Adam Vettese, UK Market Analyst at eToro, has provided his daily commentary on traditional and crypto markets for January 22, 2020.
Markets have bounced back this morning following yesterday’s coronavirus influenced sell off. China has taken measures to contain the virus including minimising public gatherings in the worst affected areas. This is in contrast to the cloak-and-dagger approach to the SARS outbreak which was initially covered up. Asian stocks rebounded across the board, the UK and Europe have opened positively and US futures are indicating opening up 0.3%.
Despite this, Burberry’s update has failed to impress, shares are down 2% even though they beat expectations. Investors clearly were expecting a lot more, with the consensus figure fairly low. The luxury goods retailer’s Hong Kong sales were hit by the recent protests in the region, although some of this shortfall was made up by growth in mainland China. Full year forecasts have been given a slight upgrade.
Netflix beats estimates but tough times ahead
Netflix shares rallied in after hours trading following their Q4 update in which subscriber numbers grew more than analysts expected. Strong releases such as ‘The Crown’ have gone down well with audiences, however the company also acknowledged that increased competition from Disney and Apple will mean 2020 won’t necessarily be a walk in the park. It’s clear that Netflix will have to continue to produce top content to stave off their competitors as well as retaining the timeless stalwarts of their portfolio, something they haven’t managed to do with Friends and The Office.
Sainsbury’s CEO steps down
In a surprise announcement this morning Sainsbury’s announced its long-standing CEO Mike Coupe, who has been at the helm of the supermarket giant for almost six years, is stepping down.
Coupe will step down in May, with Chairman Martin Scicluna announcing the Board has agreed to appoint Retail and Operations Director Simon Roberts as his successor. Sainsbury’s has come under increasing pressure in recent years from discounters, with its share price falling almost 40% from a peak of 336p down to 212p at yesterday’s close.
Boeing slumps as it puts 737 Max production on hold
All three major US indices were negative on Tuesday, with the Dow Jones Industrial average at the rear of the pack with a 0.5% decline. Boeing was at the back of the 30 stocks in the Dow after announcing that it is pausing production of its troubled 737 Max airliner. The firm has been building planes that it is unable to deliver – and therefore take payment on, and the company’s stock closed 3.3% lower on the news. At the other end of the spectrum, internet provider CenturyLink led the S&P 500 with a 4.7% gain on Tuesday, followed by home builder Lennar up 2.9% and retailer Costco which gained 2.8%. After lagging short of the $100bn milestone at the end of last week, Tesla popped 7.2% on Tuesday, taking it to a $98.6bn market cap.
- S&P 500: -0.3% Tuesday, +2.8% YTD
- Dow Jones Industrial Average: -0.5% Tuesday, +2.3% YTD
- Nasdaq Composite: -0.2% Tuesday, +4.4% YTD
Dixons Carphone reporting error kicks off bizarre share price moves
UK shares also slipped on Tuesday, keeping the FTSE 250 in negative territory for the year so far. Similar to the US, InterContinental Hotels Group fell 3.5% and International Consolidated Airlines Group fell 3%, due to fears about the impact of the coronavirus outbreak in China on travel demand. easyJet led the FTSE 100 however, climbing 4.6% after delivering a trading update indicating it expects a strong winter – a period that usually poses difficulties for the airline. The FTSE 250 was led by Dixons Carphone, which jumped by 7% after an unusual day that saw it reissue its Christmas trading update due to an erroneous sales figure. The stock initially climbed, sank once the error was corrected, then soared as investors piled in to try and pick up cheap shares.
- FTSE 100: -0.5% Tuesday, +0.9% YTD
- FTSE 250: -0.5% Tuesday, -0.6% YTD
Stocks to watch
Johnson & Johnson: Consumer health giant Johnson & Johnson owns brands including Neutrogena and Aveeno. After a volatile 2019, the stock has been rallying since late October along with the broader market, gaining more than 15%. Investors will be watching for signs that the momentum can continue. The firm has beaten earnings expectations in its past three quarters. In Q4, analysts are predicting an earnings per share figure of $1.87, versus the $1.97 it posted last year. Johnson & Johnson has a p/e ratio of around 17 according to Zacks Equity Research and offers a dividend yield of 2.6%.
Abbott Laboratories: $159bn market cap Abbott is a medical devices and healthcare company that has grown its share price by more than 25% in the past 12 months. It has delivered earnings in line with expectations in each of the past four quarters. The firm is about to go through a reshuffle at the top, with a new CEO and CFO promoted from within, as it awaits approval of a new version of its Freestyle Libre glucose monitor. Abbott reports earnings on Wednesday morning and Wall Street analysts currently have a $96.07 average 12-month price target on the stock, versus its $89.73 Tuesday closing price.
Texas Instruments: Texas Instruments is a major semiconductor manufacturer and has been part of the broader rally in chipmakers over the past couple of months. Its share price is up double digits since late November, although analysts are split between hold and buy ratings on the stock after the company’s last set of earnings included continued revenue declines. The average 12-month price target is within a hair of the stock’s $130.86 Tuesday closing price, with estimates ranging from $105 to $150. Along with its peers, Texas Instruments is in the firing line if US-China tensions do escalate once more as negotiations on a phase two trade deal kick off.
Bitcoin is edging back towards $9,000 today amid speculation among some investors that it is time to short the cryptoasset.
Having surged more than 20% year-to-date, the world’s largest cryptoasset is currently trading at $8,701 as its post-Christmas boom continues. Ethereum and Ripple are also closing in on recent peaks, back at $167.9 and $0.235 respectively.
Prospects for the more widespread adoption of Bitcoin continue to spring up, particularly in tech circles. Square Crypto, the digital branch of the firm founded by Twitter’s CEO Jack Dorsey, has this week announced its intentions to develop a Lightning kit that will aid in the adoption of Bitcoin. The move will help bitcoin wallet developers easily integrate micropayments networks with the products they already have.
Central banks join forces to discuss digital currency
Six of the world’s major central banks are to compare notes on use cases for central bank digital currencies. The group, consisting of the Bank of England, the Bank of Japan, the European Central Bank, the Swiss National Bank, the Swedish Riksbank and the Bank of Canada, will assess the merits of issuing a digital currency along with implications such as consumer protection and privacy. Facebook’s announcement of their Libra project has jolted central banks into action as they fear being left behind by the private sector.
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