Today's Markets: Indices diverge as investors look to bonds, Domino's launches buy back

Market Outlook: European markets follow US higher but tech remains under pressure

European stock markets and the Dow Jones rallied though tech weighed on the S&P 500 as the sell-off in growth and momentum continued. The DAX in Frankfurt rallied over 3 per cent to mark a new record high, whilst the Dow Jones climbed 300pts to a record high 31,800. The Nasdaq composite declined 2.4 per cent and the NDX 100 was off almost 3 per cent. Tesla declined another 6 per cent almost to $563, whilst Apple fell over 4 per cent to $116. A record high for the Dow just as the Nasdaq enters correction territory: We’ve not seen such a divergence between the industrials and growth in a long time. The S&P 500 is caught somewhere in the middle, though the weighting of the tech names (the 5 FAANGs were worth about a quarter of the market until recently).

Is it a buying opportunity? ARK’s Cathie Wood played down the problems at her flagship ETF, saying she is even more confident in her highest-conviction trades such as Tesla and that the selloff is simply a buying opportunity. At these moments she looks to “concentrate” portfolios to the “highest conviction names”, so this means selling more liquid stocks (e.g. Apple) which are participating in innovation but are not ‘pure play’ innovators. The fact that the bull market is broadening out is a good thing, she says, and this is certainly true. But it doesn’t mean Tesla should be worth what it was valued at. She also suggested that the 60:40 stocks to bonds portfolio could one day be 60:20:20 stocks:bonds:cryptos ... 

Clearly, everyone is looking at the bond market right now, but some are not convinced that yields are only going one way. Chris Dillow wrote about the US bond threat in this analysis last week. David Tepper, the founder of Appaloosa Management, told CNBC that the move in rates may be just about over. He pointed to a flip in Japanese investors, who he thinks are likely to become net buyers of US Treasuries (after years as net sellers) following the rise in yields – the 10-year has risen from 1.09 per cent at the end of Jan to north of 1.6 per cent. This, he says, will cap the rise in yields. Whilst yields pared back yesterday, stocks weren’t really listening. Ten-year and 30-year bond auctions this week will be crucial tests of demand – it was a weak sale of 7-year debt last month that sent reverberations around the market. Today we have an auction of $58bn in three-year paper but it is the 10-year and 30-year offerings that will be the big test. Investors will be angsty about how these auctions go off – a repeat of the Feb 25th 7-year auction would undoubtedly create another broader sell-off in rates and lead to yet more instability in equity markets. NW

Oil remains volatile

Oil prices are proving to be very volatile. After Brent rallied to $71 yesterday it’s now trading with a $68 handle this morning. Clearly a spot of panic after the attacks on the Saudi facilities was overdone, but I stick to the view that the market is tight and will become increasingly tighter now that OPEC is rolling over cuts into April. Alex Hamer has written this morning on how the surge in the oil price should benefit the supermajors after their savage cost cutting of the past 12 months. 

Bitcoin hits highest level in 2 weeks

Elsewhere, Bitcoin trades above $54k, its highest since around 23 February, whilst gold continues to test the 61.8 per cent retracement support at $1,690. Yesterday’s swing high at $1,714 is the first hurdle, thence to $1,724. NW

Consumer spending dropped 14 per cent last month

Consumer spending in the UK fell 13.8 per cent in February compared with the same month a year earlier, according to fresh Barclaycard figures, but some sectors enjoyed record growth.

With online grocery shopping surging, spending on essential items rose 5.3 per cent year-on-year. Overall, supermarket spending was up 17.4 per cent with online grocery spend more than doubling.

But non-essential expenditure dropped more than a fifth as ‘stay at home’ orders kept high-street retailers closed.

Barclaycard sees almost half of the nation’s credit and debit card transactions. 

Companies updates: BT, IWG, TP Icap, ITV & more

Should BT shares be super-charged by the super-deduction?

BT (BT.A) was one of the biggest movers in the FTSE 100 on Budget Day last week, gaining as much as 7 per cent in the hours after chancellor Rishi Sunak’s speech in the House of Commons. That is a mammoth move for the telecoms giant, whose market value has lagged while it grapples with expensive network upgrades. But the government’s new ‘super-deduction’ tax could offer some much-needed relief, writes Lauren Almeida. 

The scheme could be great news for BT, potentially helping to alleviate some of the pressures on its free cash flow. But it is still not clear how far the group stands to gain. Read the full story here. 

IWG losses soar 

Pre-tax losses were worse than anticipated for IWG (IWG) in 2020, coming in at £620m. That was largely due to higher than expected restructuring costs and impairments associated with closing underperforming workspace centres. 

Open centre revenue was broadly flat after a 10 per cent increase in the first half of the year turned to a 9 per cent decline during the latter six months.

Occupancy of centres opened pre-2019 reduced to 72.9 per cent, although management said the rate of the rise in vacancy had moderated over the year. EP

TP ICAP not out of the woods

Last year started with positive momentum for TP ICAP (TCAP), before events appeared to unravel after the interdealer broker warned of a slowdown in trading activity. The response to this sudden shift – the acquisition of trading firm Liquidnet for up to $700m (£538m) – saw management go cap in hand to investors for a dilutive two-for-five £315m rights issue.

