Pound rises against the euro as ECB ramps up bond buying measures

Liam Roche
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Pound rises against the euro as ECB ramps up bond buying measures

Pound continues recent surge

The pound rose against the euro today following the ECB’s announcement that it will step up its bond buying over the first quarter of 2021.

At 1230 GMT, when the ECB made its policy announcement, GBP/EUR was at 1.1661. However, at 1500 GMT on Thursday, one British pound was worth €1.1686.

The pound’s rise against the euro on Thursday is a continuation of a trend which has seen the UK currency surge over recent months.

In the middle of March 2020 the GBP/EURO exchange rate was just above 1.05. After a period of volatility between March and September, the pound found itself at 1.08 against the euro.

Over the past six months the pound has seen an 8.23% rise against the Eurozone currency. The pound has also risen strongly against the dollar over the same period, up 9.11%.

GBP/EUR

Today’s move followed the European Central Bank (ECB) confirming that its interest rate of 0.5% would remain unchanged.

The ECB also said it expects purchases under the pandemic emergency purchase programme (PEPP), its bond buying stimulus, would “be conducted at a significantly higher pace” over the next quarter, in an effort to contain rising bond yields.

The bond buying program has the effect of pushing down bond yields, which act as a benchmark for borrowing across the region.

A number of factors are responsible for Sterling’s recent resurgence. In February, the pound edged 1.16 against the Euro, as optimism surrounding the UK economy grew stronger due to vaccine roll-outs surpassing expectations.

Michael Brown, expert at international payments and foreign exchange firm Caxton FX, commented on the currency’s upward trajectory.

“It continued the steady ascent started a week prior and nearing the 1.17 handle once more,” Brown said.

“This, and the recent 1.1705 high, will prove a tough bar for the pound to jump, though the UK’s continued outperformance in Covid vaccinations means we should indeed break these levels in due course.”

ECB set to expand pace of bond buying stimulus to curb rising yields

Liam Roche
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ECB set to expand pace of bond buying stimulus to curb rising yields

ECB confirms interest rates to remain unchanged

As expected, the European Central Bank (ECB) confirmed on Thursday that its interest rate of 0.5% would remain unchanged.

The ECB also said it expects purchases under the pandemic emergency purchase programme (PEPP), its bond buying stimulus, would “be conducted at a significantly higher pace” over the next quarter, in an effort to contain rising bond yields.

The bond buying program has the effect of pushing down bond yields, which act as a benchmark for borrowing across the region.

The ECB also explained that it would “purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation”, in a statement today.

The pound jumped up against the euro to 1.679 shortly after the news broke, while the euro fell below 1.9450 against the dollar.

German bond yields, viewed as the region’s benchmark, plunged as the news of the ECB’s bond buying broke, as did the Italian bond yields.

Christine Lagarde took centre stage in Frankfurt, Germany, as the ECB president provided reasoning behind the policy announcements, as well as an assessment of the eurozone area’s economic circumstances.

The former IMF chief warned against rising bond yields as a risk to financing conditions, and confirmed that as the cause for the ECB’s policy announcement.

Lagarde confirmed that high Covid-19 infection rates and lockdowns are continuing to hurt growth, while saying that the overall economic situation will improve.

The ECB president said the eurozone would likely contract in Q4 of 2020 and Q1 of 2021 for this reason. She also confirmed growth forecasts of 4%, 4.1% and 2.1%, for 2021, 2022 and 2023 respectively.

Commenting on the ECB’s bond purchasing program, Rupert Thompson, Chief Investment Officer at Kingswood, said: 

“The European Central Bank plans to step up the pace of its bond purchases over coming months in an attempt to prevent a tightening of financing conditions on the back of the recent rise in government bond yields.”

“The move didn’t require the ECB expanding the size of its €1.85trn quantitative easing program as this runs until next March and already gives it scope to purchase another €1trn of bonds. The action occurs against the backdrop of the disappointingly slow vaccine roll-out, which is delaying the economic recovery in the Eurozone, and also the fiscal stimulus in the region being considerably smaller than that now underway in the US.”

