Friday Wrap-Up (February, 26)

Global indexes are following Wall Street lower to end a tumultuous week.

(Arvind Rajaraman – Head of Investments at UCLIF & Lead Editor)

Welcome to the UCLIF Friday Wrap-Up, our weekly newsletter that brings you the most important market events and information during the past week! So what’s moving markets?

Markets: Global indexes are following Wall Street lower to end a tumultuous week. Markets appear to be settling down. Futures are little changed amid mild losses in Europe, after a swift selloff in U.S. government bonds and technology stocks on Thursday took some investors by surprise. This morning, Treasury yields are ticking lower again.  Fed Chair Jerome Powell said he’s not anticipating higher inflation anytime soon

Economy: US unemployment claims fell to a three-month low last week but are still riding high at 730,000 new applications. Roughly 19 million US workers are receiving benefits.

COVID-19 update: The FDA said J&J’s single-dose coronavirus vaccine is safe and effective, a good sign (obviously) ahead of tomorrow’s meeting to discuss whether to approve it. Meanwhile, Moderna will begin clinical trials of its new vaccine, which is designed to offer better protection against the highly contagious variant B1351.

Markets in a Minute


Information Technology (Maria Lomaeva)

Inflation fears and rising bond yields in the US have had a very detrimental effect on the tech market in general and growth tech stocks in particular, sending the tech heavy Nasdaq Composite index over 4% lower since Monday.  

However, not every tech company has had a bad week. HP (HPE) reported its quarterly results ahead of schedule and beat estimates. The revenue grew 7% YoY to $15.6bn vs. $14.97bn expected by analysts, with a 34% increase in consumer devices in the company’s Personal Systems category. Adjusted earnings amounted to $0.92 per share, 39% higher than expected. HP also presented a guidance for the 2021 fiscal year that exceeds Wall Street estimates: it sees $3.15 to $3.25 in adjusted EPS vs. expected $2.65. HP shares finish the week almost 3% higher. 

Another tech company, Nvidia (NVDA) also beat analysts’ quarterly estimates despite disruptions in the semiconductor supply chain. The company reported a record high quarterly and full-year revenue. In the last quarter, Nvidia delivered a revenue of $5.00bn, up 61% YoY, which is about 4% higher than expected by Wall Street. Adjusted EPS amounted to $3.10, up 64% and 29% ahead of expectations. The solid results did not lift Nvidia’s share price which dropped almost 8% this week in the broader sell-off. 

Facebook (FB) and Google’s parent company Alphabet (GOOGL) also appeared in the news this week as Australian parliament has enacted a controversial law that would make Big Tech companies pay for news content on their platforms. Facebook has promised to pay at least $1bn over the next three years, which matches Google’s spending plans. During the tough negotiations, the companies managed to bring some amendments to the initial draft which would give them greater flexibility to avoid the most stringent elements of the legislation. Experts believe that this law can trigger similar initiatives around the world. 

Next week, more tech companies will report their earnings, including Zoom (ZM) and Splunk (SPLK).

Healthcare (Christine Chan & Jasmine Khoo)

Due to Biden’s proposed $1.9 trillion fiscal stimulus package leading to expectations of stronger economic growth and higher inflation, we saw US Treasury yields surging to their highest levels in a year. As a result, along with the wider slump in global equities, the Health Care Select Sector SPDR exchange-traded fund (NYSEARCA:XLV) has dropped 1.12% this week, ending the week at $112.61, corresponding to December 2020 levels.

This week, announcements in the healthcare sector mainly relate to COVID-19 vaccines. On Wednesday 24th February, the FDA stated that Johnson & Johnson’s (NYSE:JNJ) single-dose COVID-19 vaccine was found to be safe and effective in global clinical trials, even against the South African variant, ranging from 82-88% efficacy. Two days later on Friday, the FDA’s scientific advisory panel of 22 experts unanimously endorsed the vaccine, leading to the possibility of the FDA’s third emergency use authorisation; this is encouraging as all the COVID-19 vaccines currently on the market rely on two separate doses.

On Thursday 25th February, Moderna (NASDAQ:MRNA) released mixed Q4’2020 results. While the company reported losses of 69 cents a share, fourth quarter sales reached $571 million, with nearly $200 million coming from COVID-19 vaccine sales alone. Much of its revenue also came from vaccine grants such as those from the Biomedical Advanced Research and Development Authority (BARDA), and they are expecting to bring in $18.4 billion alone from COVID-19 vaccine deals in 2021, beating analyst estimates of $11.2 billion by a wide margin. Moderna announced its plans to manufacture 700 million doses of its vaccine this year and aims to boost its capacity up to 1.4 billion doses in 2022. The company’s shares were up 10.51% from the end of Wednesday to Thursday morning but has since decreased 3.25%. With a highly effective for-profit COVID-19 vaccine and its continued development into its mRNA technology and vaccine franchise (such as a flu vaccine and COVID-19 booster jab against the South African variant), Moderna will indeed be a biopharmaceutical company to watch out for in the next couple of years.

