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GraniteShares

Research

Weekly Report 22 April 2020

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Publication Type: Commentary
Weekly Report 22 April 2020

The Long and Short of it – Weekly Update

Week in review – Back to Whatever it Takes

The speed of slowdown is forcing governments and central banks into quick and decisive active.  On 9 April, the US Treasury and Federal Reserve announced new and expanded lending programmes to provide up to $2.3 trillion in financing to support workers, businesses and municipalities impacted by the pandemic.  On the same day the Bank of England agreed to lend the UK government money if needed to help finance its spending plans.

Despite the negative news on the economic front, markets performed strongly ahead into the Easter weekend, with investors perhaps recognising the strength of government commitment and looking past the lockdown.  As more dividend suspensions were announced, Rolls-Royce included, income investors will have taken note of Link Group’s Q1 UK Dividend Monitor suggesting in a worst case, UK Plc dividends in 2020 could be down 51% on their 2019 level.

Chart of the week:  4-week average of US initial claims - 4,265,500

 

“In the week ending April 4, the advance figure for seasonally adjusted initial claims was 6,606,000. … The 4-week moving average was 4,265,500, an increase of 1,598,750 from the previous week's revised average.”

Source: https://www.dol.gov/ui/data.pdf (US Department of Labor), chart from the Federal Reserve Bank of St Louis

Week ahead – 2020 earnings, too many known unknowns

The long Easter weekend will have given investors time to pause and reflect, which given the high octane volatility fuelling markets in recent weeks is probably no bad thing.  Where do we go from here?  The truth is that it is still too early to determine what the earnings picture for many companies looks like over the remainder of 2020, hence Diageo indicating that it will give no further guidance for its 2020 sales.

The OPEC+ agreement to cut production by 10mbd in May came too late to affect equity markets, but WTI and Brent retreated.  The deal may come unstuck if Mexico does not cut production by 400kbd, however as many observers have highlighted demand destruction is possibly 3x greater than the cut so the market will remain oversupplied.  Upcoming data releases include US retail sales and industrial production on Wednesday, and eurozone CPI on Friday.

No company announcements scheduled.

Top performing ETPs over the week

Top performing long ETP

3x Long Glencore (3LGL)

 

Top performing short ETP

3x Short Vodafone (3SVO)

 

Past performance is not a reliable indicator of future results.  The value of an investment may go down as well as up and can result in losses, up to and including a total loss of the amount initially invested.  All ETP performance figures are inclusive of fees and other adjustments.

Data and charts

All performance data to 17 April 2020. 1-week performance measured between 9 and 17 April 2020.  Data and charts sourced from Bloomberg, unless otherwise indicated.  Company events data sourced from company websites.

Company

AstraZeneca (AZN)

AZN Performance

 

Listed ETPs

3x Long AstraZeneca Daily ETP (3LAZ)

3x Short AstraZeneca Daily ETP (3SAZ)

1 week

11.9%

 

1 month

19.0%

 

 

 

YTD

6.9%

 

Exchange

London Stock Exchange

Price vs 52w high

99.3%

 

Overview

A market laggard as investors focused on more cyclical stocks, but still closest to its 52 week high among the companies in the GraniteShares universe.  Liberum Capital raised its price target from 8,810p to 8,870p.  Company news included the setting up of new COVID-19 testing laboratory in conjunction with GSK and the University of Cambridge.

Chart with moving averages and RSI indicator

Consensus forecasts

Upcoming Events

30/07/20            Half year results

30/07/20            XD, 1st interim dividend

 

 



Company

BAE Systems (BA.)

BA. Performance

 

Listed ETPs

3x Long BAE Systems Daily ETP (3LBA)

3x Short BAE Systems Daily ETP (3SBA)

1 week

3.7%

 

1 month

17.0%

 

 

 

YTD

-1.1%

 

Exchange

London Stock Exchange

Price vs 52w high

83.0%

 

Overview

Performed in line with the market.  The company published an Offering Memorandum for $1.3bn 3.4% Notes due 2030 to fund part of the company’s pension deficit, which stood at £1.9bn on 31 October 2019.  The notes have been assigned a Baa2 rating by Moody’s.  These are challenging times to be addressing the pension deficit.

Chart with moving averages and RSI indicator

 

Consensus forecasts

Upcoming Events

07/05/20            AGM

30/07/20            Half year results

 

 


Company

Barclays (BARC)

BARC Performance

Listed ETPs

3x Long Barclays Daily ETP (3LBC)

3x Short Barclays Daily ETP (3SBC)

1 week

-7.0%

1 month

9.0%

 

 

YTD

-49.5%

Exchange

London Stock Exchange

Price vs 52w high

47.0%

Overview

Outperformed the market showing how it is highly gearing to broad investor sentiment in these exceptional market conditions, but still 98% off its 52 week high.  To account for the cancelled dividend announced last week, total return indices including Barclays have had to reverse out the 6p payment that had been factored in since February’s XD date.

Chart with moving averages and RSI indicator

Consensus forecasts

Upcoming Events

29/04/20            Q1 results

07/05/20            AGM

 

 

 


Company

BP (BP.)

