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“Two recent worries for the market seemed to have eased on Tuesday with the Suez Canal finally unblocked and concern over the Archegos family office saga beginning to die down,” says AJ Bell Investment Director Russ Mould.
“This is allowing markets to focus on President Biden’s latest plan to revive the US economy – a massive wad of infrastructure spending.
“The FTSE 100 was certainly putting on its happy face, driven by resources and financial stocks.
“Can the markets close out what has been a volatile but ultimately positive first quarter so far? There are some continuing signs of market stress as bond yields tick up.
“There could also yet be sting in the tail from the Archegos affair – episodes involving over-leveraged hedge funds often wreak more damage than first anticipated.
“A key focus is likely to be the efforts to tackle a third wave of Covid-19 in mainland Europe and global progress on the rollout of vaccines. The problem for markets is that recovery brings with it other risks – notably inflation – while clearly a renewed pandemic-inspired downturn would also be bad news for stocks.”
Royal Mail
“It’s been quite the second half for Royal Mail with parcel activity soaring, earnings guidance being upgraded and its share price having more than doubled since November.
“That’s not what some people would have expected from a business historically associated with missing targets, endless protests from a labour union, declining letter volumes and a struggle to shift to more efficient working practices.
“Royal Mail is currently in a sweet spot as the pandemic has accelerated the shift from physical to online retail, thereby creating a massive tailwind for companies that deliver parcels. It will be hoping that this trend remains intact even when people start to go back to work in offices and get out of the house more.
“Even though the decline in letters is hard to reverse, Royal Mail still has significant opportunities on the parcel side and to grow its overseas operations.
“Unfortunately, it doesn’t yet know the full impact of higher costs of cross-border delivery. There is growing anecdotal evidence that many companies in the UK no longer feel it is worth bothering to sell goods to overseas customers because of a large increase in delivery costs and paperwork. That could have a negative impact on Royal Mail from lost earnings.
“Like many so-called lockdown winners such as AO and Kingfisher, Royal Mail has been given a sales tailwind just when it really needed it. The big question is whether it can sustain the momentum once the pandemic fades away.”
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