Oil leads global market tumble on ‘Black Monday’

The collapse of OPEC+ talks over the weekend tipped markets into chaos on Monday. Traders, already on edge due to the unfolding coronavirus epidemic, were sent fleeing to safety after Saudi Arabia slashed its crude oil prices.

Crude and Brent tumbled over 30%, their worst daily performance since the Gulf War, hitting lows below $27.50 and $31.50 respectively. The Kingdom cut prices for April crude by 30% and stated that it intends to raise its output above 10 million barrels per day. Talks at the weekend saw OPEC and its allies fail to agree new terms for an oil production cut; OPEC+ couldn’t even agree to extend the current level of cuts, let alone deepen the cuts to battle the hit to demand from the coronavirus outbreak.

Saudi Arabia is well-positioned to weather weak prices and Russia claims it can withstand the pressure for up to a decade. US shale oil producers, who have flooded the global market with oil to take advantage of supported prices and are heavily debt-laden, could be in dire trouble.

Equities tank

Global equity markets have been sent tumbling. The collapse in the oil markets, combined with news that the Italian government has imposed travel bans on 16 million people, sent investors running from stocks.

US futures went limit down after triggering circuit breakers during the Asian session. After a 5% drop the Dow was indicated to open down over 1,300 points, but based upon the ETF market – which is not suspended – the Dow was looking at a drop of 1,500. Asian stocks took a hammering, with the Hang Seng and the Nikkei both closing over 1,100 points lower.

European equities sank as well, with the DAX, and Euro Stoxx 50, all off around 7%. The FTSE 100, also down 7% to test 6,000, was trading at levels not seen since the immediate aftermath of the Brexit referendum.

Stocks most at risk

While stocks across the board tanked, several industries were hit harder than others.

Oil majors slumped. BP (LSE) tumbled 20%, ExxonMobil dropped 17%, Chevron tumbled 16%, and Occidental cratered 38% – all in pre-market trading on the NYSE – while Royal Dutch Shell fell 14%.

Airlines were hit hard as well after the price slump left them sitting on big losses after hedging oil at higher prices. American Airlines, Delta Airlines, Southwest Airlines and United Airlines were all down 5-6% in the pre-market.

Coronavirus fears weighed on tech stocks. The FAANGS all recorded losses in the range of 6-7%, but cruise ship operators were hit harder. The US government warned American citizens not to go on cruises. Carnival – the company that owns many of the ships currently stranded due to on-board quarantines – dropped 10%, Norwegian Cruise Lines tumbled 11%, and Royal Caribbean Cruises slumped 12% – all before the markets opened.

New record lows for US bonds

The flight to safety drove the yield on US government debt down to record lows. Yields move inversely to prices. The yield on the US 10-year treasury bond fell to 0.32% while the yield on the 30-year treasury note fell towards 0.7%, breaching 1% for the first time in a year.

Gold traded around $1,673 after hitting $1,700 over the weekend.

Cryptos join in with global market chaos

The cryptocurrency market is no stranger to volatility. The world’s largest cryptocurrencies were down around 10-15%, with Bitcoin falling below $8,000.

Week Ahead: OPEC meets, Caixin PMI to reveal coronavirus impact

OPEC to the rescue, Democrats approach Super Tuesday, US Nonfarm Payrolls and more on Covid-19

Welcome to your guide to the week ahead in the markets. Watch the latest week ahead video in XRay on the platform now.

OPEC to the rescue?

Oil has been hammered as the coronavirus forced factories across China to cease production and grounded flights across the globe. China is coming back online now, but crude inventories have been building amid the demand drop-off and we could be facing shutdowns in other parts of the world if the virus continues to spread.

Crude and Brent fell to their lowest levels in over 12 months last week, but hope remains that OPEC will ride to the rescue when it meets on Thursday and Friday. The current pact to cut production by 1.7 million barrels per day expires at the end of this month. There is talk of extending the deal and cutting production by another 600,000 barrels per day, but it is uncertain whether cartel ally Russia will agree to such a move.