BP. Performance

 

Listed ETPs

3x Long BP Daily TP (3LBP)

3x Short BP Daily ETP (3SBP)

1 week

-9.6%

 

1 month

29.9%

 

 

 

YTD

-34.5%

 

Exchange

London Stock Exchange

Price vs 52w high

52.0%

 

Overview

Down marginally on the week as investors waited on the outcome of OPEC+ deal.  Reuters reported that BP’s three largest refineries were operating at 80-85 per cent of their 837,000 barrel per day capacity and the WSJ wrote that the sale of the Alaska business to Hilcorp might fall through with banks reluctant to finance the $5.6bn deal.  Credit Suisse cut its price forecast from 375p to 360p.

Chart with moving averages and RSI indicator

Consensus forecasts

 

Upcoming Events

28/04/20            Q1 results

07/05/20            XD, Q1 dividend

28/07/20            Q2 results

 

 

 


Company

Diageo (DGE)

DGE Performance

Listed ETPs

3x Long Diageo Daily ETP (3LDO)

3x Short Diageo Daily ETP (3SDO)

1 week

3.0%

1 month

23.2%

 

 

YTD

-14.5%

Exchange

London Stock Exchange

Price vs 52w high

74.6%

Overview

Moved broadly in line with the market.  In the trading update on 9 April, Diageo was unusual in maintaining the interim dividend payable on 9 April.  However, it indicated that the share buyback programme is suspended for the remainder of fiscal 2020.  Perhaps more significantly, it withdrew guidance on group organic net sales growth and organic operating profit growth.

Chart with moving averages and RSI indicator

Consensus forecasts

 

Upcoming Events

30/07/20            Preliminary results

13/08/20            XD, Final Dividend

01/10/20            AGM

 

 

 


Company

Glencore (GLEN)

GLEN Performance

Listed ETPs

3x Long Glencore Daily ETP (3LGL)

3x Short Glencore Daily ETP (3SGL)

1 week

-2.4%

1 month

9.6%

 

 

YTD

-40.0%

Exchange

London Stock Exchange

Price vs 52w high

44.0%

Overview

Outperformed the market reflecting how the stock can be driven by broader market sentiment.  Investors barely noticed its decision to mothball copper production in Zambia because of the disruptions caused by Covid-19 and the fall in copper prices, which drew criticism from the Zambian government dismissive of claims of “force majeure”.

 

Chart with moving averages and RSI indicator

 

Consensus forecasts

 

Upcoming Events

30/04/20            Q1 Production Report

13/08/20            Half year production report

01/10/20            Half year results

 

         

 

 

Company

Lloyds Banking Group (LLOY)

LLOY Performance

 

Listed ETPs

3x Long Lloyds Banking Group Daily ETP (3LLL)

3x Short Lloyds Banking Group Daily ETP (3SLL)

1 week

-8.8%

 

1 month

-9.5%

 

 

 

YTD

-51.3%

 

Exchange

London Stock Exchange

Price vs 52w high

43.5%

 

Overview

Performed strongly along with the rest of the UK banking sector.  Like Barclays still a long way off its 52-week high, reflecting the fact that the downturn from the pandemic could prove very significant for the UK economy.  No news on the corporate side, just a release highlighting how spending habits of UK consumers had changed significantly over the last two months.

Chart with moving averages and RSI indicator

Consensus forecasts

Upcoming Events

30/04/20            Q1 Interim Management Statement

21/05/20            Annual General Meeting

30/07/20            Half year results

 

 

Company

Rio Tinto (RIO)

RIO Performance

Listed ETPs

3x Long Rio Tinto Daily ETP (3LRI)

3x Short Rio Tinto Daily ETP (3SRI)

1 week

-0.9%

1 month

16.9%

 

 

YTD

-11.2%

Exchange

London Stock Exchange

Price vs 52w high

76.7%

Overview

Underperformed the market over the week, which is not surprising given its relative resilience since the general weakness that has prevailed since late February.  At the AGM on 8 April, Simon Thompson, the chairman confirmed that the company would maintain the final dividend, citing the strong balance sheet, safe running of operations and a full order book for iron ore.

Chart with moving averages and RSI indicator

Consensus forecasts

 

Upcoming Events

17/04/20            Q1 Operation Review

16/07/20            Q2 Operation Review

29/07/20            Half year results

 

 

 

Company

Rolls-Royce Holdings (RR.)

RR. Performance

Listed ETPs

3x Long Rolls-Royce Daily ETP (3LRR)

3x Short Rolls-Royce Daily ETP (3SRR)

1 week

-4.5%

1 month

-3.4%

 

 

YTD

-51.0%

Exchange

London Stock Exchange

Price vs 52w high

35.6%

Overview

Top performer in the GraniteShares universe, but the company is under pressure to preserve cash.  In its 6 April trading update, announced that it was cancelling the dividend and had secured a new credit facility providing overall liquidity of £6.7 bn.  On 9 April, Moody’s downgraded Rolls-Royce’s long-term senior unsecured rating to Baa3 and its outlook to negative from stable.

