Consumers have developed a penchant for germ protection and disinfection during the pandemic. This has been good news for Reckitt Benckiser, which today reports record profits as a 20% jump in LFL hygiene sales lifted earnings. Dettol and Lysol sales growth were both very strong as consumers wiped down door handles and swabbed their Ocado bags on delivery. These habits, says management, will persist. Nutrition sales were flat on a like-for-like basis, which is less positive for longer-term health. Lockdown in microcosm, some might say. Partly that was down to lower birth rates, which are expected to persist as family planning is put on hold. If your wellbeing has taken a hit during the pandemic, perhaps some multivitamins will help. RB hopes so, saying vitamins, minerals and supplements, particularly immunity, and senior nutrition will support 3-5% growth for Nutrition longer-term. RB also reported “improved Durex momentum”, which presumably is contributing to the lower birth rates that, er, are affecting the nutrition business. Swings and roundabouts. Shares rose over 2% in early trade. 

Lloyds shares at last broke above 40p at long last as the company reported better-than-expected full year profits and resumed dividend payments. The company’s bullish outlook for 2021 is encouraging. Impairment charges of £4.2bn were a lot lower than the £4.7bn expected. Going forward I expect loan loss impairments for all the major banks will be much lower than many people believed nine months ago thanks to ongoing government support schemes for workers and businesses during the pandemic, combined with a swift recovery and bounce back in economic sentiment and spending in the summer.  

Other banks dragged on the FTSE 100, which fell 0.5% in the early part of trade on Wednesday. Miners led the way lower, with BHP and Rio Tinto both down by around 3%. Scottish Mortgage is down again after a battering from the tech selloff on Wall Street. European stocks were firmer after a confused Turnaround Tuesday on Wall Street. Asian shares fell with Hong Kong down 3% after the city’s government said it would raise the stamp duty paid on stock trades by both buyers and sellers to 0.13% from the current 0.1%. HSBC fell more than 2.7% in early London trading afterwards, while Standard Chartered declined 2%.  

The Dow Jones and S&P 500 both reversed heavy early losses on Tuesday to close higher as some soothing words from Jay Powell seemed to lift the tide and ease concerns about rising inflation expectations and bond yields. The turnaround came as Powell spoke and urged that inflation remains ‘soft’. This helped cool the rise in yields and curves flattened a touch from their multi-year highs. Nevertheless, cyclicals led by energy and financials were the main drivers of the gains on the broad index, with tech suffering. 

Tech turmoil, or turnaround Tuesday?

The Nasdaq 100 plunged over 3% at one point, breaking under its 50-day simple moving average and testing the Jan 15^th low at 12,758, as a tech selloff intensified with Tesla shares suffering a double-digit percentage fall in early trade. Tesla finished down a more modest 2% as Cathie Wood’s Ark Invest – one of the carmaker’s biggest backers – bought another $120m in stock, apparently helping to put a floor under the market – for now at least. The ARKK Innovation ETF finished 3% lower while the Nasdaq 100 managed to finish only 0.5% lower, closing above the 50-day SMA as the January support held. Softbank is said to be planning to invest billions in biotech stocks, though this didn’t seem to help the Nasdaq Biotechnology Index, which closed down 1.5% on the day. 

Oil prices retreated from their highest levels in more than a year as the API reported a surprise 1m barrel build in inventories, vs expectations for a draw of more than 5m barrels, whilst about 80% of Texas production is now back online. Inventories at Cushing rose 2.8m vs expectations for a draw of 0.8m. Distillates declined by 4.5m and gasoline stocks rose by 0.1m. EIA figures today are expected to show a draw of 6.5m barrels. 

In FX, sterling keeps charging higher, with GBPUSD breaking above 1.42 after clearing 1.41 for the first time in three years only yesterday. The pound looks to be buoyed by a much stronger sentiment towards the UK domestic economy in 2021 with the roadmap for exiting the pandemic. It may be slow, but its measured and gives clarity to the market. It’s also believable – gold dust for governments – since the vaccine programme is progressing so well.

Bitcoin untethered 

Bitcoin rebounded after a dismal day with prices north of $50k again. Yesterday Tether and Bitfinex reached agreement with the New York Attorney General to pay an $18.5m fine to settle a long-running dispute that relates to whether the stablecoin Tether, which is supposed to be ‘pegged’ to the US dollar, really is fully tethered. The NYAG said the two entities covered up losses and massively overstated reserves. Neither admit to wrongdoing, but settled in the interest of “increasing transparency”. The statement from AG Letitia James is quite something, and I recommend giving it a read.  

“Bitfinex and Tether recklessly and unlawfully covered-up massive financial losses to keep their scheme going and protect their bottom lines,” she said in a statement. “Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie.” By mid 2017, the NY AG says that Tether had “no access to banking, anywhere in the world”, which meant that contrary to what it told users, held “no reserves to back tethers in circulation at the rate of one dollar for every tether”.  

This all goes back to concerns that Tethers (which are supposed to be a kind of digital dollar, with each tether backed one-for-one with actual dollars) are used to buy Bitcoin and manipulate prices. A research paper published in 2018 alleged Bitcoin prices are being manipulated with Tether purchases. 

Powell testimony continues 

Is it time to go Catwoman on the debt…? No Jay Powell didn’t understand what Senator Kennedy from Louisiana was on about either. Still, it seems 2021 is again proving to be the year of the cat.  

Powell’s semi-annual testimony in Congress continues today after he delivered the necessary balm for markets yesterday. Powell reiterated that the Fed is not thinking about thinking about raising rates, stressing that price pressures so far remain muted. As expected, he really sought to push back against the bond market’s reading of events, which has seen yields rise and the yield curve steepen to multi-year highs. 

I did find it odd that Powell was so unwilling to get drawn on fiscal relief when he’s been a cheerleader for Washington to err on the side of doing more rather than less throughout the crisis. Speaking last year, he warned: “Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses. By contrast, the risks of overdoing it seem, for now, to be smaller. Even if policy actions ultimately prove to be greater than needed, they will not go to waste.” This the Yellen playbook.  

Powell also reiterated that the Fed’s goal is for inflation to run above 2% for a time – as implied by average inflation targeting. The Fed, he said, expects readings on inflation to rise largely due to the base effect from low readings last year. He can see spending pick up substantially, which could put upward pressure on prices, but he stressed that this not likely to be large or persistent. After 25 years of disinflationary pressures, he argued that whilst inflationary pressures do change, they don’t change “on a dime”. Moreover, he said that if the US does get unwanted inflation, the Fed has the tools to do with it.  

House price growth in the US doesn’t look disinflationary right now. CPI measures don’t give a full picture of inflation – asset price inflation needs to be considered. Yesterday the S&P CoreLogic Case-Shiller Index reported 10.4% annual house prices growth in 2020.