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Shares traded mostly higher in Europe following a positive start on Wall Street on Tuesday as traders returned from the three-day weekend to some upbeat earnings from Goldman Sachs and Bank of America to send the S&P 500 up 0.81% and the Nasdaq +1.53%. Janet Yellen’s Senate hearing confirmed that that stimulus is the order of the day and ‘fiscal sanity’ will be discussed, but not yet. She stressed that worrying about battered finances and raising taxes – the ‘who’s going to pay for it all’ question that MMT’ers say we should not be asking – would be for another day once the economy has recovered. By some measures that could mean years, but it underlines that the new administration is pushing for maximum relief and a period of fiscal expansion. I doubt she’ll ever admit to fully embracing MMT, but we in many ways already there.

For now, as far as equity markets are concerned, it seems as though investors are shuffling the deck, rotating in and out of sectors ahead of the next big move for the broader market. Joe Biden will be inaugurated as the 46th president of the United States today. The end of the Trump era will be marked by a changing of the guard in Washington, but will we see much change on Wall Street and in corporate America? Some corners of the market may look rather different in 4 years’ time.

Netflix shares surged 12% in after-hours trade after it posted a stronger-than-expected rise in net subscribers and said it’s close to returning cash to shareholders via share buybacks. Subscriber adds rose to 8.5m in the final quarter, ahead of the 6m or so expected. Lockdowns across Europe starting in November and surging cases globally probably helped cement demand, whilst churn has not been as much of a problem as feared. Free cash was +$1.9bn in 2020, though this can be mostly explained by delayed production costs due to the pandemic whilst revenues rose on subscriber additions. And whilst 2021 will be negative, it plans to be cash-flow positive going forward from 2021, allowing it to start to return cash after raising $15bn in debt over the last decade to finance expansion. Netflix’s content library may be smaller than in the past, but the strong year has been boosted by big hits like ‘The Queen’s Gambit’, ‘The Crown’ and ‘The Midnight Sky’. EPS was a little light at $1.19 vs $1.39 expected, but investors are content to look through this when subscriber adds are strong, whilst the prospect of buybacks is a clear tailwind for the stock. The strong performance by Netflix appeared to bolster the broader FAANGs with big tech enjoying a solid bump yesterday.

Elsewhere, the dollar eased back further as the near-term rally lost more steam, with the dollar index retreating further away from its 50-day simple moving average. EURUSD pushed up to 1.21580 as the 50-day SMA held firm. Cable also nudged back up with GBPUSD rallying above 1.360 with bulls likely shaping up for a return to 1.37 and clear the Apr 2018 peaks again.

Gold has inched back to $1.850 but still trades a pretty narrow range since the big drop on Jan 8th. Bulls eye the 50-day SMA at $1,860 as US real rates (10-year TIPS) have swung back down by around 6bps or so in the last two days, whilst the dollar’s easing off its peaks has provided some lift. Oil was firmer with WTI above $53 again as markets digested the report from the IEA, which lowered its demand forecast for 2021 but stressed that “a widespread vaccination effort and an acceleration in economic activity is expected to spur stronger growth in the second half of the year”, adding that: “Much more oil is likely to be required, given our forecast for a substantial improvement in demand in the second half of the year.”


Burberry posted a tough set of headline sales numbers, but margins are looking better. Sales dropped 9% on a like-for-like basis, worse than the –7% expected, but the focus on reducing markdowns is helping shore up profits, whilst demand recovery in Asia is encouraging. Burberry has taken a hit as luxury was affected by the pandemic, with footfall down across the board and sales in Europe particularly affected by the collapse in Asian tourist visits. But there have been clear signs of improvement as resilience in key markets has been impressive. Efforts to reduce markdowns and the push to attracting younger, richer customers through celebrity endorsements from the likes of Kendall Jenner and Marcus Rashford is helping. Clearly the closure of physical stores as lockdown restrictions re-emerged towards the end of last year has affected sales, but direct-to-consumer online channels are more profitable.

At its half-year report in November, Burberry reported 31% revenue fall with adjusted operating profit down 75% and adjusted diluted EPS down 88% (reported diluted EPS down 66%). But it noted that recovery was underway with sequential improvement in comparable store sales to -6% in Q2 FY2021 from -45% in Q1 FY2021 and returning to growth in October. Today is records strong performance in Asia-Pacific in Q4, with sales +11% led by Mainland China and Korea. Europe, Middle East, India and Africa sales –37% on collapse in tourism. Americas –8% down to price mix changes.

Burberry remains a strong brand in the luxury space with room to appeal to a broader consumer base over the coming years. The strategy to focus on up-market and full-price sales seems to be paying off and investors agree – shares rose 5% despite the worse-than-expected fall in sales. Also given the consolidation in the sector, Burberry may seem like a potential target with shares still trading at a discount to peers.

Retail remains a mixed bag depending on the corner of the marketDixons shares fell a touch despite a peak Christmas trading update showing decent growth in Electricals with LFLs +11% across the group as locked-down consumers splurged cash on big TVs and gaming consoles. Online market share +8% is a positive and AO World shares fell –2% perhaps as a result. The real problem remains in Mobile, where total revenues fell –40% with restructuring ongoing in Carphone Warehouse.

WH Smith shares rose over 6% after December saw its High Street division recover to 92% of 2019 levels, up from 82% in November as the country was hit by a broad lockdown. Sales in January are at 70% of 2019 levels so far. Travel – where Smiths has been making its money of late – is trading at about 36% of 2019 levels. Demand in the US – where there is substantially more domestic internal air travel – has recovered more quickly than in the rest of the world. Management say they generated cash during November and December and ended December with a stronger cash position than anticipated with liquidity of £90m, which was “materially ahead of our original plan”.

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