Market Outlook: Stocks flat as investors weigh options, Kingfisher and The Hut Group post strong sales growth

European stocks were flat in early trade Tuesday after a broadly negative session to start the second trading week of the year yesterday. The FTSE 100 ended down 1 per cent, while the Dax fell 0.8 per cent as investors took stock of last week’s rally. US futures were indicated higher after a down day on Monday saw the S&P 500 close 0.66 per cent lower at a whisker under 3,800.  

The US dollar held gains with the dollar index above 90 and EURUSD under 1.22 as it retreats further from the top of its rising channel. US Fed officials are talking up tapering of bond purchases by the end of the year, no doubt in part thanks to expected loosening in fiscal policy. Several Fed officials have suggested that mass vaccinations and expansionary fiscal policy could see the FOMC start to discuss reducing its $120bn-a-month asset purchase programme later this year. Even if interest rates are anchored at the front end, any sense that the Fed will pull away the punch bowl is apt to weigh on equity markets.

Oil remains bid with WTI trading north of $52 as the IEA said a big chunk of US shale is profitable at these prices. Gold held gains after bouncing off its 200-day EMA support at $1,816 to trade around $1.861. Bitcoin also bounced after testing the $30k marker yesterday in a very volatile session. 

Investors are still navigating the choppy waters between reopening stocks and Covid winners. Global indices remain at or close to record highs, although the FTSE 100 continues to trade at a discount to peers. It’s proving a tough course – as warned the rotation-recovery trade would not be a straight line.

As far as Covid winners go, Kingfisher continues to be a beneficiary of people forced to stay home. Whilst UK retail sales over the festive period were less then exceptional, Kingfisher today reports that Q4 like-for-like sales advanced 16.9 per cent with a noticeable acceleration in growth seen in the period from mid-Nov. On Nov 19th 2020, the company had reported Q3 20/21 Group LFL sales up 17.4%, while Q4 sales to Nov 14th were up 12.6 per cent. Homeowners often choose to delay making improvements over Christmas but 2020 appears to have been different, with the December LFLs +20.8 per cent in the UK & Ireland, +29.4 per cent in France (after a strict lockdown and due in part to a calendar impact) and +11.6 per cent across other geographies. Ecommerce sales were up +150 per cent reflecting consumers moving to click-and-collect. Management say they are ‘comfortable’ they will hit the top end of the current range of sell-side analyst expectations for FY 20/21 adjusted profit before tax, which is between £667m and £742m. Shares rose 2 per cent. 

Another winner of 2020 was The Hut Group, which has raised sales guidance for a third time since its IPO back in September. Full-year sales growth in 2020 rose to 41 per cent year-on-year, beating the 38-40 per cent guided only last month after Q4 revenues jumped +51 per cent on strong Beauty (+66 per cent) performance. The group said it added over 3.5m active customers in the fourth quarter alone. After the strong momentum in the final quarter management have raised FY 2021 revenue growth guidance, with this now expected at +30-35 per cent, up from the 20-25 per cent range guided in December. Shares rose 2 per cent and have now rallied over 60 per cent from the float date. With controlling shares for the founder, it may not be everyone’s cup of chai, but the returns have been envious.