Marshalls raises expectations for 2021 as home improvement booms in the UK

Liam Roche
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Marshalls raises expectations for 2021 as home improvement booms in the UK

Marshalls posts record start to the year

Marshalls (LON:MSLH) has raised its expectations for the coming year as an increase in the number of people doing up their homes resulted in a record breaking start to the year for the landscaping firm.

The company posted a 13.5% drop in its revenue during 2020, to £469.5m, a result of lower sales in the first half of the year.

However, sales recovered during the second half, as Q4 revenue surpassed that of the previous year.

Sales were up 7% at the end of February, while orders increased by 12% from the year before. This led Marshalls to raise expectations for the remainder of 2021.

Having not paid an interim dividend in 2020 due to the impact of the pandemic, Marshalls proposed a final dividend of 4.30p.

Neil Shah, director of research at Edison Group, draws attention to some factors which me be of interest in the coming year:

“Investors will keep a keen eye on the planned delivery of £5million of research and development expenditure, including long-term investment of £20million in a flagship site in St. Ives. Close attention should also be paid to progress of the e-commerce trading model launched in April 2020, which is expected to double throughout 2021, reflecting wider trends towards online retail that will most likely continue to be seen across sectors,” said Shah.

Commenting on these results, Martyn Coffey, chief executive, said:

“Trading has started strongly in 2021. At the end of February, sales are up 7 per cent and orders are up 12 per cent compared to same period in 2020. The CPA’s winter base case scenario predicts an increase in UK market volumes of 14.0 per cent in 2021 and 4.9 per cent in 2022. Despite wider market uncertainty, the underlying indicators in our main growth markets of New Build Housing, Road, Rail and Water Management remain positive.”

“Although market demand remains uncertain, we remain focused on developing future growth opportunities and delivering the strategic objectives in our 5 year Strategy. Our strategy continues to be underpinned by strong market positions, focused investment plans and an established brand. Marshalls’ liquidity is strong and will support our investment priorities going forward.”

“Encouraged by the strong trading performance, the Board is raising its expectations for 2021.”

John Lewis to close more stores as pandemic wipes out profit

Liam Roche
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John Lewis to close more stores as pandemic wipes out profit

John Lewis recorded a £517m loss for the year ending in January

UK retailer John Lewis warned of further store closures after the retail giant posted a pandemic-induced loss as stores closed across the country.

John Lewis recorded a £517m loss for the year ending in January, compared to a profit of £146m the year before.

Previous reports have suggested up to eight stores could be closed in an effort to cut costs. Further store closures would be in addition to this figure.

While the retailer did not say how many stores could be impacted, it did confirm that a decision would be made by the end of March.

Chairman Sharon White told the BBC that the move to keep stores closed was “painful” but necessary due to a “decade of changes in shopping habits in one year”.

“There is no getting away from the fact that some areas can no longer profitably sustain a John Lewis store. Regrettably, we do not expect to reopen all our John Lewis shops at the end of lockdown, which will also have implications for our supply chain,” White added.

Danni Hewson, financial analyst at AJ Bell, commented on the store closures:

“We’ve been asking the question “what’s the future for our hight streets” for over a decade. Ever since Woolworths closed its doors in 2015 there have been rumblings of concern and calls for change,” Hewson said.

“The decision by John Lewis not to reopen some of its stores after lockdown ends isn’t surprising. Six years ago, when I went to the long awaited opening of a John Lewis store in Leeds, partners were falling over themselves to tell me how this was a store for the future. It was about experience; with restaurants, treatment rooms and advice on a good night’s sleep. It was also an integral part of their dot com offer, with the backrooms operating as streamlined warehouses.”

Sosandar strikes a deal with M&S

Liam Roche
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Sosandar strikes a deal with M&S

Sosandar established online partnerships with Next and John Lewis in August

Sosandar (LON:SOS), the online women’s fashion brand, confirmed on Thursday that the company has entered an agreement to sell a curated collection of its products through Marks & Spencer as a third-party online retailer.

The agreement means a selected range of Sosandar’s clothes will be sold on M&S’ online platform from late March, followed by regular drops of new products over future months.