Consumer Staples and Consumer Discretionary (Jun Wei)

The markets saw red this week as Treasury yields shot up, with investors predicting an increase in inflation. The S&P 500 Consumer Discretionary and Consumer Staples both fell, in line with the broader market. This week, we look at DraftKings’s earnings and Beyond Meat’s earnings.

DraftKings (NASDAQ: DKNG) jumped by 8% as it reported better than expected revenue and growth in its paying customers. DraftKings is an online sports betting website that has seen increased popularity as fans seek to improve engagement through gambling as sports fans remain unable to see their teams live. It reported a $0.24 loss per share (vs. expected loss of $0.47) and quarterly revenue of $322 million vs. expected $232.6 million. What excited investors about DraftKings’s earnings report was the fact that it now has 1.5 million monthly unique pay subscribers vs. expectations of 1.43 million, which is key to DraftKings’s future success as it needs to be able to monetise its betting offers effectively. DraftKings is an interesting stock to keep an eye on due to its unique offering of an integrated fantasy league and betting platform, but one wonders if its share price rally has anything left in the tank given that its share price has tripled within the past year. Beyond Meat (NASDAQ: BYND) saw its shares fall by as much as 3% following its Q4 earnings release, as it missed analyst expectations on both revenue and earnings. Q4 revenue was at $101.9 million (vs. expected $103.2 million) and EPS was at -$0.34 (vs. expected -$0.13). Company management attributed the disappointing results to Covid-19, increased labour costs and increased marketing and R&D costs. Management also highlighted its deals with McDonald’s and Yum Brands to sell Beyond Meat, but it remains uncertain if Beyond Meat will see sustained demand for its products, both through its fast food partners and through its retail sales. Beyond Meat remains overvalued as a company. 

Walmart (NYSE: WMT) reported disappointing earnings results and missed analyst estimates, despite 69% YoY growth in e-commerce sales. For the 3 months ending Jan 31st 2021, Walmart reported adjusted EPS of $1.39, lower than analyst estimates of $1.51. It did, however, beat analyst expectations on revenue ($152.1 billion vs. $148.30 billion). Walmart’s shares closed 6.48% lower after the earnings announcement, as investors were unsure if Walmart could sustain its sales and e-commerce growth figures. However, there is room for future optimism as the retailer aims to increase investment and focus on e-commerce and a main driver for growth. Hermes (EPA: RMS) reported revenue growth in Asia, as its shares shot up 5.3% following the announcement. Although annual revenue fell 6% to €6.4 billion, it beat analyst estimates of €6.2 billion and the decline in its revenue was less severe than its rival LVMH (17%). Revenue climbed 47% in Asia-Pacific for its latest quarter which contributed to reducing its annual revenue decline, again showing the trend of strong demand for luxury goods in Asia particularly in China. Luxury goods companies are right to focus future efforts on growing its APAC business given the vast difference in fortunes between their APAC businesses and Europe/U.S. businesses.

Financial Institutions (Jamie Biswas)

This week saw high volatility within financial institutions, with the Vanguard Financials ETF (VFH) increasing 3.50% by Wednesday to reach an all-time high, before falling to end the week 0.3% up. This week insurance firms showed a greater robustness than the banks. The financial institutions sector outperformed the S&P 500 this week, which fell 1.74% off the back of rising bond yields.

This week saw Lloyds release their earnings for 2020. The bank posted fairly resilient earnings for the fourth quarter and stated it would aim for double the profitability in 2021. The bank also set some targets for the year, such as a return on tangible equity of 5-7%. If met, this target would represent a significant improvement on 2020’s 2.3%. The ambitious targets for the year are being justified by Lloyds’ belief that the uptake of the vaccine and therefore the recovery from the pandemic is happening faster than previously thought. 

The bank reported a pre-tax profit of £792m for Q4 2020, compared with an average analyst forecast of £471m. Lloyds isn’t alone in its recovery, the other three of the largest 4 retail banks in the UK, HSBC, Barclays and NatWest, all outperformed analysts’ expectations in Q4. A sharp reduction in loan loss provisions across UK banks over the last few months has attributed to the financial rebound. In fact, Lloyds only set aside £128m for new impairments in the Q4, bringing its total for the year to £4.2 billion. Although the bank is starting to recover financially, revenues over the whole of 2020 were still down 12% from 2019 at £3.6 billion. 

Lloyds also mirrored some of its competitors in announcing the maximum full-year dividend payout allowed under current BoE restrictions. The bank also stated they were considering restarting share buybacks to further return capital to shareholders. Alongside the earnings announcement, the bank also outlined some goals for the year including expanding its insurance and wealth divisions as well as investing more in technology.

Industrials (Ed Collins)

The Industrials sector is down this week, with the Vanguard Industrial Index (VIS) having finished the week down 0.95%.

