Market commentary: Dollar keeps falling while Shake Shack’s earnings shine

On Wednesday European stocks had another disappointing day as equities paired gains posted during the first half of the trading session and turned negative in the afternoon. Investors seem to still be unsatisfied with Europe and this morning they resumed selling equities forcing European stocks to open lower and extend yesterday’s losses. On the other side of the Atlantic, US equity markets witnessed an uneventful day with all major indexes closing flat on the day. 

Bond markets found some relief in US, with the 10 Year Treasuries’ yields falling to 2.26% after the increases posted earlier this week.  In Europe, the German Bunds continued to experience high volatility swinging from gains to losses and dragging European Sovereign Bond ETFs in negative territory towards the end of yesterday’s session.

While Investment Grade bonds is the asset class mostly affected by the ongoing selloff, after yields of Government bonds had turned negative earlier this year, the current “risk off” environment has also another notable casualty: the US Dollar. The American currency, which had appreciated over 25% in the six months from July 2014 to mid-March 2015, is now trading at four-month lows.

The USD Currency Index that tracks the performance of the Dollar against 10 major currencies closed in the region of 93.50 on Wednesday, declining for five straight weeks and losing over 6.5% from its high recorded in March. The US currency retreat was partially caused by the dollar trading in overbought territory, and in part because of the streak of disappointing economic data that have made investors reconsider their previous unconditional confidence in the US economy.

Yesterday, US Retail Sales data showed that consumer spending barely moved in April and retail spending recorded its first quarterly drop in almost three years declining 0.2% over the first quarter of the year. This was just the latest disappointment after the US GDP stalled in the period from January to March and the labor market posted its worst reading in years in March, although it rebound in April posting 223,000 new jobs.

In addition to that, the prolonged strength in the US Dollar during the last two quarters has negatively impacted American businesses prompting the Federal Reserve to postpone its largely anticipate interest rate hike, which was seen by most as the primary catalyst for the Dollar rally. In contrast, the Euro has rebounded over the past four weeks, rising over 8% against the Dollar.

In complete defiance of the current market environment, Shake Shack jumped 4.16% during yesterday session and added over 7% in after-hours trading and premarket. The roadside burger chain that went public earlier this year reported its first results as a public company on Wednesday, largely beating analysts’ expectations while displaying remarkable revenue and profit growth.

Sales surged 56.2% form the same period last year, bring in $37.8 million and beating market’s projections by $ 3.89 million. The company has also proved to be able to generate profit while expanding its presence to new locations. Shake Shack reported an EPS of $0.04 per shares, ahead of analysts’ expectations that had forecast a small quarterly loss.

The burger chain has managed to achieve a sales growth of 11.2% and an operating margin’s improvement of 270 bps representing a year-on-year increase of 25.5%. The new public firm has, so far, proved to be a rather successful bet for investors that have bought the stock in January, while the share price more than tripled over the past four months, raising from its IPO price of $21 to this morning’s Pre-Market price of $73.40.

This article was issued by Paolo Zonno, Trader/Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt.The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

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