20 ★ Thursday20 February 2020

Leo Lewis

Markets Insight

Garmin ed the S&P 500 gainers afterl
beating expectations in its full-year
results, with the navigation gadget
maker’s quarterly revenue topping $1bn
for the first time in a decade.
Fitness was Garmin’s standout
category, delivering year-on-year growth
of 34.5 per cent while management
predicted a slower pace of decline at its
legacy auto-navigation business in 2020.
Tesla as up following reports that itw
was preparing to switch car production to
cobalt-free batteries.
Meanwhile, Piper Sandler raised its
Tesla target price and repeated
“overweight” advice after trying one of
the company’s “objects of desire” rooftop
solar charging systems.
“We are convinced that Tesla’s
automotive products offer a superior
ownership experience,” the broker told
clients. “If history is any indication, we’ll
eventually be saying something similar
about generating and storing our own
solar power.”
Forecast-beating earnings and
reassuring 2020 guidance liftedConcho
Resources, the Permian Basin oil explorer.
Daily deals websiteGroupon lungedp
to a record low after posting worse than
expected revenue and earnings for the
third straight quarter.Bryce Elder

Wall Street Eurozone London

Puma ed the gainers as signs of al

slowing coronavirus infection rate helped

lift the Stoxx Europe 600 to a record high.

Full-year results from Puma beat

consensus forecasts by about 1 per cent

as Europe, the Middle East and Africa

delivered the second-highest quarterly

growth since 2006.

The sportswear makersaid coronavirus

effects should “normalise” shortly.

HelloFresh ained after key USg

competitorBlue Apron aid weakers

demand had forced it to evaluate

strategic options including a sale.

Linda Kozlowski, Blue Apron president,

blamed its marketing budget, and cited

the Berlin-based meal-kit provider in a

conference call as showing what was

possible with “the right resources”.

Deutsche Telekom ose on forecast-r

beating fourth-quarter profit and a 2020

free cash flow target that was higher than

consensus expectations.

Campari as under pressure afterw

posting a slowdown in organic growth

and weakening margins.

The drinks maker also switched its

registered office to the Netherlands in a

move that may allow its controlling

shareholder,Lagfin, to retain voting

control even in the event of new equity

being issued.Bryce Elder

Berkeley ose on the back of an HSBCr

upgrade to “buy”, with the broker arguing

that the post-election house price bounce

in southern England should allow

housebuilders to defend their current

profit margin levels for at least the next

four years.

Man Group urged after Exane BNPs

Paribas turned positive.

Having been the worst-performing

asset manager stock in the year to date,

Man offered near-term upside as a recent

recovery in flow trends set the group up

for “a potentially large beat” when it

delivers full-year results next week,

Exane said.

Royal Mail lipped to a record low afters

Liberum Capital reiterated “sell” advice

and cut its target price from 175p to 120p.

Worsening letter volumes and poor

industrial relations were threatening to

undermine Royal Mail’s 2024 turnround

target and made the dividend “potentially

unsustainable”, Liberum said.

Plus500, the financial markets

bookmaker, slid after Canaccord Genuity

repeated a “sell” rating.

Recent results from Plus500 had

shown poor customer numbers and the

“highest ever churn rate”, suggesting

further downside risk to earnings

forecasts, Canaccord said.Bryce Elder

3 S&P 500 and Nasdaq hit intraday
records, propelled by chipmakers
3 Hopes of central bank intervention
help gold hover near seven-year high
3 Brent crude approaches $60 after US
imposes sanctions on Rosneft subsidiary

Global stocks climbed yesterday following
reports that Beijing was looking at rolling
out policies to prop up Chinese sectors
hit hard by the coronavirus.
The FTSE All-World index rose 0.5 per
cent as the number of cases surpassed
75,000 while deaths exceeded 2,000.
Hong Kong’s Hang Seng and Tokyo’s
Nikkei 225 Average rose 0.5 per cent and
0.9 per cent, respectively, although the
CSI 300 index of Shanghai- and
Shenzhen-listed shares slid 0.2 per cent.
The resilience of Chinese stocks, which
are down just 1.1 per cent this year,
“suggests investors view the economic
disruption to the Chinese economy as
shortlived, in part driven by the decline in
new confirmed cases over the past two
weeks”, said Kenneth Ho, head of Asia
credit strategy research at Goldman
Sachs.
On Wall Street, the S&P 500 and
Nasdaq Composite indices climbed to
fresh intraday records by midday with
technology companies leading the rallies.
ChipmakersNvidia, Advanced Micro
Devices nda Analog Devices ropelledp
the tech-heavy Nasdaq 0.9 per cent
higher while the S&P 500 rose 0.7 per cent.

