Good morning everyone,
The biggest headline in the US at the end of Wednesday was President Donald Trump’s acquittal in his Senate impeachment trial, which had been broadly anticipated and – as with the impeachment process generally – is being largely ignored by markets. Indeed, the indices are all within touching distance of record highs. It looks as though the rally has not quite run out of steam either as markets look set for another positive open, driven by news from China that they are to halve tariffs on some US imports.
In stocks, after posting a disappointing earnings update post-market close on Tuesday, car maker Ford suffered a 9.5% drop on Wednesday, losing more than $3bn from its market cap. After a mammoth run up for Tesla it too succumbed to heavy selling, dropping more than 17%. However, the disparity between the two remains stark, with Ford’s market cap now less than a quarter of its electric rival. Ford CEO Jim Hackett said that the company’s operational execution in 2019 “wasn’t nearly good enough” and executives admitted that they have been significantly behind the curve in terms of launching a flagship electric vehicle. Ford’s all-electric Mustang Mach-E, which will compete with Tesla’s upcoming Model Y, will start to reach customers in early 2021.
Royal Mail fails to deliver
Meanwhile this morning in the UK Royal Mail, which has seen its shares sink from a peak of 631p in 2018 to 189.35p today, has said it will deliver results that are in line with previous forecasts. The group said revenue for the nine months to Dec. 29 increased 3.7% and confirmed its adjusted group operating profit for 2019-20 was expected to be £300-£340m.
However, it warned the outlook for its next year was “challenging” as addressed letters volumes were not recovering as expected, although recent trading was in line with forecasts, helped by a busy Christmas and a December national election.
US stocks enjoy coronavirus rebound
It was another bumper day for US shares with the Dow Jones Industrial Average the biggest winner of the main three indices thanks to a 1.7% gain, driven by UnitedHealth, IBM and Exxon Mobil, which all climbed by more than 4%. All three major indices rose on Wednesday despite the ongoing coronavirus epidemic and significant uncertainties around its impact on businesses. The rally followed the World Health Organisation saying on Tuesday that the virus was not a pandemic and that it is hopeful it can be contained, with reports emerging of treatment breakthroughs. In the S&P 500, which rose 1.1%, Biogen was the big winner. Its share price rose by 17.5% after it won a patent challenge from Mylan related to its top selling multiple sclerosis drug, which generates billions in annual revenue. The victory means Biogen can now sell Tecfidera until the patent runs out in 2028. Airline stocks also had a good day, riding the coronavirus rebound. United gained 3.8%, Delta 1.7% and American 2.4%.
S&P 500: +1.1% Wednesday, +3.2% YTD
Dow Jones Industrial Average: +1.7% Wednesday, +2.6% YTD
Nasdaq Composite: +0.4% Wednesday, +6% YTD
FTSE gains, but still in negative territory for the year
London-listed stocks had a more muted reaction to the positive coronavirus headlines, with the FTSE 100 climbing by 0.6%, keeping it stuck in negative territory for the year. Packaging firm Smurfit Kappa lead the way with a 6.7% gain after reporting a jump in profits and a significant boost to its dividend. Three of the top 10 climbers in the FTSE 100 were airlines, a group that has been hit particularly hard by the coronavirus epidemic. There was good news on the economic front too as the service purchasing managers’ index was unexpectedly revised upwards to 53.9 for January, its strongest reading since late 2018. In the FTSE 250, which gained 0.4%, both Tullow Oil and Premier Oil’s share prices popped by more than 4% as oil prices rose. Tullow has had a rough year with its share price currently around 80%, below its 2019 peak, culminating in its chief executive leaving the company at the end of 2019.
FTSE 100: +0.6% Wednesday, -0.8% YTD
FTSE 250: +0.4% Wednesday, -1.7% YTD
Stocks to watch
Philip Morris: Tobacco giant Philip Morris’ share price has been volatile over the past year, with three double digits runs up and multiple double digit dips. Since the end of September its shares have gained more than 20%, and the company also offers a dividend yield of more than 5%. Like many rivals, the company is attempting to pivot towards smoke-free alternatives, with the tagline “delivering a smoke-free future” displayed prominently on its website. The company reports its latest set of quarterly earnings on Thursday, where its progress on e-cigarettes will be watched closely, as will whether cigarette price rises are offsetting sales volume declines.
Uber: Ride hailing company Uber has been under pressure since it went public last year, drawing scrutiny from regulators in a variety of locations and its share price is still close to 20% off its IPO price. In Q4 the company was fined $649m by the state of New Jersey and was banned in London. The firm has burned through billions since going public and another major loss is forecast in Q4. Uber reports earnings after market close on Thursday, and analysts – of whom 28 rate the firm as a buy or overweight, and 13 as a hold – are anticipating a $0.67 per share loss.
T-Mobile: Mobile network T-Mobile has been a steady performer over the past five years, with its share price climbing more than 160%, including 20% over the past year. Certain to be central to its earnings call post-market close on Thursday will be the ongoing saga of the firm’s planned merger with Sprint. The deal has approval from the federal authorities, but states are fighting to block it on competition grounds. On average, Wall Street analysts have placed a 12 month price target on the stock of $92.43, versus its $81.79 Wednesday close.
Bitcoin surpassed its November peak to reach its highest level since September after hitting a peak of $9,661 during overnight trading. It dipped subsequently, but only marginally, to trade at $9,628 this morning. Bulls will be hoping for a challenge of the psychologically important $10,000 mark.
Ethereum stole the headlines however, after breaking through the $200 mark – it is trading at $206.3 this morning, also at its highest level since September. Not one to miss out, XRP also surged, going through $0.28 at one stage overnight.
Ripple announces new partnership with International Money Express
International Money Express (Intermex) will leverage RippleNet for faster cross-border remittance services between the US and Mexico. Intermex processes 30 million payment transactions a year through a network of 100,000 payer locations. Where XRP comes in is as a bridge between sending and receiving currencies, speeding transactions up and reducing costs
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