Morning Note: Market news and an update from Domino's Pizza.
Market News
A pair of solid economic readings shook markets on Friday. US non-farm payrolls for November came in at 199k, above the of 183k is expected. The unemployment rate was 3.7%, slightly below the 3.9% expected. Equities rebounded on speculation the US will be able to skirt a recession: S&P 500 (+0.4%); Nasdaq (+0.5%). Now the flip side to that story is that while economic strength makes many investors less apprehensive about a hard landing, it also implies the Federal Reserve might have to hold rates higher for longer. As a result, bond yields rose – the 10-year Treasury yield moved up to 4.24%. The dollar rose and gold has fallen back below $2,000 an ounce.
This morning in Asia, markets were mixed: Nikkei 225 (+1.5%); Hang Seng (-0.9%); Shanghai Composite (+0.7%). In China there was a spike in volumes for an exchange-traded fund tracking state-owned shares fuelling speculation of buying by state funds. The Bank of Japan will likely keep negative rates this month as officials have yet to see sustainable inflation, people familiar said. The yen weakened 1% against the dollar.
The Bank of England will make its first rate cut in August, with the pace of reductions coming faster than previously forecast, Goldman said. It sees one 25 basis points rate cut per meeting until the rate reaches 3% in mid-2025. The bank is among those increasing bullish bets on the pound. Sterling currently trades at $1.2543 and €1.1666. UK home sellers cut asking prices by an unusually large 1.9% in December, Rightmove said, signalling a price slump may continue. The FTSE 100 is currently trading 0.4% lower at 7,531.
The oil price steadied at $76.42 a barrel following its longest weekly losing streak in five years. This week, monthly reports from OPEC, the IEA, and the EIA may provide some clarity on supply and demand fundamentals.
Source: Bloomberg
Company News
Ahead of its Investor Event later today, Domino’s Pizza Group has reiterated its full-year profit guidance. The shares are little changed in early trading this morning.
Domino’s is the UK’s leading pizza brand and a major player in the Republic and Ireland. The company holds the master franchise agreement to own, operate and franchise Domino’s stores in both markets. There are now around 70 franchisees with over 1,200 stores in the network. In the UK, the group has a 20%+ share of the delivery market.
At today’s event, CEO Andrew Rennie will provide his initial impressions of the group following his first four months in the role. The company will also outline its approach to growth going forward, with a focus on the core UK & Ireland markets and accelerating growth through additional opportunities.
The company has also confirmed there is no change to its guidance for the financial year, with franchisees performing well in an uncertain market. Underlying EBITDA (i.e., cash profit) is still expected to be within the range of £132m-£138m. The company has a store opening programme and is still targetting at least 60 new outlets this year with a strong pipeline for next year.
The company is undergoing a digital transformation. In particular, the Domino’s app is the key driver of the group’s digital growth strategy because app customers yield higher sales and have a higher average order frequency than those who only use the website. The app orders are running at around 80% of all online orders.
The company has a strong balance sheet, with net debt to EBITDA of 1.33x at the half-year stage, below its target range of 1.5x-2.5x. The company is committed to distributing surplus capital to shareholders. Its £70m share buyback programme began on 29 August and is expected to be substantially complete by end of the year.
Source: Bloomberg