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“The FTSE 100 regained some measure of calm to trade modestly lower after a big drop at the open but investors are clearly still concerned about inflation risks as US government bond yields continue to spike,” says AJ Bell Investment Director Russ Mould.
“This was reflected in a significant sell-off overnight in the US and Asian markets. US Federal Reserve chief Jay Powell has done his best to allay concerns about the prospect for interest rate hikes but it appears the market is unconvinced.
“Clearly the expectation is for a surge in pent-up demand as economies reopen, bolstered by low interest rates and stimulus cheques, and that this will overwhelm monetary policymakers.
“Commodities prices, another harbinger of inflationary pressures, are actually slipping a little with oil and copper both on the back foot.”
International Consolidated Airlines
“Air traffic continues to be a fraction of pre-Covid levels as travel restrictions remain in place. You may hear the odd aircraft in the sky but that’s more likely to be cargo flights than scheduled passenger planes.
“For the first quarter of 2021, British Airways owner International Consolidated Airlines is only flying a fifth of the capacity it had in 2019 for passenger planes which just goes to show that some industries continue to be devastated by Covid despite the rollout of vaccines.
“The scale of its problems is laid out in its 2020 results where it made a €7.4 billion operating loss. Like many airlines, IAG’s year has been dominated by trying to ensure it has access to enough cash and debt to keep the business going through dark times, which it has successfully done.
“One could argue that the worst times could soon be over, particularly as people are starting to think about booking holidays again. IAG is naturally reluctant to issue any earnings guidance for the new financial year, but one can’t help feeling there are grounds to be optimistic about it having significantly more planes in the sky in six to nine months’ time.
“Business travel could be the big ‘if’ for 2021 and 2022 as companies realise that web conferencing calls using Zoom or other platforms could be more productive than spending hours on a plane to different countries for quick meetings.
“There is also the question of whether companies will feel happy about their staff travelling a lot until there is evidence of Covid infections dramatically falling and that the vaccine is effective over longer periods.
“Furthermore, one mustn’t forget how environmental concerns were front of mind just before Covid struck. A lot of businesses are under pressure to be more environmentally friendly and they could get brownie points for saying they’ve slashed their corporate travel bill by a large amount.
“Once the aviation sector starts to get back on its feet, there is the question of whether IAG is too bloated as a business and should it sharpen its focus.”
Rightmove
“Reading Rightmove’s annual results you might have thought that by the end of last year Covid had never happened as its average revenue per advertiser – or how much it charges per month for estate agent clients to use its listings site – was up year-on-year in December.
“Clearly in between those two dates there was a period of significant disruption created by the pandemic, during which Rightmove offered its clients discounted rates, and this is evident in the big drop in profit reported today, even if the resumption of dividend payments provides a better guide to Rightmove’s expectations on its future prospects.
“Historically being the market leader has created a virtuous circle for Rightmove. Its site has the most listings and is therefore the one which prospective property buyers would go to when looking for their next home.
“This reinforced its position as a must-have product for estate agencies and put it in a strong bargaining position when it came to boosting subscriptions from agencies. Shareholders have benefited handsomely over the last decade thanks to this dynamic but there has been increasing grumbling within the industry about the Rightmove’s hefty fees.
“The pandemic was pitched in some quarters as the point when agents would take a leap of faith and ditch Rightmove – a 3% decline in membership numbers in 2020 shows this did not materialise. And the return of average revenue per customer to pre-pandemic levels shows the discounts it offered when the property market was in a deep freeze didn’t shake the company’s pricing power either.
“The end of the stamp duty holiday, whether at the end of March or, as has been reported, after an extension until the end of June, could be another pressure point on the property market.
“However, there is an argument that a downturn in the market might make Rightmove’s position yet more entrenched as estate agents desperately need to sell homes to stay afloat and can’t afford to miss any opportunity to list their properties and show them to consumers.”
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