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Show me the money: Shares in 2020 darling Ocado slipped 3% as this morning’s full-year update showed payback for investors remains elusive (or is that illusive?). Ocado earnings are always interesting – profits depend on U.K. retail performance, but valuations depend on selling its tech abroad. At the interims last July management warned that International Solutions – the tech bit – would decline due to continued investment in improving the platform and building the business, and from increased support costs with launch of initial CFC sites. This morning’s finals show earnings before nasties at £73.1m, driven by 35% revenue growth in its UK Retail division and a continued negative contribution (a loss) from International Solutions. Nevertheless, there were some encouraging signs as fees invoiced to International Solutions partners of £123.9 million was up over 52% from 2019. This included the first capacity-related fees from CFC openings for Groupe Casino and Sobeys. But is it fast enough? We know the M&S tie-up is working and the pandemic-led shift in consumer grocery shopping to online is boosting retail sales and earnings. Profits from Retail surged 265% to £148.5m from just £40m. Losses from International Solutions however rose over 51% to more than £83m, dragging group losses before tax to £44m. Investors will be forgiven for asking when they will get some kind of return. Amazon faced similar questions for years. Likewise Ocado continues to invest in growth – £700m this year. It also warned that it will face significantly higher legal costs this year because of a patent challenge in the US. There was no change to the July guidance: “International Solutions EBITDA is expected to be lower, reflecting greater investment in building the business, more than offsetting the increase in revenue.” 

 

Bitcoin advanced further, taking out a new record high above $48k as traders chased the market higher in the wake of the Tesla investment news. As noted yesterday (Bitcoin surges on Tesla filing), Tesla’s decision to invest $1.5bn in Bitcoin is the kind of corporate support that bulls will latch on to and could see $50k taken out quickly.  There are so many elements to this story that deserve attention. First is the potential market manipulation vis-a-vis Musk’s recent tweeting. Second, it’s interesting to note that the investment is the same as Tesla earned in regulatory tax credits from the US last year – taxpayer money being spaffed on a speculative investment in cryptocurrency is one way to look at it. Three, given the volatility of the asset, what do investors think about absorbing this kind of risk on to the balance sheet? Four, on a more positive note, does Tesla lead other large companies to make large-scale Bitcoin investments? Will Apple and Facebook follow? Corporate support of this sort is key for broader acceptance. And finally, if Tesla really is to accept Bitcoin as payment, will prices by dynamic – and stay pegged to dollar value – or will they take on even greater FX risk by maintains prices in bitcoin? Pricing in Bitcoin is fine if you are selling pizzas – the most you might lose is $10. But if Bitcoin suddenly doubles, Tesla’s margins would be eroded without a matching hike in the price. Tesla’s shares rose over 1%. Meanwhile, the company faces a challenge from China as regulators hauled the carmaker up on reports of some technical issues with vehicles manufactured in the country, sales of which hit 16k last month. 

 

In the broader market, we saw fresh record highs on Wall Street as the S&P 500 broke through 3,900 and the Nasdaq closed within a few points of 14,000. Small caps led the charge again, with the Russell 2000 +2.5% even as yields just eased off their highs – reflation trade is still powering things here as investors focus on the Biden administration stimulus package getting through Congress and becoming reality. The Russell 2000 is up almost 16% YTD, vs 4% gains for the broad market. However, the Vix rose at the same time as stocks, a potential red flag, albeit the volatility index is well off its late Jan highs. European equity markets have stuttered at the start of trade this morning after the Dax had hit a new all-time high yesterday. Oil trades broadly higher with Brent north of $60 albeit a little of the highs struck overnight.  

 

In FX, as expected the weaker dollar trend is starting to reassert itself. This helped cable finally break down the resistance around the 1.375-60 area, following several attempts in the last fortnight, to run to a fresh 33-month high above 1.3780 and could now be chased to 1.40. The final hurdle, in the shape of the 78.6% retracement of the 2018 high to 2020 low, is now cleared. Also watch potential bullish MACD crossover forming on the daily chart. EURUSD also recovered the trend support above 1.2050. 

 

GBPUSD clears key resistance 

GBPUSD clears key resistance

Dollar reverting to trend

Dollar reverting to trend

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