Caixin PMI

Chinese manufacturing came back online towards the end of February, with travel data showing a larger-than-expected number of workers were able to leave their hometowns and return to work after the extended Lunar New Year holiday. The number of people travelling at the end of the month was still well below usual post-holiday levels, however. Even businesses that have reopened are facing labour shortages, supply chain disruptions, and weak demand. This week’s Caixin Manufacturing PMI will be a key measure as economists slash growth expectations and markets look for clues over how severe the economic impact of a large-scale outbreak in the US or Europe could be.

Democrats approach Super Tuesday

This week will give markets a clearer indication of which Democratic candidate is likely to challenge President Trump in this year’s election. 14 states are due to hold primaries on ‘Super Tuesday’. Only 100 delegates were assigned during three primaries last week, with Bernie Sanders securing almost half of those. A strong performance on Super Tuesday would cement his position as the frontrunner – the number of delegates up for grabs on Tuesday alone is around a third of the nearly 4,000 needed to secure the nomination. Bernie is the worst outcome as far as the markets are concerned due to his socialist policies, so any shift in voting towards more moderate candidates like Joe Biden could see markets breath a small sigh of relief.

US nonfarm payrolls

Usually the highlight of the economic calendar, this month’s nonfarm payrolls may not be so impactful. The monetary policy outlook is currently ruled by coronavirus headlines – markets are betting on a rate cut in April, if not this month, and a solid set of jobs numbers would be unlikely to materially shift those expectations. Markets are thinking about the potential economic impact of a large-scale Covid-19 outbreak in the US, so backwards-looking data may not settle many nerves

Heads-Up On Earnings

2nd March – 01.45 GMT	China Caixin Manufacturing PMI
2nd March – 08.15-09.30 GMT	Eurozone / UK Finalised Manufacturing PMIs
2nd March – 15.00 GMT	US ISM Manufacturing Index
3rd March – 03.30 GMT	RBA Official Cash Rate Decision & Statement
3rd March	Beiersdorf	Q4 2019
3rd March – 10.00 GMT	Eurozone Flash CPI Estimate
3rd March – After Market	Hewlett Packard Enterprise	Q1 20202
4th March – 00.30 GMT	Australia Quarterly GDP
4th March – 07.00 GMT	DS Smith	Q3 Trading Update
4th March – 08.15-09.30 GMT	Eurozone / UK finalised Services PMIs
4th March	Legal & General	Q4 2019
4th March – Pre-Marcket	Dollar Tree	Q4 2019
4th March – Pre-Market	Campbell Soup	Q2 2020
4th March – 15.00 GMT	Bank of Canada Interest Rate Decision and Statement
4th March – 15.00 GMT	US ISM Non-Manufacturing Index
4th March – 15.30 GMT	US EIA Crude Oil Inventories Report
4th March – After Market	Zoom Video Communications	Q4 2020
5th March – 00.30 GMT	Australia Trade Balance
5th March – All Day	OPEC Meeting, Vienna
5th March – Pre-Market	Kroger	Q4 2019
5th March	Aviva	Q4 2019
5th March – 15.00 GMT	US EIA Natural Gas Storage Report
5th March – After Market	Costco Wholesale Corp	Q2 2020
6th March – 00.30 GMT	Australia Retail Sales
6th March – All Day	OPEC+ Meeting, Vienna
6th March – 13.00 GMT	US Nonfarm Payrolls Report

Watch The Week Ahead on XRay

Highlights on XRay this week:

Daily –  08:15 GMT European Morning Call  Free Register        March 2nd – 15.00 GMT The Trendsignal Podcast  Free Register     March 3rd – 10.00 GMT FXTrademark Course: Trading Strategies  Free Register        March 4th – 10:00 GMT FXTrademark Course: 10 Laws of Trading  Free Register        March 6th – 13:00 GMT Live Trade Setups with Mark Leigh Free Register

Markets still rattled by coronavirus fears after yesterday’s brutal sell-off

Investors fled to safety en masse yesterday as a spike in coronavirus cases in Italy, South Korea, and Iran raised fears that the outbreak was becoming a pandemic.

