26 ★ Thursday 30 January 2020

David Sheppard

Markets Insight

LBrandsled the S&P 500 gainers on
reports that the Victoria’s Secret owner
was investigating options including a
break-up or sale and thatLes Wexner, its
boss for nearly six decades, was in talks
to step down as chief executive.
With L Brands burdened by $3.7bn of
net debt, it would make sense to sell
Victoria’s Secret for about $2.8bn and
focus on Bath & Body Works, said
Citigroup. It saw a standalone BBW as
potentially worth up to $34 a share, nearly
50 per cent above its current valuation.
General Electricsoared on better than
expected earnings and guidance, the
highlight of which was a 2020 target for
up to $4bn in industrial free cash flow.
Analysts had been forecasting about
$2.2bn and free cash flow was “the most
important metric to judge GE’s progress
on its multiyear turnround”, said RBC
Capital Markets.
Forecast-beating earnings lifted
railroad operatorNorfolk Southern.
Xilinxtumbled after the chipmaker said
apause in wireless end-market orders
meant current-quarter revenue would
disappoint.
Sector peerAMDweakened on mixed
results, which reflected a sharp drop in
sales for gaming consoles and of
specialist semiconductors.Bryce Elder

Wall Street Eurozone London

Banking software makerTemenoswas in

demand after revealing a tie-up with

Google and on the back of an upgrade to

“buy” from Kepler Cheuvreux.

Kepler forecast that Temenos Infinity,

its front-office online banking platform,

“is on track to grow by 20-30 per cent a

year over the coming years and help

group revenues continue to grow by

double digits with improving margins”.

SESdived in response to a US Senate

bill proposing to cap the payments

available to satellite operators for

voluntarily vacating C-band spectrum,

used to transmit video to telecoms

companies for 5G capacity.

The new proposal would limit

payments to $1bn — a big change from

the bill outlined last month, which

proposed that the US Treasury should

take at least a 50 per cent cut of future

spectrum auctions that analysts have

valued at about $30bn.

Ipsengained after sector peer Novartis

said it was not expecting generic versions

this year of a hormone drug in the same

class as the French group’s blockbuster

rare disease treatment Somatuline.

Santanderedged higher on better than

expected fourth-quarter earnings as net

profit of €2.78bn beat the consensus

forecast by 10 per cent.Bryce Elder

Avast, the antivirus software maker,

retreated for a second day in response to

reports criticising its sale of users’

browsing data to third parties.

The news also weighed on media group

Ascential, which last year bought a 35 per

cent stake in Avast’s data capture

division, Jumpshot, for $61m.

Morgan Stanley estimated that

Jumpshot provides about 4 per cent of

Avast’s group revenue.

A permanent shutdown of the division

would be preferable to letting bad

publicity impair the company’s core

franchise, argued HSBC.

Stagecoachretreated after HSBC

downgraded its stock to “reduce” as part

of a sector review, which flagged a risk to

earnings from potential bus regulation in

Manchester.

Fund managerQuilterled the FTSE

2 50 risers after revealing assets under

management at the year end of £110.4m,

up 13 per cent from last year.

Wizz Airclimbed after nudging higher

its full-year profit guidance in fiscal third-

quarter results.

A trading update reiterating guidance

helped settle nerves aroundHurricane

Energy, the North Sea oil prospector,

which had fallen by as much as 35 per

cent in the year to date.Bryce Elder

3 Hong Kong shares slide after lunar
new year break
3 Solid bank results help European
stocks bounce back
3 Wall Street climbs off the back of
robust company earnings

European and US stocks edged up
yesterday while investors awaited further
updates on the coronavirus outbreak that
has buffeted markets this week.
“It is too early at this stage to make any
reliable estimate of the future trajectory
of this virus — which is what markets
require to find more solid ground,” said
analysts at Rabobank.
Hong Kong’s Hang Seng index, which
was the first Chinese market to reopen
following the lunar new year break, fell
more than 3 per cent.
Among the benchmark’s worst-
performing stocks was airline Cathay
Pacific, which plans to sharply reduce
flights to mainland China as a result of
the epidemic, and lender HSBC, which
makes about 80 per cent of its profits
from Hong Kong and mainland China.
However, banks fared better in Europe
following solid earnings updates from
several lenders. Spain’s Santander
reported stronger than expected results
while fourth-quarter profits rose 22 per
cent year on year for Sweden’s SEB.
The continent’s banking sector rose 0.6
per cent, outperforming the 0.4 per cent
rise in the broader Stoxx Europe 600.