In Europe, Frankfurt’s export-

dependent Xetra Dax gained 0.8 per cent

while Paris’s CAC 40 rose 0.9 per cent.

Haven assets stayed near recent highs,

with the yield on the 10-year US Treasury

up 1 basis point to 1.56 per cent while

gold built on Monday’s rally to hover near

a seven-year peak of $1,606 an ounce.

There is an “assumption that policy-

makers around the world are in maximum

stimulus mode”, said John Hardy, head of

FX Strategy at Saxo Bank, an idea that

has been “rewarding for gold bulls”.

But Capital Economics said the “rally in

gold will end before long” as it doubted

“the [coronavirus] outbreak will prompt

the Fed to cut rates further”.

CapEco analysts added: “The Fed

would only loosen policy if there were

evidence of significant economic costs at

home, alongside a large and sustained

drop in equity prices.”

Brent crude rallied after the US

imposed sanctions on aRosneft

subsidiary over Venezuelan oil,

prompting fears over squeezed global

supplies. Thebenchmark rose 2.8 per

cent to $59.36 a barrel.Anna Gross

What you need to know

Gold nears -year high as growth fears unnerve investors

Source: Bloomberg

 per ounce

















       

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 3389.58 1690.83 23400.70 7457.02 2975.40 116084.
% change on day 0.57 0.80 0.89 1.02 -0.32 0.
Currency $ index (DXY) $ per € Yen per $ $ per £ Rmb per $ Real per $
Level 99.496 1.079 110.950 1.295 6.994 4.
% change on day 0.056 -0.277 1.038 -0.690 -0.158 0.
Govt. bonds 10-year Treasury 10-year Bund 10-year JGB 10-year Gilt 10-year bond 10-year bond
Yield 1.559 -0.419 -0.051 0.620 2.897 6.
Basis point change on day 1.450 -1.000 0.450 -1.100 -0.400 -1.
World index, CommodsFTSE All-World Oil - Brent Oil - WTI Gold Silver Metals (LMEX)
Level 382.67 59.26 53.56 1589.85 17.89 2674.
% change on day 0.49 2.61 2.19 0.57 0.48 -0.
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

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

Dec 2020 Feb

3200

3280

3360

3440

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

Dec 2020 Feb

1600

1640

1680

1720

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

Dec 2020 Feb

7200

7360

7520

7680

Biggest movers
% US Eurozone UK

Ups

Garmin Ltd 7.

Concho Resources 6.

Nvidia 4.

Diamondback Energy 4.

Ipg Photonics 4.

Stmicroelectronics 4.

Dt.telekom 4.

Kerry Grp 3.

Galp Energia 3.

Kering 3.

Flutter Entertainment 4.
Evraz 3.
Melrose Industries 3.
Ocado 3.
Scottish Mortgage Investment Trust 3.
%

Downs

Extra Space Storage -6.

Public Storage -4.

Vornado Realty Trust -3.

Allegion -2.

Kimco Realty -2.

Prices taken at 17:00 GMT

Ageas -5.

Acs Const. -4.

Ing -3.

Alstom -2.

Thyssenkrupp -2.

Based on the constituents of the FTSE Eurofirst 300 Eurozone

Nmc Health -7.

Rolls-royce Holdings -1.

Auto Trader -1.

Standard Chartered -0.

Royal Bank Of Scotland -0.

All data provided by Morningstar unless otherwise noted.

W

h e n Ja p a n’s s t o c k

market opened on

Monday this week, it

had much in common

with afugu uffer fish —p

expensive, delicious only to fanatics and

absolutely riddled with danger.