$1.5 trillion was wiped from global equity markets; the Dow recorded only its third ever 1,000 point drop, and the VIX ‘fear index’ spiked to the highest levels since January. Oil sank 4% and gold leapt to a seven-year high.

Today, the sell-off has paused, but the market is hugely indecisive.

Stocks, oil, volatile as markets await next major development

Since the European open today we’ve seen major indices like the DAX, FTSE 100, and Euro Stoxx 50 extend gains towards 1%, drop to multi-month lows, and rebound above opening levels. US stock market futures have gone from indicating a 200-point gain for the Dow on the open to minor losses, and back to signalling a positive open.

The FX market continues to see a shift towards the safety of the US dollar, although cable has managed to hold some gains despite easing back after rising to test $1.30 earlier in the session.

Gold is down around 0.8% and silver has suffered losses of more than 1.3% on profit-taking, but risk-appetite is clearly still absent as crude and Brent oil are struggling to hold opening levels. Like stock markets, the two benchmarks climbed on the open, then fell into the red, before recovering somewhat.

New coronavirus cases reported in Italy, Iran, Austria, Croatia, Tenerife

Markets are caught between buying the dips and pricing in further worrying developments. The first case of coronavirus has been reported in Southern Italy, and Austria and Croatia have reported their first cases today as well. The two Austrian cases are in the province of Tyrol, which borders Northern Italy, while the young man infected in Croatia had recently returned after spending several days in Milan.

Meanwhile, hundreds of people are being tested and many guests quarantined in a hotel in Tenerife after a case of the virus was confirmed there. Iran has also provided an update on the outbreak there: the number of cases is up to 95 and 16 people have died – the Deputy Health Minister is one of those infected.

We’ve also had a slew of companies warning that COVID-19 will impact their earnings. UK blue-chips Meggitt and Croda are weighing on the FTSE 100 after issuing warnings over the impact of the virus upon their businesses.

Markets may gain more direction when the US markets open, but even then uncertainty looks to be the order of the day.

US and Eurozone spending and confidence, Best Buy earnings

Welcome to your guide to the week ahead in the markets.

Has COVID-19 peaked?

Markets will of course remain susceptible to news surrounding the COVID-19 outbreak over the coming week. The number of new cases recorded daily had slowed towards the end of last week, but an outbreak in South Korea reignited fears of a global spread. Over 75,000 cases and more than 2,100 fatalities had been reported by the end of the week. An acceleration of cases outside of China could prompt further flights to safety, but otherwise the market seems relatively confident that the outbreak is contained and that stimulus from Beijing and the PBoC will soften the economic hit.

US GDP, durable goods, personal spending

Members of the Federal Reserve were feeling confident about the state of the US economy during their last policy meeting, according to last week’s minutes. The FOMC thinks the outlook has gotten “stronger”, and the coming week offers plenty of data to either challenge or support that view. CB confidence is expected to have ticked higher in January, durable goods orders to have fallen –2%, and core PCE to remain stable on the month. While personal income growth is predicted to have risen, spending is likely to have weakened. A second estimate of Q4 GDP is likely to hold steady at 2.1%.

Eurozone, Germany confidence, flash inflation

The euro could be facing more headwinds this week after sliding to multi-week lows against the pound and multi-year lows against the dollar last week. Sentiment data from Germany and the bloc is expected to soften, mirroring market concerns over the health of the bloc’s economy following some poor industrial data. Flash inflation figures for the Eurozone and Germany are unlikely to make inspiring reading; even if price growth in Germany has strengthened towards the ECB target again, the wider Eurozone reading remains far behind.

Earnings: Best Buy, Bayer

Best Buy reports earnings before the open on February 27th. The stock has put in a strong performance over the last six months, rallying around 40% compared to 15% gains for the retail-wholesale sector and 18% for the S&P 500 index during the same period. Best Buy has delivered 11 earnings beats in the past 12 quarters and beat expectations by over 9% in each of the past two quarters.