You have probably all seen the crazy photos and video of the uncontained engine failure on United Airlines flight 328 on February 20th that saw the plane shed debris across a Denver suburb. The plane was a Boeing (BA) 777 widebody aircraft.

Following this event, US regulators have ordered inspections of all aircraft using the Pratt & Whitney’s PW4000-112 turbines. Additionally, dozens of 777’s have been grounded worldwide.

A piece of one of the engine fan blades was embedded in the containment ring of the engine, while the other fan blades showed damage to the tips and leading edges.

United Airlines (UAL) has grounded its 24 active Boeing 777 planes that are powered by the same model of engine.

The ultra-high thrust turbine is Pratt & Whitney’s biggest and entered service in 1995 as the launch engine for the 777. Pratt & Whitney is a subsidiary of Raytheon Technologies (RTX). Since the engine has been in service for so long, analysts suggested the issue was unlikely to be a design flaw, however it is too early to draw definitive conclusions.

However, regulators around the world are taking action to limit the use of the engine: the UK’s Civil Aviation Authority has banned 777s powered by these engines from entering UK airspace.

The incident is yet another blow to Boeing, which is still suffering from the impacts of the 18-month grounding of its 737-MAX jets as well as the pandemic’s impact on the demand for its planes. Boeing posted a record loss in 2020.

Analysts said that they expect little financial impact on Boeing as a result of the groundings.

Materials (Ed Collins)

The Materials sector is down this week: the Vanguard Materials Index (VAW) has fallen by 2.54% since the start of the trading week.

ExxonMobil (XOM) has struck a deal with Norwegian private equity group HitecVision worth at least $1bn. This is just the latest retreat by a big oil group from the UK’s declining offshore oil sector.

The deal with HitecVision’s UK vehicle Neo Energy comes as the US supermajor seeks to repair its balance sheet that was impacted by last year’s oil-price collapse, refocusing on more lucrative parts of its business.

Exxon claims that it is continuing to “high-grade” its portfolio by divesting its less strategic assets.

Several US and European oil groups have been exiting or reducing their exposure to the ageing North Sea basin, to focus on lower cost regions such as North American shale. For example, ConocoPhillips sold its North Sea assets in a $2.7bn deal in 2019.Exxon’s sale includes interests in 14 producing fields in the central and northern parts of the North Sea, as well as related infrastructure. Exxon said its share of production from the assets was just under 40,000 barrels a day of oil and gas in 2019.

Fixed Income

This image has an empty alt attribute; its file name is fed-1-1024x576.jpg

Credit (Jenna Xu)

Monday’s announcement that non-essential air travel could resume from May 17 may have played a contributing factor to strong investor demand for easyJet’s €1.2bn bond offering on Wednesday. The deal was almost five times oversubscribed with nearly €6bn worth of orders, signalling that investors appear to be quite confident of the travel industry’s prospects for recovery. 

Low-cost carriers like easyJet may be particularly well-placed to recover. It’s likely that people may be more keen to travel within the European region due to similar rates of vaccination and the relative ease of returning home, should the situation call for it. 

However, easyJet is not yet out of the woods. Its new bonds are rated Baa3 by Moody’s, which is the lowest rung of investment-grade bonds. A delay in the easing of travel restrictions could mean that easyJet could see itself downgraded to high-yield, which will be troubling for the company: it’s estimated that the company is currently burning through £40m per week due to fixed costs and capital expenditure. In addition, easyJet also faces stiff competition from other budget carriers such as the likes of Wizz Air and Ryanair. 

The easing of travel restrictions is dependent on a multitude of factors, with the vaccination programme probably being one of the main ones. While the UK’s vaccination programme can be considered a relative success at this current point in time, the rest of Europe is struggling behind


Oil & Precious Metals (Oliviero Sacchet)

This image has an empty alt attribute; its file name is

This week the oil industry registered: BRNT (+2.37%) WTI (+2.15).

S&P Global Platts will include US WTI Midland crude to Brent benchmark. This inclusion will take place on July 2022. The reason behind this is connected with the decline of North Sea crude grades and with an increase in Europe of US shale oil.  

The union will contribute to maintain stability in the Brent benchmark in the next decades thanks to the additional US volume. WTI Midland is produced in the Permian basin and has similar grades to the North Sea one. This will help Brent that is approximately two-thirds lower than 2000 levels. 
On February 26 a Nord Stream 2 spokesman said that the pipeline has all the required fund to be completed. This statement is connected to the US sanctions on every company that helps Russia in his project. The Germany’s Wintershall Dea withdrew his partnership with the pipeline. However, despite the pipeline is fully funded, several EU companies and countries have provided their economic support to the project before the institution of the US sanctions (i.e., Wintershall Dea provided €730 million). In any case the acceptance of the US sanctions rises problems for the certification requirement needed when the pipeline will be completed (initially the Norway based company DNV GL had to certified it). Despite all these issues the Nord Stream 2 has only 150 km left to be completed in Danish waters.

Leave a Reply

Your email address will not be published. Required fields are marked *