Sosandar’s initial range will include best-selling styles from Sosandar’s denim collection and its premium leather collection, in addition to dresses, knitwear, loungewear and accessories.

The agreement will allow the online fashion brand to draw awareness to its brand, while driving incremental sales and improving its EBITDA.

The agreement with M&S follows online partnerships that Sosandar has, having launched with both John Lewis and Next in August 2020.

Ali Hall and Julie Lavington, Co-CEOs of Sosandar, commented on the company’s new partnership:

“We are delighted to secure a new partnership with another renowned British retailer, Marks & Spencer, to sell our womenswear collections. This is a strong endorsement of the appeal and quality of our clothing and our growing customer base. We have worked closely with M&S to curate a stunning launch collection and we are confident that our products will resonate well with the extensive M&S customer base. We are delighted to be working together and are excited to see a positive outcome for both our businesses.”

“Following on from the recent success of our partnerships with John Lewis and Next, we are thrilled that another highly respected UK retailer has invited us to stock our product on their website. This milestone agreement demonstrates the ever-growing strong appeal of our offering to our target market and the potential Sosandar has to expand through third party brands.”

Greatland Gold reports ‘outstanding’ drilling results

Liam Roche
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Greatland Gold reports ‘outstanding’ drilling results

Greatland Gold establishing new targets outside of Havieron deposit

Greatland Gold (AIM:GGP) reported on Thursday “outstanding” results from the company’s Havieron deposit in the Paterson region of Western Australia.

In addition, the company confirmed its JV partner, Newcrest, is on track with its growth programme for the coming year at Havieron with 65km of drilling up to 30 June to test potential extensions to the resource shell.

The company’s best results include 196.1 metres at 1.7 grammes a tonne (g/t) gold and 0.28% copper from a depth of 545.9 metres and 97 metres at 3.9g/t gold and 0.50% copper. Another of the drill results showed 169.5 metres at 3.4g/t gold and 0.33% copper, including 3.1 metres where the gold grade was as high as 95g/t.

Greatland Gold announced via a statement that its latest high-grade drilling results “provide additional confidence of both geological and grade continuity within the existing resource shell”.

The results support the delivery of an Indicated Mineral Resource estimate in the South East Crescent Zone and adjacent Breccia Zones.

The AIM-listed company also established priorities for its 2021 drilling programme.

The growth drilling programme will initially focus on the North West Crescent and Northern Breccia zone and is aimed at providing support for the potential expansion of the existing Inferred Mineral Resource estimate.

In the Eastern Breccia Zone, drill testing and interpretation of the geological and mineralisation controls is ongoing.

Greatland Gold is targeting potential resource definition of extensions below the existing resource shell and lateral extensions adjacent to the existing high-grade resource shell in the South East Crescent and Breccia Zone.

New targets outside of the immediate vicinity of the Havieron deposit, but within the Havieron Joint Venture area, have been identified with the potential to conduct drill testing of these targets in the future.

Shaun Day, Chief Executive Officer of Greatland Gold, commented on the results: 

“We are pleased to once again observe high grades of gold and copper at extensive widths, with all drill holes intercepting mineralisation. The results are outstanding and further highlight the world-class potential of Havieron. Additionally, these results layer onto existing data to further increase our confidence in the continuity of higher-grade mineralisation and support the delivery of an Indicated Mineral Resource estimate,” said Day

“Alongside this, Newcrest is on track to push forward with an exciting 2021 growth drilling programme. We are yet to define the full size of Havieron and, subject to further exploration success, this programme has the potential to significantly expand the mineralised footprint.”

“We look forward to a busy and exciting period over the next few months in the Paterson with growth drilling and early works programmes continuing apace at Havieron and the Juri JV commencing exploration activities.”

Greatland Gold announced its interim results for the six months ended 31 December 2020 on Tuesday.

FTSE 100 short of 6,750 as US stimulus passes through Congress

Liam Roche
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FTSE 100 short of 6,750 as US stimulus passes through Congress

Despite the passing of Joe Biden’s stimulus plan, it was a quiet morning for the FTSE 100 and other European indexes.