Bayer also reports earnings on the 27th. The stock is up 45% from the June 2019 low of 51.90, and was last trading around 75.00.

FTSE in focus on deluge of FY results

Earnings reports will be a key driver of UK stocks over the coming days. A deluge of full-year results for 2019 from blue-chips including Standard Chartered, British American Tobacco, Rio Tinto, Persimmon, Taylor Wimpey, RSA Insurance and Meggitt provide clear risks for the FTSE 100 index over the coming sessions. A slew of reports from FTSE 250 constituents throughout the week could also affect the general sentiment around UK plc.

Heads-Up on Earnings

The following companies are set to publish their quarterly earnings reports this week:

24th Feb – 09.00 GMT	German IFO Business Climate Index
24th Feb	Associated British Foods Pre-Close Trading Statement
25th Feb – 12.00 GMT	Manchester United	Q2 2020
25th Feb – Pre-Market	Home Depot	Q4 2019
26th Feb – 06.00 GMT	Rio Tinto	Q4 2019
26th Feb – 08.00 GMT	Danone	Q4 2019
26th Feb	Taylor Wimpey	FY 2019
26th Feb – Pre-Market	Lowe’s Companies	Q4 2019
26th Feb – 15.30 GMT	US EIA Crude Oil Inventories
27th Feb – 00.30 GMT	Australia Private Capital Expenditure
27th Feb – 04.15 GMT	Standard Chartered	Q4 2019
27th Feb – 06.30 GMT	Bayer	Q4 2019
27th Feb	Persimmon	Q4 2019
27th Feb	RSA Insurance	FY 2019
27th Feb – 10.00 GMT	Eurozone Sentiment Survey Results (Consmer, Business, etc)
27th Feb – After-Market	Autodesk	Q4 2020
27th Feb – 13.30 GMT	US Q4 GDP 2nd Estimate, Durable Goods Orders
27th Feb – 15.30 GMT	US EIA Natural Gas Storage
27th Feb – Pre-Market	Best Buy	Q4 2020
28th Feb – 10.00 GMT	Eurozone Preliminary Inflation
28th Feb – 12.30 GMT	US PCE Index, Personal Spending, Personal Income
28th Feb – 13.00 GMT	Germany Preliminary Inflation

European equities rise as China eases

Police in Hong Kong are investigating an alleged toilet paper heist, amid a shortage due to the coronavirus outbreak. Things are bad when loo roll becomes currency.

It’s a dull old session out there today: European shares were a little indecisive at the start of play following a mixed bag overnight in Asia, but are leaning higher with stimulus from China helping to lift the mood. Basic resources stocks were among the biggest gains on the FTSE as the blue chip index moved to try to reclaim the 7500 level, last some way short at 7445.

Shares in Hong Kong and Shanghai advanced as China cut a key medium-term interest rate, while Tokyo shares slipped on growth concerns. Markets are betting this will be only a part of a wider stimulus programme to offset the economic damage wrought by the Covid-19 coronavirus – the PBOC has already been injecting liquidity and there will no doubt be more to come. China reported another 2k cases by Sunday night, taking the total to more than 70k.

US stocks finished higher for the second straight week. Markets in the US will be closed today for Washington’s birthday but have rolled into the holiday in fine fettle. Industrial productions were weak, down 0.3% in January, largely down to Boeing. Ex-aircraft production, factory output rose 0.3%. Retail sales showed the US consumer started the year in decent shape, with headline sales +0.3% month on month.

There are growing fears about the economic impact. Japan’s economy shrank at the quickest pace in six years in the last quarter of 2019 – down 6.3% as the consumption tax hike hobbled the economy far worse than thought.

Most think to hit to tourism and exports resulting from the outbreak will mean the economy contracts again in the March quarter, pushing Japan into recession. Meanwhile Singapore has slashed its growth outlook for 2020.

Oil is higher above $52, having closed last week well. Look like a base has been formed at $50, looking to cement gains north of last week’s highs at $52.2.

