Markets under pressure, Domino’s easy win, Taylor Wimpey blames the weather and Shell’s cash flow issue

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Global Markets

“The recent UK stock market recovery has ground to a halt following a jump in US bond yields causing investors to rethink their stance on equities. Trends in the US have a habit of influencing investor action elsewhere in the world.

“Later today we have the latest monetary policy decision from European Central Bank which could also influence the direction of global markets,” says AJ Bell Investment Director Russ Mould.

Domino's Pizza

“It’s fair to say that Domino’s first quarter results were almost guaranteed to be good. Prolonged spells of bad weather and the bonus addition of Easter happening in March provided the recipe for strong demand for takeaway food.

“The news has helped to lift the shares to a 12-month high. However, we’re only talking about three months’ trading which is not enough to silence the ever-increasing numbers of critics of the business.

“The central thesis for critics is based on the fear that franchisees have been under a lot of pressure from rising food and labour costs, as well as cannibalisation as franchise territories are split.

“Troubled franchisees may prefer to get into a better financial state rather than continue aggressive expansion, which could have a negative knock-on effect for the parent company should its royalty and supplies income growth slow down.”

Taylor Wimpey

“The response to today’s trading update from housebuilder Taylor Wimpey looks to reflect hardening sentiment towards the sector.

“The release actually contains few surprises as the company last week provided a brief update on trading when reporting the resignation of its chief financial officer Ryan Mangold.

“However, today’s statement did reveal a slowing sales rate which was largely attributed to the ‘Beast from the East’ storm and other poor weather.

“The market is rarely impressed when firms use the weather as an excuse for poor trading and although this was an extreme event, it is notable that its peer Persimmon made no mention of an impact in its own trading update yesterday.”

Royal Dutch Shell

“Oil giant Royal Dutch Shell received a frosty reception from the market after unveiling its first quarter numbers.

“Investors were always likely to have high expectations ahead of this release given recent strength in the oil price.

“Profit was up 42% to its highest level in three years and slightly ahead of expectations.

“However, cash flow performance is probably more important at this point, particularly because the company is so highly prized for its generous dividend and strong cash flow helps underpin confidence in its sustainability.

“Here the picture is a bit more mixed. There is a recovery from the previous quarter’s disappointing performance but cash flow from operations was still down marginally on a year-on-year basis.

“While a higher oil price is great news for the production side of the business, its refining arm has suffered thanks to the higher input costs implied by more expensive crude.”

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