Adam Vettese, UK Market Analyst at eToro, has provided his daily commentary on traditional and crypto markets for January 6, 2020.
A very Happy New Year to you all, the start of a new decade. Did anyone have money on #WorldWar3 trending within the first week? To say it has been an eventful start would be an understatement. The killing of top Iranian commander, Qassem Soleimani, in a US airstrike has sent shockwaves across the world, and indeed the market too. Huge crowds have gathered today in Tehran for the general’s funeral and Iran has promised retaliation against the United States.
In terms of markets, the sell off has continued today as a result with major indices down across the board. On the flip-side, crude oil has been a benefactor of the situation already up over 4% this year, in fear of a potential supply cut-off. Investors have also flocked to other safe havens such as gold and the Japanese yen with the geopolitical tension being a trigger for a risk-off move.
Tesla’s electric start
In stocks, Tesla is one firm that has enjoyed a strong start to the year, with its share price up close to 7% year-to-date after announcing it hit its promise to deliver 360,000 electric vehicles last year. 2019 was a big one for Tesla. After its share price fell close to 50% in the first half of the year, it surged by more than 100%, closing the year 26% higher. The electric car trend Tesla is riding is an almost inevitable one, and it has a strong position, but investors should be wary of assuming it will stand alone. Ford has put its money where its mouth is with the introduction of the Mustang Mach-E, donating its muscle car brand to the electric cause. Wall Street doesn’t know what to make of the stock, with analysts evenly split between buy, hold and sell ratings, with 12-month share price targets ranging from $200 to $734, versus its current $443.
- S&P 500: -0.71% Friday, +0.13% YTD
- Dow Jones Industrial Average: -0.81% Friday, +0.34% YTD
- Nasdaq Composite: -0.79% Friday, +0.54% YTD
The Brexit deadline
It wouldn’t be a UK update without the B-word! Now that January is underway, attention will be turning to the end of the month Brexit deadline. While there is a chance that some investors and companies who had been holding off on committing capital will be bolstered by the certainty that Brexit is going ahead, the prospect of tough trade negotiations with the EU and the rest of the world is likely to remain a weight on sentiment. UBS economist Dean Turner is predicting UK GDP will rise by 0.9% in 2020, worse than its 1.2% 2019. Investors should make sure they factor in currency when considering any market movements during this period, as weakness in the pound – at least in the short term – may buffer negative impacts on the internationally focused firms that dominate the FTSE 100.
Elsewhere in the UK, the FTSE 100 had a relatively flat holiday period, gaining 0.53% from December 20 to January 3rd. The FTSE 250 was up 1.45% over the same time frame. British oil giants have enjoyed a strong start to the year, buoyed at the end of last week by a spike in oil prices caused by US action against Iran. BP and Royal Dutch Shell’s share prices are up 3.2% and 2.6% year-to-date respectively. Tobacco firms have also started 2020 on a high, with Imperial Brands and British American Tobacco shares both up by around 3%. In the FTSE 250, housebuilder Bovis Homes closed 5% down on Friday, after announcing the completion of its £1.1bn acquisition of Galliford Try’s homebuilding business.
- FTSE 100: +0.24% Friday, +1.06% YTD
- FTSE 250: -0.54% Friday, +0.48% YTD
Stocks to watch
Commercial Metals Company: Texas-based metal manufacturer CMC outpaced the S&P 500 last year with a share price gain of around 40%. The firm has beaten earnings expectations in the past three quarters, but Wall Street analysts have a mixed view of the stock. Currently, six rate CMC as a buy, five as a hold and two as an underweight. CMC’s 2019 rise was well ahead of major rivals including Nucor, Steel Dynamics and Southern Steel, which were close to flat for the year. The analyst consensus prediction is for an earnings-per-share figure of $0.54 when the firm reports its latest quarterly figures on Monday, versus $0.35 in the same quarter last year.
UK supermarkets: Most of the major supermarkets will be putting out post-Christmas sales updates this week. There are a number of names with something to prove, as Morrisons, Sainsburys and Marks & Spencer are all sitting on negative share price returns for 2019. Analysts will be watching closely for whether the impact of price competition outweighed any gains from increased trading volumes. There is little in the way of an advance look at how the numbers will play out, so investors should take any weather-related predictions with a grain of salt.
Safestore Holdings: Self-storage firm Safestore is a FTSE 250 constituent, and more than doubled the return of the index in 2019. Its share price rose by more than 60%, capping off a 240% plus five-year gain. Last quarter, the firm posted year-over-year revenue growth of 5.7%, and closed in on five million square feet of occupied storage space. When it reports its latest quarterly numbers this week, investors will be looking for updates on plans to add new stores in several new cities, including London, Sheffield and Paris.
The major cryptocurrencies have bounced since the US airstrike against Iran last week, which has opened a debate as to whether the two items are cause and effect. There is one camp saying that this affirms Bitcoin’s status as a safe haven, having reacted to geopolitical tension, where as the other saying the move as a technical move off support at $7,000. There’s no way the word ‘safe haven’ in the same sense as gold or the Yen applies but it is interesting the timing of the move around this and other events. Cryptoassets in general are considered high risk and therefore such a description is a contradiction in itself.
Since Friday, Bitcoin, Ethereum and XRP’s Ripple are up 9.5%, 9.7% and 5.4%, respectively.
All data, figures & charts are valid as of 6/01/2020. All trading carries risk. Only risk capital you can afford to lose.
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