In FX, there are tentative signs of stabilisation and basing for EURUSD. Speculators have not been this net short since Jun 2019, with net shorts at nearly 86k, contracts so the short-euro trade is very crowded. As ever this CFTC data is a week old so I wouldn’t be surprised if the next set of data showed deeper net shorts towards 100k corresponding to the dove under 1.0880. The inverted hammer on Friday suggests near term reversal but until 1.09 is reclaimed the bears remain in control.

Sterling is giving a gallic shrug to some French fighting talk vis-à-vis Brexit trade talks. GBPUSD is steady at 1.3040, with support at 1.30 and near-term resistance seen at the 50-day moving average at 1.3070.

Apple Q1 earnings preview: Spotlight on China, 5G, Wearables, Services

Apple (AAPL), which reports fiscal 2020 first quarter earnings today after the close, has declined somewhat from its all-time highs in the last couple of sessions, but the stock is still up by around 100% since its profits warning a year ago. Over that time we have seen a massive rerating in the stock despite fears iPhone sales are not going to be what they once were. This is largely down to one thing – Services. But there is also a sense that iPhone sales are going to be materially higher than feared a year ago, and with the 5G refresh cycle promising to be a super-cycle, there is plenty of fundamental support for shares to be trading where they are.

Fiscal Q1 earnings per share are expected at $4.55, from $4.18 a year before, on revenues of $88.4bn, from $88.3bn a year ago. 

At the time of its Q4 19 release, Apple guided revenue to be between $85.5 billion and $89.5 billion, with gross margin between 37.5% and 38.5%. 

Momentum coming into this quarter is positive – Apple posted record Q4 revenues despite slower iPhone sales and guided for a very strong holiday quarter. Earnings per share beat handsomely at $3.03 vs $2.84 expected and up 4% year on year. Revenues jumped 2% to $64bn.   

On a trailling 12-month (TTM) basis Apple’s PE has soared to 25 from around 11 last year. The Services-led re-rating may have already happened, although there could yet be a little more upside. 

Q1 Key themes 

Coronavirus/China – investors will pay close attention to what management have to say about the impact of the virus on demand in China, as well as on operations/production. Apple may have to revise its Q2 forecasts for Greater China lower – this could be an important steer for the broader market in terms of the outbreak’s impact.  Most of Apple’s products are made in China, while the country accounts for about 16% of global revenues. Chinese exposure has the potential to dent the stock whatever the Q1 earnings turn out to be if the guidance is soft.

Services/Apple TV+ 

We’ve had decent indications from the Services side of the business indicating that its pivot to being more of a Services business is in full swing. App store customers spent a record $1.42bn between Christmas and New Year, 16% up on last year, the company has said. Management also revealed that Apple News is drawing over 100m monthly active users across the US, UK, Canada and Australia. Services is accounting for an increasingly large chunk of earnings, supportive of the recent multiple expansion. However we may see margins hit by content creation investment with Apple TV+ – investors will be keen to hear how this service has performed on launch. Services growth has pulled back a touch in recent quarters and could further slow.

iPhone sales matter a lot less 

The fiscal first quarter is always Apple’s strongest as it chalks up the holiday season and new iPhone models. But sales are less important than in the past. We’ll be looking for any guidance from management on the year ahead and, crucially, the potential super-cycle 5G refresh when it happens. Apple’s first 5G phones are due this year, although there is talk of delays to get the fastest devices to market, so any guidance on this will be key.

The improvement on both top and bottom line in the fiscal fourth quarter came despite a 9% drop in iPhone sales. Whilst that’s not as bad as the 15% type level seen recently, it shows how much of the lifting is now being done by other parts of the business. It suggests Apple is reaching an inflection point where it’s no longer dependent on the iPhone for EPS growth. This is across the board a positive. Indeed for 2019 as a whole, iPhone sales fell 14% but the stock was up 89%.  

Wearables  

Apple has been increasingly talking up its Wearables business as this has been a particularly strong performer. Wearables, Home and Accessories knocked it out the park in Q4, with sales up 54% to $6.52bn. This was by far the fastest growing segment and will account for an increasing percentage of sales, currently c10%.  

