Out of the woods? Corporate earnings point to recovery, Musk sends Dogecoin to the moon, Bank of England ahead

• Corporate updates signal confidence
• Elon Musk sends Dogecoin skywards after tweets
• Bank of England expected to stand pat

Whilst there has been a lot of attention on the ‘memestocks’ mania over the last week, earnings season rumbles on quietly with companies, on average, reporting profits ahead of albeit rather low expectations. Today is a busy one for corporate updates in London, and there are signs executives are a little more confident about the future.

Unilever shares fell despite beating on sales for the fourth quarter. Underlying sales growth accelerated to 3.5% in Q4, driven largely by volume growth, with the full-year growth coming in at +1.9%. Of note, Unilever restored its 3-5% sales growth target which it had dispensed with last year because of the pandemic. Jope still thinks 2021 will be challenging but there is a sense that things are improving.

Shell shares ticked up as it raised the dividend despite its annual results showing the oil major suffered a big blow in 2020. Shell recorded a net loss attributable to shareholders of $4bn for the fourth quarter. Adjusted earnings for the quarter were +$393m, down 87% from 2.93bn last year. But…negative oil prices are behind us and these results are ancient history now that Brent is close to taking a $60 handle once more.

And BT raised its full-year guidance for free cash despite a big hit to revenues in the third quarter. The bottom of its free cash range was raised to £1.3bn from £1.2bn which is giving the shares a bit of a lift in early trade, whilst the numbers for Q3 themselves were not quite as bad as feared. Revenues fell 7%, with adjusted ebitda –5% and profits falling 17%. BT – rather like Vodafone – faces a problem as consumer roam less, requiring less data on their mobiles.

European equity markets traded broadly higher for a fourth day as the corporate earnings backdrop continued to offer support, whilst the Biden administration is pressing ahead with the $1.9tn stimulus package without Republican backing. Biden wants to act fast and does not want to spend his first 100 days in office horse trading with the GOP over relief plans. The price of this could be any hopes of bipartisanship in future. Yields continue to press higher as the White House edges towards dropping another 10% of GDP in stimulus into the mix – US 10s rose to 1.15%. Gold fell, and now tests its 200-day EMA at $1,820, as yields ticked up and the dollar is stronger.

Meanwhile, Dogecoin was sent skywards after Elon Musk this morning tweeted ‘Doge’, and in further tweets adding ‘Dogecoin is the people’s crypto’ and ‘No highs, no lows, only Doge’.

No highs, no lows, only Doge

— Elon Musk (@elonmusk) February 4, 2021

It plays into the whole narrative we have tracked these last two weeks as social media is used by various characters to ramp individual assets. Anything Musk tweets about shoots higher because he has such a strong following both on social media and as a businessman. People will literally invest in him and his ideas, and don’t care what the fundamentals are about what’s involved.

ur welcome pic.twitter.com/e2KF57KLxb

— Elon Musk (@elonmusk) February 4, 2021

Bitcoin is higher again above $38k. Interestingly, GameStop shares rose gently yesterday, climbing 2.7% to $92.41 – the mania seems to have subsided for now. And as Michael Burry says, it’s unlikely there will be such a perfect setup as there was with GME again.

Any evidence of inflation won’t bother the Fed. Chicago Fed president Charles Evans made that pretty clear by saying: “It will be critical for monetary policymakers to look through temporary price increases and not even think about thinking about adjusting policy until the economic criteria we have laid out have been realized… I see us staying the course for a while.” This simply builds on the last comments from Powell re tapering and indicates the Fed is not about to worry the markets.

The Bank of England is expected to leave its benchmark rate on hold and maintain the size of its asset purchase programme. There is lots of ammo left in the box in terms of QE with only £10bn of the latest round used. The only thing the market will care about today is the likelihood of negative rates. The Bank will publish an update on its work with banks on their preparedness and operational requirements for dealing with negative rates. Whilst there are one or two super doves who think negative rates are a ‘good thing’, it’s clear Andrew Bailey prefers to keep them at the bottom of the toolkit – there but out of sight. My feeling is the MPC is keen to kick negative rates down the road until the economy recovers and they’re no longer a topic. The evidence from Europe is hardly encouraging. Focus will also land on the latest economic projections – downgrades for this year are expected because the lengthy lockdown at the start of the year, but the vaccine rollout should be encouraging.

In FX, the dollar is bid across the board with DXY holding its upside breach of the trendline. EURUSD trades under 1.20 for the first time in two months. GBPUUSD is back under 1.36, its weakest in more than two weeks. Watch for the bull trap.