Connor Campbell, analyst at Spreadex, commented on the index’s lacklustre start to the week. “While its miners – the index’s biggest burden this week – rebounded after the bell, the FTSE itself only managed a 0.1% increase, leaving it short of 6,750,” Campbell said.

FTSE 100 Top Movers

Flutter Entertainment (3.07%), Rio Tinto (2.88%) and Anglo American (2.6%) were the top risers on early Thursday morning trading on the FTSE 100.

Down at the bottom end, Persimmon (-4.2%), HSBC (-3.83%) and Evraz (-2.34%), are the index’s biggest fallers so far.

Rolls-Royce

Engineering company Rolls-Royce swung to a £4bn loss in 2020 as the coronavirus pandemic severely impacted the airline industry. The company’s loss came following an underlying profit before tax of £583m in 2019.

In 2020 its cash outflow was £4.2bn. The FSTE 100 company predicted an improvement this year to around £2bn, with its cash outflow set to turn positive during H2 of 2021.

Morissons

Morrisons (LON:MRW) confirmed on Thursday morning that its profit fell as the supermarket took on £290m extra costs due to the pandemic. The supermarket confirmed its profit before tax fell by 62.1% to £165m for the year ending on 31 January. The supermarket’s total revenue rose by 0.4% to £17.6bn.

Throughout the year the FTSE 100 company spent an additional £99m paying staff, £68m on bonuses for employees, £46m to protect its customers, as well as donating £12m to food banks.

Morrisons profit slashed as pandemic costs soar

Liam Roche
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0
Morrisons profit slashed as pandemic costs soar

Morrisons pre-tax profit down by 62.1%

Morrisons (LON:MRW) confirmed on Thursday morning that its profit fell as the supermarket took on £290m extra costs due to the pandemic.

The FTSE 100 company confirmed its profit before tax fell by 62.1% to £165m for the year ending on 31 January. The supermarket’s total revenue rose by 0.4% to £17.6bn.

Throughout the year the supermarket spent an additional £99m paying staff, £68m on bonuses for employees, £46m to protect its customers, as well as donating £12m to food banks.

Other costs, including markdowns and seasonal waste, added up to £65m.

Morrisons‘ repayment of the government’s business rates relief also made an impact on profits, in addition to its decision to boost its online capacity.

The company spent an extra £10m in January due to Covid-19, incurring further costs than anticipated.

Profit was also impacted by Morrisons’ decision to boost its online capacity during the pandemic, and to repay the government’s business rates relief.

Ross Hindle, analyst at Third Bridge, commented on the supermarket’s outlook.

“Despite a strong top-line performance, Morrisons is expected to incur c.£290m in Covid-19 related costs. Stores have had to introduce expensive social distancing measures whilst also hiring more staff to meet increased demand.”

“Our experts expect Morrisons to continue to develop its wholesale business and to grow its margin accretive non-food home-ware and clothing offer. Specialists believe further growth in these areas will continue to differentiate Morrisons relative to the Big 4 and could offer some margin protection to the Group.”

David Potts, chief executive of Morrisons, commented on the supermarket’s role during the pandemic, and looked forward to targeted growth during the coming year:

“Morrisons key workers have played a vital role for all our stakeholders during the pandemic, especially the most vulnerable in British society, and their achievements over the last year have been remarkable. I am delighted that we are recognising their enormous contribution by becoming the first supermarket to pay a minimum of £10 an hour to all store colleagues. We are also today showing our continuing gratitude and appreciation for the incredible work of other key workers in the nation, by extending our 10% discount for NHS staff for the whole of 2021,” Potts said.

“I’m pleased with the greater recognition, warmth and affection for the Morrisons brand from all corners of the nation, following a year like no other. We must now look forward with hope towards better times for all, and we’re confident we can take our strong momentum into the new year, targeting profit growth and significantly lower net debt during 2021/22.”