American consumers

Q4 confirmed that the US consumer remains strong. Indeed, almost all the growth came from the Americas, which is dominated by US sales. American consumers still look in good shape. Sales in Europe, Japan and Greater China fell.  We will look to the holiday quarter to see whether international demand is improving again.

Holiday quarter could be record breaking  

Guidance for the fiscal first quarter was bullish, and Apple could mark a record for quarterly revenues. Apple is guiding revenue of between $85.5 billion and $89.5 billion. Early indicators suggest the iPhone11 is performing well with consumers. Favourable comparisons in China from last year are assured, given the previous year’s downswing in iPhone sales in the region.   

Stock overbought 

The stock has run up quite a head of steam to top $320 before pulling back a touch. We noted on Jan 8^th a potential topping pattern on the chart as it fails to make new highs and the 14-day RSI indicating overbought conditions, while noting that MACD could also be turning.  Indeed since then we have seen the daily MACD turn lower below the signal line and the RSI divergence played out with a pullback last week and into this week. On a weekly chart, the RSI and MACD show the stock is hyper-extended and trading well north of its long-term moving averages. Further pullbacks could occur if the earnings are not least in line with expectations.  

Netflix beats, Tesla climbs

Netflix posted an earnings beat and better-than-expected net subscriber additions, but softer guidance on net adds was a slight drag. Shares rallied 2% after market. US net adds were mildly disappointing but growth in international markets was well ahead of forecast.

The company needs subscriber growth to be maintained at least at these levels, but the softness in the US – where net adds missed slightly – are a worry. Higher prices and competition are affecting consumers in the US. The good news is that international growth is exceeding expectations, which should more than compensate for plateauing in the far more mature US market. 

We’ve yet to see how competition from the likes of Apple and Disney will really affect subscriber growth. The guidance from Netflix suggests competition is going to be more of a worry going forward, as we would anticipate, but the proof will be in the 2020 numbers. As noted in our preview, consumers are meeting a sudden explosion of choice in streaming services that did not exist a year ago. This is relatively new and uncharted waters for Netflix. Instead of winner takes all, Netflix will need to be content to be primus inter pares, the first among equals. 

Tesla hit the $100bn market cap – a level which if maintained will trigger Elon Musk’s options package – in extended trading. The stock jumped 7% in the normal trading session, before adding a further 1.3% after hours to hit $555 and become the first car maker to achieve a $100bn valuation. Earlier New Street Research raises its price target on Tesla to $800. Tesla reports Q4 numbers on Jan 29^th – see our preview for more.

Sainsbury’s boss Mike Coupe at last read the writing on the wall, bit the bullet and fell on his sword after the Asda merger debacle. As I noted last May: will Mike Coupe fall on his sword after the Asda deal failed? Or will he embark on a major turnaround of the business? I would feel the former is more likely. Questions persisted over his leadership after the CMA blocked the deal – to be fair it looks with the appointment of Retail and Operations director Simon Roberts as his successor, the passing of the baton by Coupe has been long in the planning. Coupe pulled off the Argos deal with aplomb, but he will be remembered for the Asda disaster – a hubristic and entirely obvious failure from the get-go. It also left management with their eyes off the ball just as margins really were pressured and as Tesco, Morrisons and the German discounters got their act together. But on the plus, there have been some, minor tentative signs of improvement in the core grocery division of late that his successor will want to accelerate sharply. Competition is fierce, but it’s not just discounters like Aldi and Lidl parking their tanks on Sainsbury’s lawn. Sainsbury’s did well when Tesco was facing problems and Morrisons was a long way short of where it is now. Both of those have undergone impressive turnarounds, Having put all its eggs in one basket with the Asda merger, a new boss is the right course of action.

Burberry – Good numbers here with an upgrade to the 2020 forecast, Revenues now seen rising by a low single digit percentage point, versus pervious guidance to remain flat. China sales picked up with Mainland China sales up in the mid-teens, but the strife in Hong Kong bit as sales halved.

