It’s been a fairly quiet, if slightly negative session for European equity markets today, with the FTSE 100 modestly outperforming, as markets tread water ahead of the resumption of debt ceiling talks later this evening.
Europe
We’re seeing modest weakness in telecoms and energy being offset by a firmer performance from banks and the consumer discretionary sector.
In terms of profitability, Ryanair continues to set the standard in the airline sector after reporting full-year adjusted profits after tax of €1.4bn, only just shy of the record it posted in 2018. Full-year revenues came in at €10.78bn, with the airline reporting that it carried 168.6m passengers during the year, a new record. Unlike a lot of its peers Ryanair’s load factor has already recovered to above 90% at 93%, which is still below the levels that it was pre-pandemic, when it was at 95%, albeit with fewer aircraft.
On the outlook the airline was bullish, saying it expected passenger numbers to rise to 185m in 2024, and although fuel costs are expected to be €1bn higher, the additional revenue will help to more than offset this rise, and generate a modest increase in full-year profits in 2024.
NatWest Group shares are higher after the UK bank reported that it was buying 469.2m shares back from the UK government, at a cost of £1.26bn, thus reducing the taxpayer stake in the bank further, below 40% to 38 69%.
US
US markets opened broadly unchanged after the modest declines seen on Friday as the uncertainty around events in DC continued to keep investors cautious.
In M&A news, US oil giant Chevron has agreed to buy PDC Energy for $72 a share, giving the business a $6.3bn price tag. PDC Energy operates in Colorado, as well as the Delaware basin in Texas, generating annual revenues of $3.4bn, as Chevron looks to consolidate its position in US shale oil and natural gas production.
Facebook owner Meta Platformsshares have shrugged off the decision by EU regulators to fine the business $1.3bn after it was found that some EU user data was transferred back to the US in contravention of recent privacy agreements. Chipmaker Micron's shares are in focus after China banned the company from selling its chipsets inside the country over security concerns, sending the shares lower in early trade, while the rest of the sector has been mixed, with AMD higher, and Nvidia unchanged ahead of its numbers later this week.
JPMorgan Chase have edged higher after upgrading its full-year guidance for (NII) net interest income to $84bn from $81bn due to its acquisition of First Republic. PacWest Bancorp shares are in focus after the bank said it was in the process of selling $2.6bn of real estate loans to Kennedy Wilson Holdings, subject to due diligence, at a discounted price of $2.4bn.
FX
It’s been a mixed start to the week for the US dollar with further gains against the Japanese yen, although it is losing ground against the Swiss franc.
Comments from St Louis Fed President James Bullard, that he expected to see another two rate hikes this year, gave a lift to US 2-year yields, pulling them out of negative territory for the day. Minneapolis Fed president Neel Kashkari gave a slightly more nuanced view, saying that it might be prudent to pause in June to evaluate progress, although it remained a close call. He did go on to add that further rate rises might be needed if inflation is more persistent than expected.
It is important to note that Bullard is not a voting member this year on the FOMC, so his views need to be considered in that context, given that the market is already pricing in a pause as well as rate cuts this year. Today’s hawkishness could be an attempt to move market pricing back to where the Fed would like it to be.
This expectation of higher rates for longer is also feeding into bond markets elsewhere, with the UK gilt market especially seeing yields continuing to rise sharply, with 2-year and 10-year yields back above 4% again, ahead of the release of this week’s April CPI numbers.
Commodities
Despite breaking a run of four successive weekly declines last week, crude oil prices have been subdued today, trying to rebound after undergoing two successive daily declines at the end of last week. Uncertainty over the resilience of Chinese demand, along with a stronger US dollar is acting as a modest headwind in the short term.
Gold prices have continued to look a little on the soft side today with modestly firmer yields serving to act as a bit of a drag on prices, after last week's big drop below the $2,000 an ounce support level. We’ve seen a modest rebound from the 6-week lows of last week, but progress has been limited given the surprising resilience being shown by equity markets.
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