Company earnings were also in focus

across the Atlantic ahead of an interest

rate decision from the US Federal

Reserve, which kept rates on hold

following three cuts last year.

Rallies for Apple and M cDonald’s

helped the Dow Jones Industrial Average

lead Wall Street’s main gauges as it

climbed 0.6 per cent by midday.

The fast-food group reported its

strongest sales growth in a decade while

the iPhone maker posted strong revenue

and income for its holiday sales period.

The S&P 500 and tech-heavy Nasdaq

Composite followed the Dow higher,

gaining 0.3 per cent and 0.4 per cent,

respectively.

But lingering worries about the

economic impact of the coronavirus led to

modest rallies for haven assets. The yield

on 10-year US Treasury fell 2 basis points

to 1.62 per cent while gold rose 0.3 per

cent to $1,570 an ounce.

Brent crude, which has slid about 10

per cent this year on concerns about

weakening demand, rose 0.5 per cent,

although the international benchmark

stayed below $60 a barrel.Ray Douglas

What you need to know

Bank earnings help boost European shares

Indices rebased

Source: Bloomberg



Mon Tue Wed

Stoxx Europe  Banks

Stoxx Europe 

The day in the markets

Markets update

US Eurozone Japan UK China Brazil
Stocks S&P 500 Eurofirst 300 Nikkei 225 FTSE100 Shanghai Comp Bovespa
Level 3286.93 1639.11 23379.40 7483.57 2976.53 115827.32
% change on day 0.33 0.40 0.71 0.04 -2.75 -0.56
Currency $ index (DXY) $ per € Yen per $ $ per £ Rmb per $ Real per $
Level 98.146 1.100 109.180 1.300 6.930 4.215
% change on day 0.131 0.000 0.037 0.154 0.000 0.076
Govt. bonds 10-year Treasury 10-year Bund 10-year JGB 10-year Gilt 10-year bond 10-year bond
Yield 1.612 -0.379 -0.041 0.536 2.997 6.534
Basis point change on day -4.050 -3.700 0.130 -3.700 0.000 -6.800
World index, CommodsFTSE All-World Oil - Brent Oil - WTI Gold Silver Metals (LMEX)
Level 375.29 59.78 53.30 1574.00 17.98 2672.50
% change on day 0.23 -0.17 -0.95 -0.39 -1.75 -0.61
Yesterday's close apart from: Currencies = 16:00 GMT; S&P, Bovespa, All World, Oil = 17:00 GMT; Gold, Silver = London pm fix. Bond data supplied by Tullett Prebon.

Main equity markets

S&P 500 index Eurofirst 300 index FTSE 100 index

||||||| |||||||| |||||

Nov 2020 Jan

3040

3120

3200

3280

3360

||||||||||||||||||||

Nov 2020 Jan

1520

1560

1600

1640

1680

||||| |||||||| |||||||

Nov 2020 Jan

7040

7360

7680

Biggest movers
% US Eurozone UK

Ups

L Brands 12.86

General Electric 9.76

Norfolk Southern 7.28

Progressive 5.82

Avery Dennison 5.39

Santander 4.41

Safran 3.84

Iliad 3.19

Asml Holding 2.73

Alstom 2.58

Rolls-royce Holdings 3.44
Melrose Industries 3.34
Whitbread 2.78
Ashtead 2.41
Smith (ds) 2.41
%

Downs

Xilinx -9.85

Advanced Micro Devices -7.74

C.h. Robinson Worldwide -6.75

Seagate Technology -5.47

Hess -5.32

Prices taken at 17:00 GMT

Ses -8.27

Kpn -5.60

Kone -2.39

Adidas -1.87

Cap Gemini -1.33

Based on the constituents of the FTSE Eurofirst 300 Eurozone

Nmc Health -4.70

Pearson -2.32

Berkeley Holdings (the) -1.95

Taylor Wimpey -1.56

Sainsbury (j) -1.51

All data provided by Morningstar unless otherwise noted.

F

or a generation of oil traders,

so-called geopolitical shocks

once meant conflicts and

social ruptures that threat-

ened supplies in the Middle

East and which almost invariably sent

pricesspirallinghigher.

