Today's Markets: Who’d be a trader?

The latest in companies news and from world markets

April 7, 2022

I mean is how hawkish is hawkish? When you see the word Volcker in a speech by a Fed governor, especially a dovish one like Brainard, then it’s obvious: short Treasuries, short Spoos… So, the Fed minutes were hawkish but maybe not as hawkish as they could have been… but this was before some of the recent data and comments… and it should be remembered that whilst the Fed conducts one of the swiftest hawkish pivots in its history it was still buying treasuries. So, there’s that. But I mean who’d be a trader?

Anyway, the FOMC minutes from last night showed members "generally agreed" a maximum of $60bn in Treasuries and £35bn in MBS would be run off each month, phased in over three months. Meanwhile, “many participants noted that one or more 50 basis point increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified”.

Tech led the sell-off in the US again. ARKK slipped almost 5 per cent. Twitter (TWTR) was steadier after Elon Musk amended his SEC filing to show his stake was not passive. I think the SEC is definitely going to target him for purchases that were made between when he should have filed his original form and the time he actually did file it. The figures clearly indicate he was buying around $40 when in fact he should have paid about $50 on more than 13m shares… how is that allowed to just happen?

Companies

888 shares soar on acquisition update while Entain struggles

Shares in online gaming and gambling company 888 Holdings (888) climbed by almost 30 per cent as it announced fresh terms and new funding plans for its acquisition of the non-US business of William Hill.

The deal had previously been valued at around £2.2bn, but this has been reduced to £1.95bn-£2.05bn. The cash due at completion has fallen by £250mn to £585mn, while 888 will pay up to £100mn in deferred consideration if the new combined business hits financial targets in 2023.

888 previously said it would issue £500mn of new equity to part-fund the acquisition. But the company will instead now place up to 70.8mn shares, around 19 per cent of the company’s share capital, with debt financing still covering the rest of the deal.

The company expects shareholders to vote on the revised proposals in May, with the acquisition to complete in June.

Entain (ENT), another gambling company, released a trading update on its first quarter. Results were boosted by customers being able to enter physical stores again, with retail sales now 5-10 per cent below pre-pandemic levels. This helped net gaming revenue jump by 31 per cent, despite online sales plunging by 8 per cent. The shares are down by about 1 per cent. CA

Jobs market keeps recruiters in the pink

Recruitment companies are still benefiting from a booming job market, as companies scramble to fill vacancies. Shares in Robert Walters (RWA) rose by almost 10 per cent this morning after the group announced a 30 per cent rise in quarterly earnings.

Gross profit for the three months ended 31 March 2022 reached £98.4mn, compared with £77.3mn in 2021 and £87.4mn in the first quarter of 2020. Management said candidate and client confidence remains high, and noted growth across all forms of recruitment.

Figures published last month by the Office for National Statistics suggest that the UK labour market is recovering: the employment rate has risen to 75.6 per cent, while unemployment is back at pre-pandemic levels.

However, economic inactivity is still on the increase. The ONS said this trend had previously been driven by the student population, but that it is now a result of long-term sickness and people who have retired. JS

Shell adds up Russia exit cost

Shell (SHEL) will take a non-cash hit of up to $5bn (£4.4bn) from putting its Russian assets up for sale, although this bottom-line impact will be partly balanced out by higher oil and gas prices. Following Russia’s invasion of Ukraine, the energy major said it would seek to exit joint ventures with Gazprom, the state gas giant.

The very high oil and gas prices should trigger another strong quarter of earnings, with a $10 a barrel rise in the oil price adding $2.5bn to adjusted earnings, the company said. Oil has traded over $130 a barrel in recent weeks but was back around $100 a barrel on Thursday morning.

Shell has come under fire in the UK this week for revealing it received a government tax refund on its North Sea operations for 2021 even as its profits soared. RBC Capital Markets analyst Biraj Borkhataria flagged another the March quarter as being another where tax levels would be “supportive” of cash flow. The UK government handed Shell a $132mn tax refund last year on its North Sea operations. AH

Buffett snaps up HP shares for $4.2bn

After several years of apparent inactivity, Warren Buffett has made his second multi-billion purchase in less than a month with Berkshire Hathaway buying $4.2bn worth of shares in struggling information technology conglomerate Hewlett-Packard (HP: US.). Although the shares have recovered somewhat after a dire performance over the past few years, the value attraction for an investor like Buffett is clear with the price-to-earnings ratio of just 9, which is a hefty discount compared with the S&P 500 average of 25.

The investment caps a difficult time for HP. The company has been trying to draw a line under a decade of turbulence after its ill-fated takeover of Cambridge-based software company Autonomy in 2011 collapsed into lengthy legal recrimination. JH

ECB Governing Council member Panetta said action now to bring down high inflation could crash economy, and that action now to bring down high inflation in near term would be “extremely costly”. He also indicated there are no signs of any de-anchoring of inflation expectations... hahaha.

European markets are mixed bag this morning, with the FTSE lower and the main continental bourses higher after yesterday’s declines. Oil recovered a bit after a sharp decline Wednesday as IEA members said they would release a further 60m barrels of oil to support the US decision to release 180m barrels from its SPR.

Neil Wilson is the Chief Market Analyst at markets.com