Over the weekend, round-the-clock

media coverage focused on the spread of

coronavirus, which had caused factory

stoppages and other phenomena sure to

cause financial trouble.

By the time trading began, a domestic

credit rating agency released a list of 250

Japanese companies from piano manu-

facturers to bullet train operators that

it said would be particularly hard hit.

The government then piled on the

misery, revealing that fourth-quarter

nationalgrowth shrank at an annual-

ised rate of 6.3 per cent, much worse

than anexpected 3.7 per cent decline.

The drop, triggered by an October

increase inconsumption tax, takes

Japan to the brink of recession.

Then came a report on sales in the

country’s department stores in the first

half of February, revealing the grim

effects of high-spending Chinese visitors

staying at home. Analysts declared the

situation almost as bad as the post-

Lehman Brothers wipeout.

At almost any time in thepast 30 years,

one of these might have been enough to

wreck Tokyo’s market, sending the

Topix into a big spasm of capitulation

that seemed part of the natural order.

But the pain this time, despite every-

thing, has been comparatively dulled —

the toxic blowfish, despite its reputation

for lethality, has been subdued.

The benchmark index remains

comfortably in the middle of its trading

range of thepast couple of years and a

good 13 per cent higherthan it was at the

start of 2019.

Some confess, quietly, to being puz-

zled. Plenty of veteran Tokyo investors

and traders feel that something worse

should be playing out by now but are

grateful it has not. They have their own

theories about what may be happening.

The cheap yen is one popular expla-

nation, its value pulled down by the

relentless outflow of investment money

from corporate Japan and the country’s

pension funds. But the more persuasive

answer seems to rest in two forces that

have gained momentum in recent years.

The first of these, visible this week,

has been the huge presence of the Bank

of Japan and its ¥6tn ($55bn)-a-year

programme of buying exchange traded

funds — a mechanism that allows it to

come into the market on any given day

to buy about ¥70bn.

The BoJ has deployed that weapon on

four of the 11 trading sessions so far in

February — roughly the same pace as

January and not especially elevated

from the pace that became the norm

between 2016 and early 2019.

Over the years,a pattern has now

emerged — if the Topix falls by 0.5 per

cent or more in the morning session, the

BoJ will be there to buy a big chunk of

Topix-tracking ETFs in the afternoon.

One conclusion is that this price-

insensitive buying generates artificial

upside — a psychological trick that the

BoJ had hoped would tempt people to

become investors in omestic stocks.d

A better interpretation, say traders, is

that, over time, the BoJ has merely added

friction to the downside. The predicta-

bility of the BoJ’s buying on dips has

made short positions more dangerous

trades. That means that,despite terrible

newsflow, hedge funds have tended to

opt out from the large bearish bets that

would have amplified past sell-offs.

A second source of hidden support for

the market has come from company

share buybacks that, at almost ¥14tn

last year, were more than 100 per cent

higher than in 2018.

The purchases are, undoubtedly, a

manifestation of a shareholder-friendly

shift in recent years. But it may be over-

stating things, as one Nomura strategist

suggests, to attribute the market’s resil-

ience to a stand-off between “coronavi-

rus and corporate governance”.

If the market were genuinely thrilled

by progress on governance, value stocks

would not be mouldering on the shelf

after a decade of underperformance.

The critical element here, according

to traders, is not the scale of the buy-

backs but the exceptionally low-volume

trading environment into which they

have been pitched.

Kirin s a good example. Sincei

announcing a huge buyback in Novem-

berand the end of January, the drinks

group has bought just over 16m of its

shares. Butitspurchases have repre-

sented an average of about 14 per cent of

daily trading over that period.

Extrapolated across a market where

buybacks are in fashion, their influence

is probably far greater than it might be

elsewhere.

“I have to believe that these buybacks

are offering a greater invisible support

to the market than any of us imagine,”

said one Tokyo-based broker.

[email protected]

Toxic blowfish of

Japanese stocks is

not inflicting pain

‘I have to believe that

these share buybacks are

offering a greater invisible

support to the market’

FEBRUARY 20 2020 Section:Markets Time: 2/202019/ - 18:51 User:stephen.smith Page Name:MARKETS2, Part,Page,Edition:EUR , 20, 1