But as 2020 begins, a new reality has

become cemented in the most battle-

hardenedminds.Thiswillbethedecade

when demand shocks become a bigger

riskthansporadicthreatstosupplies.

From the long-term threat of “peak

oil” demand to short-term hits to

consumption, the oil market is now well

enough supplied that fears of outages

are being subsumed by worries over the

world’sthirstforcrude.

An obvious illustration is oil’s reac-

tion to the coronavirus outbreak in

China. Prices have dropped more than

15 per cent from an early January peak

to below $60 a barrel as restrictions on

transport — a direct blow to oil demand

— and fears over the economic fallout

havesenttradersrunningforcover.

The move comes despite a loss of sup-

plies from Libya, where outages caused

by the 2011 revolution helped propel

crude above $120 a barrel. Now, output

is almost completely shut off by an

export blockade by forces challenging

theUN-backedgovernmentinTripoli.

A few diehard oil bulls have pointed

outthatthelossofmorethan1mbarrels

a day from the North African country,

equivalent to more than 1 per cent of

global supply, exceeds even the most

bearish projections for the impact of

coronavirusondemand.

But the price reaction is telling. Trad-

ers have little doubt about the market’s

abilitytocovershort-termsupplyshort-

falls, be it from US shale production or

Opec spare capacity. Even so, they have

largely ignored Libya and zeroed in on

the impact of coronavirus instead.

Brent, the international oil benchmark,

has lost more than any other asset class

sincethescaleofthehealthcrisisstarted

toemerge.

It is little surprise then that Opec has

gone back to its well-worn playbook,

starting to talk up the possibility of

making deeper cuts to production to

propupthemarket.

This has become commonplace since

2016 when the group first combined

withRussiatotryandboostprices.

But talk of cuts is nevertheless telling

when some of Opec’s own members

such as Venezuela and Iran — in addi-

tion to Libya — have reduced produc-

tionbecauseofconflictandsanctions.

That represents an acknowledgment

from the cartel that demand shocks,

rather than supply shocks, now set the

paceinthemarket.

Opec members may still try to argue

that fears over long-term demand are

overstated and that demand will stay

solid as long as emerging economies are

industrialising. But look at what they do

ratherthanwhattheysay.

Thestrongestmembers,suchasSaudi

Arabia, are doing everything they can to

diversify their economies away from a

neartotalrelianceonoil.

The political backlash against fossil

fuels has intensified in the past year and

shows little sign of fading. International

oil companies are under growing pres-

sure from investors to find less damag-

ing ways of fuelling the planet while

effortstocurbconsumptionarelikelyto

eventually spread from Europe to the

largestemergingeconomies.

The long-term outlook for demand

growthlooksshaky,atbest.

Therearestillvulnerabilitiesintheoil

market. Supply risks are not insignifi-

cant. The drone and missiles attack on

Saudi Arabia’s oil installations last Sep-

tember could have had a much more

dramatic impact if the kingdom had not

beenabletorestoreexportssoquickly.

Direct military confrontation

between Iran and the US would still

have the power to unnerve the market

andboostprices,atleasttemporarily.

But traders are not as on edge as they

once were. Crude prices were relatively

steady near $60 a barrel for much of last

year, even as tension rose in the Middle

East. Price rallies much above that level

lookincreasinglydifficulttosustain.

Traders are acting accordingly,

responding more to threats to demand

such as coronavirus — even if its full

impact remains, at best, an educated

guess. Analysts are estimating that

demand could fall by anywhere from

150,000 b/d to 600,000 b/d but there

are still fears the effects could be worse

if the virus starts to really weigh on the

globaleconomy.

Looming over the market now are

memories of the last quarter of 2018

when signs of an economic slowdown

led to a sell-off across equities and com-

modities that dragged crude below $50

a barrel, in one of the biggest quarterly

slidesonrecord.

In an era when demand shocks are

becoming the dominant fear, it is no

wonder that oil traders are wary of a

repeat.

[email protected]

Demand shocks rather

than supply scares set

the pace for oil trading

A military confrontation

between Iran and the US

would still have the power

to unnerve the market

JANUARY 30 2020 Section:Markets Time: 29/1/2020 - 19: 23 User: stephen.smith Page Name: MARKETS2, Part,Page,Edition: LON, 26, 1