Full-year results, which revealed a 2 per cent dip in revenues to £1.79bn and wide gulfs between adjusted and reported profits, suggest the FTSE 250 firm is not yet out of the woods.

Though the board has recommended a final dividend of 2p a share, payable on 18 May, a strong start to 2021 is expected to face tough comparisons with the booming trading at the height of last March’s volatility. Full-year revenue projections are for “low-single digit” growth, subject to post-Brexit shuffling of trading desks, cost-cutting efforts, higher investments and this month’s expected completion of the Liquidnet deal.

TP ICAP shares fell 4 per cent on the update, and now trade on seven times’ Canaccord analysts’ adjusted earnings forecast of 35.2p per share for 2021. AN

ITV turns cameras back on

Most of ITV’s (ITV) programmes are back in production, after the impact of the pandemic pulled back its pre-tax profits by almost two-fifths to £325m in 2020. That decline was still ahead of analyst expectations, which management credited to tighter cost controls. 

No word yet on how many views ITV bagged last night with the Duke and Duchess of Sussex’s 90-minute interview with Oprah Winfrey, although early reports suggest that around 17.1m people tuned in to watch the show in the US on Sunday. No doubt ITV will have coughed up a large sum for the rights to air the special - but signs of improvement in the advertising market should help soften the blow. 

Elsewhere, its streaming service BritBox hit 0.5m subscribers in the UK in January, with all of its subscription video on demand (‘SVOD’) products reaching 2.6m worldwide. The ITV Studios business told the Financial Times in an interview yesterday that it aims to double its business with streaming platforms this year, and that its American division is forecast to generate a third of its revenues with platforms such as Amazon Prime, Apple TV and Netflix (US:NFLX). Listen to our latest Not Your Normal Finance Show podcast to see what Britbox is up against in the streaming wars. LA

Ultra Electronics secures record order book in 2020

Thanks to robust defence spending in the ‘five eyes’ nations – the US, Canada, UK, Australia and New Zealand – Ultra Electronics’ (ULE) order book expanded by 4 per cent in 2020, to a record £1.1bn. That means that it entered 2021 with visibility over 71 per cent of expected revenue.

The group’s underlying operating profit increased by 7 per cent last year to £126m. Momentum was led by 12 per cent growth in the maritime division amid stronger demand for sonar products. This offset weakness in the ‘critical detection and control’ business where commercial aerospace orders dropped by close to a fifth. Read our full results write up here.  NK

Domino’s serves up £45m buyback scheme

Domino’s Pizza (DOM) unveiled a £45m share buyback programme and a 9.1p full-year dividend on Tuesday morning as it pointed to strong trading through the coronavirus pandemic.

The food delivery group posted underlying pre-tax profits of £101m for the year ending 27 December, which was 5 per cent above consensus estimates and £2.5m above the prior year.

Domino’s also cited an improvement of almost three-quarters in free cash flow to £99m and said it had reduced its net debt pile by more than a quarter to £172m, attributing this to its recent trading performance and “actions taken to preserve headroom”.

The group’s digital transformation accelerated last year, it said, with UK online sales rising more than a fifth as ‘stay at home’ orders led more customers to order their pizzas online. Digital sales now account for more than nine-tenths of UK delivery sales. Read Phil Oakley's in depth analysis of Domino's recovery prospects from November. 

Performance in 2021 has been strong thus-far, with management highlighting “exceptional trading” over the new year period. The group expects to achieve total system sales of £1.6bn to £1.9bn in the medium-term, up from £1.3bn in FY2020. Its shares were up a tenth in morning trading and have risen roughly a fifth over the past year. Still, Domino’s is one of the most shorted shares on the London market. HC

New video game developer lists on Aim 

tinyBuild (TBLD) will begin its first trading session today, after raising £154m in net proceeds as part of its listing on Aim. The indie video games publisher and developer is headquartered in the US and has a portfolio of 40 game titles, with a further 23 scheduled to launch by the end of 2022. LA

Louboutin investment marks latest luxury deal

One of Europe’s top family-controlled holding companies plans to invest half a billion euros in luxury brand Christian Louboutin, marking the latest development in a string of high-fashion M&A deals explored by Investors’ Chronicle last month.

Exor, the business representing the Italian Agnelli family, will buy a 24 per cent stake in the shoe company – famed for its towering, red-soled footwear – for €541m. It will also nominate two of the seven members of Christian Louboutin’s board of directors.

Just as other luxury retailers have pointed to opportunities in the Chinese market and in digital sales, Exor highlighted “significant scope to develop the Christian Louboutin brand’s presence, notably via further geographic expansion, particularly in China”. It added that the company will “continue to develop its multi-channel distribution strategy, not least by extending its existing digital and e-commerce platforms”.

Exor has a net asset value of roughly $29bn and its portfolio mainly comprises companies where it is a leading shareholder – from flashy car group Ferrari to The Economist and football club Juventus FC. HC