The Bank of England (BoE) will announce its latest policy verdict today and is expected to maintain its monetary policy broadly unchanged. The BoE officials are certainly optimistic about the economic outlook, but they may find hard to communicate their joy with investors given the latest spike in sovereign yields, to avoid adding fuel to the fire. Still, they will probably sound as relaxed and comfortably as the Fed faced with the rising sovereign yields, explaining the move as a result of improved recovery prospects thanks to a successful vaccination campaign, and hope that the market reaction won’t be an accelerated sell-off in sovereign bonds. In the actual context, there is little room to leverage the possibility of negative rates, again, as anything less than a catastrophe scenario wouldn’t lead investors towards the negative interest rate path if the vaccination campaign is going well and there are only brighter days ahead. Therefore, the BoE verdict should give a boost to the British pound and help Cable set an eye on the 1.40 mark again.
Yesterday, the Federal Reserve (Fed) statement gave a nice energy boost to all kinds of assets, from growth to value, from Bitcoin to gold, not to oil though. the market environment and investment sentiment remains more than ideal after the Fed dot plot confirmed that the interest rates will be kept near zero for at least until the end of 2023, although the growth and inflation projections were pulled higher. The US 10-year yield flirted with 1.68% mark then eased.
All three US indices gained, as the Dow advanced to new record.
So, it is in this very cheery market environment that investors are waiting for Nike and FedEx earnings. The envy to push both stocks higher is here, but results should still live up to the market expectations.
Nike is expected to report $0.75 earnings per share, slightly lower than the whisper number of $0.82 per share. Nike shares trade a touch below the historical high of almost $148 per share. The share price rose 115% in 2020, but has been consolidating close to this level since the beginning of this year. The earnings annoucement could be the opportunity for Nike shares to level up and eye an advance to uncharted territories. Especially, the so-called reflation context is no doubt positive for a company like Nike, which is clearly a value company. Despite a historically high PE ratio, a better than expected earnings announcement has the potential to further boost the price of a share, and Nike bulls could easily eye an extension above the $150 mark per share for the very first time in Nike’s history.
For FedEx, the setup is a bit different. FedEx earnings of course saw a boost with the pandemic as e-commerce boomed and compensated for the loss of revenue after the painful Amazon divorce in August 2019. Third party sellers on Amazon could still use FedEx, but of course the extraordinary pandemic environment may be hiding a part of the organic performance in FedEx. The Q4 earnings is expected at $3.21 per share, versus $4.83 printed a quarter earlier. The whisper number is $4.12, closer to the latest print. But FedEx reported higher expenses ahead of last December peak season. Combined with its Covid vaccine distributions and winter disruptions, the expenses could eat into its revenues and earnings could fall short of analyst estimates this time around. Again, the pandemic profited to FedEx and the end of the pandemic will certainly have a negative impact on overall business. Therefore, the $300 peak we’ve seen last December could be difficult to beat in the context of a better economic outlook. The e-commerce is clearly here to stay and help FedEx revenues rise gradually in the future, but for those looking for a post-Covid trauma play, FedEx may not be the best place to be.
Finally, gold progressed to $1755 per oz on the back of a softer US dollar and a smooth reaction in sovereign yields. Easing upside tensions in sovereign bond yields, combined to firmer inflation expectations give some support to the yellow metal, but the solid risk appetite and strong returns elsewhere should cap the upside potential in non-interest-bearing gold and bring in the top sellers near the actual levels.