and even as the blowout in bond yields continued, the yield on the benchmark 10yr Treasury note finished lower at 1.93%, having traded above 1.96%. Megacap tech was well bid, helping the Nasdaq to climb 1.3%, whilst the Dow Jones rose 1% and the S&P 500 almost matched that gain. Earnings were important and trumped concerns about inflation and rates. Harley-Davidson (HOG) rose 15% on a surprise rise in profits. Peloton (PTON) leapt 25% as it ousted its CEO John Foley, reported a bigger-than-expected loss and slashed its guidance: bad news had been well and truly priced so the change at the top is seen as a positive…or could just be some short covering. Likelihood is the company gets bought by one of the big tech names like Amazon. Chipotle Mexican Grill (CMG) was up 8% after-hours as it beat expectations on earnings – pricing power was key. Lyft (LYFT) fell 55 after-hours despite beating on the top and bottom line as it reported a decline in the number of active riders. So far about three-quarters of the companies on the S&P 500 that have thus far reported have beaten EPS expectations. Another 200 to go…

Pandemic over? Fauci says full blown bit is over … Study says omicron booster not needed. Pfizer (PFE) results + guidance a disappointment (shares –2.8%). Right now, the idea of endless boosters seems highly unlikely… big change from last year. Moderna (MRNA) is down almost 70% from its peak Delta fear high.

Volatility over? JPM says: Inability to on Friday’s strong payrolls reveals prevalence of bearish sentiment. However as overly bearish sentiment clears, we expect the market to lift. Volatility moderating and expect strong equity inflows from systematic investors…Favours EM and China equities.

Macro picture: Maersk warns supply chain troubles will persist in the first half, but start to ease in the second half of the year. FOMC members Bowman and Mester speak today, while there is also a 10yr bond auction due later. USD has pulled back a touch this morning, counter-trend rally over? EURGBP weaker for a third day…hawkish twist from ECB last weekend unwinding a bit post the Lagarde and Knott comments…yet peripheral spreads still widening, which reflects concerns about the state of debt servicing in some countries. US CPI inflation is the main focus this week – due tomorrow.

Tesla stuff: apparently the company quietly removed steering components from new cars over chip shortage fears…so when we wonder how come Tesla managed to navigate the chip shortage better than others, we have our answer! Apparently “at least one internal discussion was said to be had on whether or not Tesla should inform customers. Tesla reportedly decided to keep quiet on the matter.” Of course they did…Meanwhile, Joe Biden finally touted Tesla as the biggest EV maker in the US, having put Musk’s nose out of joint for failing to praise the company’s leadership.

Oil turning over at last…called it, but for how long? Bearish MACD present at last…would like to see move confirmed. Failure to catch any bid on a surprise draw in inventories in the API figures of 2m barrels, vs the expected 400k barrel build, appears bearish. Near term, overbought technicals + potential Iranian nuclear deal and absence of fresh Russia-Ukraine geopolitical premia indicate pullback could have deeper to run, perhaps to $80/81. Longer term, the structural deficit in the market has everyone calling for new highs. JPM again: “We expect oil to overshoot to $125/bbl in 2022 and $150/bbl in 2023”.

Oil Chart 09.02.2021

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