The Trader: Deliveroo slump casts shadow at the end of positive quarter for the FTSE

Shares in Deliveroo got off to a horrible start on the market, declining more than 20 per cent in early trade after pricing at £3.90. It’s a very big early move lower and there will be chatter about what this says about the broader market, investor appetite for listings and the state of the UK economy. 

So what does it mean? Firstly, I’m slightly surprised there is not more of a stabilisation effort here. It reflects the cautious approach big funds have shown to the stock amid concerns about working practices and governance. A lot of the big UK funds are not on side, which was failure number one. Will Shu could have avoided that by going for a premium listing and eschewing the tech stock desire for a dual-class structure that leaves power with the founder. Old City habits die hard, despite what the FCA wants to do. There could be implications for the plans by the government and Lord Hill to loosen listing rules – but probably not material. If anything it might make some want to change faster so these kinds of tech stocks can be indexed – it hardly shows off London as the place to list a tech stock. Retail may also have been put by some of the negative chatter on social media and in the press – the narrative has been negative really since it came out with the IPO. Chiefly though it reflects the fact that even pricing the IPO at the bottom of the range, Deliveroo was demanding too high a price tag for a loss-making delivery platform in a very competitive space with a questionable path to profitability. The books were covered, it was just plain mis-priced.  

Archegos saga rumbles on

Talking of greed, Goldman Sachs has some serious chutzpah. The Archegos scenario went something like this: Bankers at the venerable New York institution discussed the hedge fund’s positions with fellow prime brokers on Thursday. Four of the six committed to avoiding a disorderly unwind – they would work together to avoid fire sale. Goldman was not one of those four and by Friday morning had lined up blocks to unload and leave others holding the bag. Nomura flagged it would lose $2bn, Credit Suisse losses could be double that. Swiftly Goldman analysts downgraded Nomura to neutral and cut their price target on CS by almost 10 per cent. Regulators are looking at the behaviour of prime brokers. And this at a time when the US Supreme Court is hearing a case dating back to the Great Recession, in which shareholders Goldman lied when it made claims like “integrity and honesty are at the heart of our business”.  

Markets have thus far shrugged off the fallout from the fire sale. There will be more shares to be sold to get these off the books of banks, but the market seems largely unperturbed for now. What worries some is the fact that there is bound to be over-geared funds out there and this is not even a bear market.  

Bonds back in business

Bonds have come back into focus as the benchmark US 10-year yield rose to 1.77 per cent, rising 6bps to its highest since January, with the 2s10s spread up above 161bps, the widest since 2015.  Rising bond yields and Yesterday’s pop dragging the Nasdaq 100 down by 0.5 per cent. The Dow slipped 100pts from its record high, while the S&P 500 was off by 0.3 per cent. Stocks in Europe have got off to a very muted start to trading after rising in the previous session. 

What do the markets look like three months into 2021? 

Month-end, quarter-end: It’s been a decent start to the year despite some gyrations. The DAX has rallied over 9 per cent this quarter, whilst the FTSE 100 has risen almost 5 per cent and FTSE 250 is up 5.3 per cent, with a gain of 3 per cent in March. The S&P 500 is over 5 per cent higher, whilst the small cap Russell 2000 has rallied over 11 per cent. Hit by rising bond yields, the Nasdaq Composite has risen by just 1 per cent, while the Nasdaq 100 of the largest tech/growth names is flat on the year. This is a sign of the kind of moves we have seen in bond yields in the context of an expected post-pandemic reopening and the reflationary backdrop as stimulus feeds through. 

Meanwhile, Ryan Cohen is pulling something off. Shares of GameStop rose 7 per cent after the company announced the appointment of Elliott Wilke as chief growth officer, after a seven-year stint with Amazon. The company also named Andrea Wolfe, former Chewy vice president of marketing, as vice president of brand development. Another Chewy alumnus, Tom Petersen, who was the vice president of merchandising, joins GameStop as vice president of merchandising. The calibre and experience of these and other recent appointments adds further credence to the belief GameStop could turn its e-commerce offering around and may support the fundamental thesis on stock. A long, long way to go however and we haven’t even spoken about execution risk.

Elsewhere, Bitcoin trades close to record highs a little under $60k this morning. Gold is testing key long-term trend support as yields have moved higher. The US dollar is off a little this morning but still very close to its Nov high. EURGBP has cracked the 0.8540 support again but is not moving decisively on the breach.

OPEC+ preview: Saudis continue to take the strain 

OPEC+ meets this week after its surprise decision to extend production cuts through April. Prices enjoyed something like a Suez Canal ‘put’ but this is fading fast. A pullback in prices since the last meeting has rather vindicated OPEC’s decision to maintain production curbs. Overproduction vs cut promises at the start of the year are a factor, and OPEC will want to stress the importance of compliance. Prices declined since the March meeting amidst liquidation of speculative long positions as the pandemic worsened in Europe and lockdown restrictions were reimposed. It’s likely that given the retreat in prices OPEC+ will stay the course and Saudi Arabia will keep cutting the additional 1m bpd.  

With the Saudi unilateral cut in play, Russia’s influence is not what it was a few months ago. So, while Russia will be watching for US shale output (Baker Hughes rig count has risen for 8 straight months), the Saudi aim of prioritising prices over market share ought to win out. For now US shale output is not rebounding significantly. Meanwhile, the JTC reported Tuesday that cumulative excess production of OPEC+ rose to 3m bpd through February, up from f 2.8m bpd in January. 

Watch for the UAE as it has recently spent big on increasing its production capacity. Its new Murban benchmark launches this week. Also look to overproduction by Iraq and rising output from exempt countries Libya and Iran. And we will be watching for whether Russia – which is increasing output by 125,000 bpd in April from 9.18 million bpd in February – is allowed to further raise production in May. 

WTI (May) showing double bottom support around the $57.40 level but the 200-period SMA on the 4hr chart proving to offer resistance near-term as it meets the $62 horizontal round number.