EasyJet up 5% on upgrade

After Ryanair delivered a major profit upgrade, EasyJet also seems to have been a beneficiary of more solid demand and a more favourable capacity environment. To wit, the collapse of Thomas Cook has been a boon for low-cost airlines that operate in regions vacated by the defunct tour operator. 

EasyJet upgraded its outlook to a key revenue metric with the benefits of the Thomas Cook failure, cost discipline and better ancillary revenues partially offset by French strikes. To be fair, if any airline worried particularly about strikes in France they are in the wrong game; it goes with the turf. For H1 management expect revenue per seat to increase in the mid to high single digits, compared to previous guidance of low to mid-single digits. Headline loss for H1 is seen better than the -£275m in 2019. FX moves are seem having a £70m positive impact on headline profit before tax.  

EasyJet is probably the biggest gainer from Thomas Cook’s collapse, particularly as it bagged lucrative airport slots. EasyJet snapped up 12 summer and 8 winter slots at Gatwick, and 6 summer and 1 winter at Bristol for £36m. Strikes at BA and Ryanair have also been to the benefit of EasyJet. 

Considering the profit upgrade announced in October, it’s been quite the turnaround since last May when EasyJet was warning about higher fuel costs, overcapacity in the market, the pinch of rising labour costs and FX headwinds all hitting margins. 

Key stats for quarter to end of Dec 2019 

• Total group revenue for the quarter ending 31 December 2019 increased by 9.9% to £1.425bn. Passenger revenue increased by 9.7% to £1.124bn and ancillary revenue increased by 10.8% to £301 million. 
• Passenger numbers in the quarter increased by 2.8% to 22.2 million, driven by an increase in capacity of 1.0% to 24.3 million seats. Load factor increased by 1.6 percentage points to 91.3%. 
• Total airline revenue per seat increased by 8.8% at constant currency, outperforming expectations.  

Ryanair upgrades, Superdry and Joules miss

Ryanair has defied fears about the airline market suffering from weaker demand and too much supply. Management today has reported a stronger than expected Christmas and New Year. Forward bookings Jan to Apr are running 1% ahead of this time last year, and Ryanair believes this will result in slightly better than expected ave. fares in Q4, while full year Group traffic will grow to 154m (previously guided at 153m). On the negative side, Laudamotion is underperforming, with average fares lower than expected despite the solid traffic growth and load factors. Price competition with Lufthansa is to blame. Forecast net loss widen from under €80m to approx. €90m.

As a result management has raised Full Year profit guidance from €800m – €900m, to a new range of €950m – €1,050m.

This is a big improvement from the Nov update, when we noted: “First half revenue grew 11% to €5.39bn, with profits flat at €1.15bn. But fares were down 5%, due to the weak consumer demand in the UK and overcapacity in Germany and Austria. Ryanair is facing headwinds from lower fares, higher fuel bills and rising staff costs. The fuel bill rose 22% (+€289m) to €1.59bn, on +11% traffic growth.  Ex-fuel unit costs rose 2%, largely because of higher staff costs, increased pilot pay and higher than expected crew ratios. Faced with these headwinds Ryanair will need to cut costs.”

Ryanair remains very well placed to take advantage of consolidation in short haul European air travel. But its low cost model is facing headwinds.

JD Sports continues to perform. In a short trading update that offered little in the way of detail, management stuck to full year group headline profit before tax being in the ‘upper quartile’ of current market expectations, which range from £403 million to £433 million. From the tone of the statement it seems it was tough in the UK in the Christmas period but they think overseas sales are better and will follow through into January numbers. So I think we need to wait and see how this pans out.

JD Sports has a lot of work to do in cracking the US with its Finish Line fascias but there is hope that management is well experienced enough to achieve it. The problem is the shares are priced for perfection and with the big brands shifting more and more to direct sales, the US will be difficult. But betting against Cowgill and co has not paid off yet. Shares could dip.