Rolls-Royce makes £4bn loss amid ‘severe’ impact of pandemic

Liam Roche
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Rolls-Royce makes £4bn loss amid ‘severe’ impact of pandemic

Rolls-Royce confirms 7,000 job losses during 2020

Engineering company Rolls-Royce (LON:RR) swung to a £4bn loss in 2020 as the coronavirus pandemic severely impacted the airline industry.

The company’s loss came following an underlying profit before tax of £583m in 2019.

In 2020 its cash outflow was £4.2bn. Rolls-Royce predicted an improvement this year to around £2bn, with its cash outflow set to turn positive during H2 of 2021.

Rolls-Royce has taken strong acton to reduce its costs by an added £1bn, including 7,000 job losses during 2020, with the aim of saving a total of £1.3bn by 2022.

Jack Winchester, analyst at Third Bridge, commented on the vulnerability of the aviation group’s business model.

“Rolls Royce’s management have been guiding this 4.2bnGBP cash outflow since mid December, but while it isn’t a surprise, it really does bring into focus the deep pain caused by the pandemic. This is a business which has been producing positive cash flows in the hundreds of millions basically since the turn of the millennium.”

“What we’ve seen over the past year is the inherent fragility of Rolls Royce’s business model – when you sell engines to customers at a loss, you are very dependent on your aftermarket ‘power by the hour’ business.”

The company raised £7.3bn to get through the pandemic via tapping up shareholders and borrowing from the Bank of England. The company will also look to raise money by selling off parts of the business.

At early morning trading, Rolls-Royce’s share price is up by 2.35% to 115.65p per share.

Warren East, chief executive of Rolls-Royce, commented on the measures taken by the company during the pandemic, as well as its outlook moving forward:

“The impact of the COVID-19 pandemic on the Group was felt most acutely by our Civil Aerospace business. In response, we took immediate actions to address our cost base, launching the largest restructuring in our recent history, consolidating our global manufacturing footprint and delivering significant cost reduction measures,” East said.

“We have taken decisive actions to enhance our financial resilience and permanently improve our operational efficiency, resulting in a regrettable, but unfortunately very necessary, reduction in the size of our workforce. With the support of our stakeholders we successfully secured additional liquidity with a rights issue, bond issuance and further credit facilities put in place during the year. We have made a good start on our programme of disposals and will continue with this in 2021. We continue to invest in developing market-leading technology and low carbon opportunities in all our end markets, to create value for our stakeholders and ensure we are well positioned to take advantage of the transition to a lower carbon economy and growing demand for more sustainable power solutions.”

Biden’s $1.9tn stimulus plan passes through Congress

Liam Roche
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Biden’s $1.9tn stimulus plan passes through Congress

Biden stimulus adds “further fuel to the fire” of expected inflation

Joe Biden’s $1.9tn coronavirus relief package is set to go through after receiving final support from the US House of Representatives on Wednesday.

The bill passed through the House by a narrow margin of 220 to 211 votes, with every Republican and only one Democrat opposing the proposal. Biden will now be able to sign the bill into law on Friday.

After weeks of process, the bill’s passing is a big step for the President who was elected with the mission to see the US out of the pandemic and into a more prosperous future.

In a statement from the White House moments after the vote, Biden said: “This legislation is about giving the backbone of this nation — the essential workers, the working people who built this country, the people who keep this country going — a fighting chance”.

The packaged includes direct payments of up to $1,400 for a significant number of American adults, unemployment benefits, $350bn worth of aid to local and state governments and an expansion of child tax credits.

“Right now markets are celebrating the additional stimulus and see it as a stronger bridge to a fully reopened economy,” said Jeff Buchbinder, equity strategist for LPL Financial.

However, Joshua Mahony, senior market analyst at IG, drew attention to a possible drawback of the President’s stimulus:

“While traders have been looking for this package as means to turbocharge the US economic recovery, there are plenty of questions over the impact it could have upon inflation,” Mahony said.

“Inflation expectations have already been soaring in the US, and the passing of this huge stimulus package adds further fuel to the fire. While Powell will try to soothe concerns that the Fed will need to tighten policy in the event of rising prices, the key questions is whether this package will accelerate the widespread expectations for a significant bounce in 2021 inflation levels.

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