Chart with moving averages and RSI indicator

 

Consensus forecasts

 

Upcoming Events

04/08/20            Half year results

 

 

 

Company

Royal Dutch Shell A (RDSA)

RDSA Performance

Listed ETPs

3x Long Royal Dutch Shell Daily ETP (3LRD)

3x Short Royal Dutch Shell Daily ETP (3SRD)

1 week

-9.2%

1 month

41.1%

 

 

YTD

-37.6%

Exchange

London Stock Exchange

Price vs 52w high

52.0%

Overview

Market underperformer as investors waited on the outcome of OPEC+ deal.  It was widely reported that the Saudi sovereign wealth fund, the Public Investment Fund (PIF), has accumulated stakes in four major European oil companies, worth $1billion according to the WSJ.  Royal Dutch Shell was one of the four, the others being ENI, Equinor and Total.

Chart with moving averages and RSI indicator

Consensus forecasts

 

Upcoming Events

19/05/20            AGM

20/05/20            Q1 results

30/07/20            Q2 results

 

 

 

Company

Vodafone (VOD)

VOD Performance

Listed ETPs

3x Long Vodafone Daily ETP (3LVO)

3x Short Vodafone Shell Daily ETP (3SVO)

1 week

-3.7%

1 month

1.4%

 

 

YTD

-25.8%

Exchange

London Stock Exchange

Price vs 52w high

64.3%

Overview

Somewhat becalmed and a market underperformer.  Investors possibly waiting on a trading update.  The group has undertaken a number of initiatives to support health services during the Covid-19 crisis.  Investment banks, Goldman Sachs and JP Morgan, reiterated their respective buy and overweight ratings this week.

Chart with moving averages and RSI indicator

Consensus forecasts

Upcoming Events

12/05/20            Full year results

 

 

 

Feedback and comments:  please send to graniteshares@europe.com

General Notice

For professional clients and eligible counterparties only.

GraniteShares Limited (“GraniteShares”) is an appointed representative of Duff & Phelps Securities Ltd. which is authorised and regulated by the Financial Conduct Authority.

This document does not constitute an offer to buy or sell or a solicitation of an offer to buy securities in any company. This document is not intended for distribution to any other country where such distribution or use would be contrary to local law or regulation. Specifically, this document is not intended for general distribution in the United States or Canada.

Investing in financial markets involves a substantial degree of risk. Nothing described herein is intended to imply that an investment is “safe”, “conservative”, “risk free” or “risk averse”. This document does not consider the specific investment objective, financial situation or particular needs of any potential investor and is intended only for those investors who are capable of understanding the risk of loss of all or a substantial part of their monies. Potential investors in the UK are reminded that they will not benefit from the UK investors compensation scheme.

Nothing contained herein constitutes investment, legal, tax or other advice nor is to be relied upon in making an investment or other decision. No recommendation is made positive or otherwise, regarding individual securities or investments mentioned herein. Any summary list of risk factors does not purport to be a complete enumeration or explanation of the risks involved in an investment in short and leveraged products. Prospective clients must consult with their own legal, tax and financial advisers before deciding to invest.

This document contains the opinions of the author and such opinions are subject to change without notice. The source of data is GraniteShares unless otherwise stated. No guarantee is made to the accuracy of the information provided which has been obtained from sources believed to be reliable. This document and the information contained herein is intended only for the use of persons (or entities they represent) to whom it has been provided.

Risk Factors

An investment in a GraniteShares short and leveraged exchange traded product (“ETP”) may not be suitable for all investors. They are intended for investors who wish to take a very short term view on the underlying asset and are not intended as buy and hold investments.

Performance and capital loss: Past performance is not a reliable indicator of future results.  The value of an investment may go down as well as up and can result in losses, up to and including a total loss of the amount initially invested.

Generic risks: Investments in ETPs involve numerous risks including, among others, company risks, general market risks, credit risks, foreign exchange risks, interest rate risks, geopolitical risks and liquidity risks.

Specific product risks: The Index is constructed to track the performance of an increased (leveraged) and/or short exposure to the underlying asset. A fall (or rise where short and leveraged exposure) in value of the underlying asset can result in a greater reduction in the level of the Index. The Index is designed to do this on a daily basis only which should not be equated with seeking a leveraged position for periods longer than a day. The ETP’s performance over periods longer than one day will not be correlated or symmetrical with the returns of the underlying asset. Potential investors should refer to the section entitled “Risk Factors” and “Economic Overview of the ETP Securities” in the Prospectus relating to the GraniteShares ETPs for further details of these and other risks associated with an investment in short and leveraged ETPs and consult their financial advisers as needed.

Counterparty risk: An investment in a GraniteShares short and leveraged ETP involves counterparty risk.  GraniteShares Financial plc has entered into a Swap Agreement with a counterparty, Natixis, that is backed with collateral.  Failure of the counterparty to make payments may result in an investment in an ETP suffering a loss.

Index Disclaimer

The Index is created, calculated and published by Solactive AG. No financial instrument is sponsored, promoted, sold or supported in any other manner by Solactive AG nor does Solactive AG offer any express or implicit guarantee or assurance either with regard to the results of using the Index and/or Index trade mark or the Index level at any time or in any other respect.

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