Betting against Superdry on the other hand….has worked out pretty well. In an update today management say the peak trading performance has been lower than expected as the business continues the ‘strategic transition to a full price stance’. As we noted with Marks and Spencer, discounting is murder if you don’t have the brand power to avoid it. Superdry saw lower than anticipated retail sales of £23m since Black Friday, predominantly online.

The numbers are woeful – group revenue -15.8%, in-store revenues -18.5% and wholesale revenue -16.9%. E-commerce revenues dropped by more than 9%. Profits are now see between £0 and £10m. Shares could be down around 20% on this. Julian Dunkerton has an awful lot of work to go – does the full price strategy actually have legs? Sales are being hammered – margin gains may be for nought.

Joules’ run of luck has come to an end. Posh wellies may be a niche market after all. Full year profit before tax will be significantly below market expectations. Retail sales over the seven-week period to Jan 5^th were significantly behind expectations and decreased by 4.5% against the prior year. A weak online sales performance was to blame, which management explains was “due to an internally generated stock availability issue through the important end of season sale event, the cause of which has now been addressed”. In other words they mess up on stock just like Marks & Spencer did. Too many posh wellies? Not enough polo shirts? Who can say, but shares seen at least -10%.

Midday wrap: Europe higher as risk appetite returns, DAX near ATHs

European markets enjoyed solid gains Thursday as risk appetite returned. But the rally hardly betrays a wanton desire for equities because a) we’re already at or near record highs and b) the selloff had not been especially deep despite US-Iran conflict fears seeing havens enjoy firm bid. Even a shaky ceasefire is enough right now to support the bulls. Stronger-than-expected German industrial production figures (+1.1% vs -1.7% prev and 0.8% est) are helping sentiment, particularly in Frankfurt.

The DAX has led the charge with a 1.25% push higher to 13,485, having earlier touched a high of 13,522. With investors apparently keen to load up on risk with US-Iran tensions easing and a US-China trade deal baked in, we may well see the drive to January 2018’s all-time high just shy of 13,600. Geopolitical risks remain of course with the situation in the Middle East still fluid, but you get the sense the bulls are keen to push this over the line. 

The FTSE 100 added 0.5% to break 7600 with resistance seen at 7675, the high posted Dec 27^th.  A softer pound is compensating for the weaker oil price.

Elsewhere US markets are firmer again with the Dow shaping up for a triple-digit gain on the open.

Oil has held just short of $60 with no further losses while gold is also holding the line around $1545. 

In FX, the pound took a drubbing as the market decided Bank of England governor Mark Carney’s comments were more dovish than before. GBPUSD slipped the 1.31 handle to test support on the 50-day moving average around 1.3010. I don’t see much in what he said as particularly more dovish than in the past. Commentary around the likelihood of the UK agreeing a trade deal with the EU before the end of 2020 is also weighing on the pound today. 

Meanwhile, as flagged in the morning note, the bullish engulfing daily candle for USDJPY is resulting in further gains today with the pair moving to 109.50 and momentum in favour of USD across the board. Having cleared the 200-day and other MAs bulls are looking to break the trend line drawn from the falling highs since the swing high of Oct 2018. Big 61% Fib level to cross at 109.60 where we have seen rallies hit a wall several times lately. This level will offer a decent amount of resistance as a result. 

US pre-mkts 

Cowen has come out with a bunch of price target upgrades 

Facebook raised PT to $245 from $240 

Alphabet raised PT to $1575 from $1525 

Twitter raised PT to $34 from $32 

Elsewhere AMD shares are up c2.5% pre-market after Mizuho raised the stock to buy. 

Benchmark has initiated Lyft with a sell rating , price target of $35, which is $10 below yesterday’s closing price. 

Boeing shares are up a touch pre-mkt despite Berenberg cutting to hold. After enjoying a thumping 5% jump yesterday, Tesla shares are a touch softer pre-market after being cut to neutral at Baird, a long-time bull which seems to think the recent rally has run its course. They said: “we would not short the stock and remain positively biased over the long run.” See yesterday’s Equity Strategy: US earnings Q4 preview: Two major stocks to watchfor more on Tesla.