Concern about the passing of the debt ceiling vote appears to have been knocked off the markets radar today, even as the deal goes to a vote later tonight.
Europe
It’s been concern about weakness in Chinese economic data which has put the skids under global markets as worries over demand and softer economic activity has knocked commodity prices, most notably copper and crude oil.
Early year expectations of a strong sustained post covid rebound has given way to concern that China’s economy is slowing sharply.
It’s not as if the signs of a weak economy haven’t been there, they’ve been apparent in factory gate inflation which has been stuck in negative territory since October of last year, with the fear that this could well be coming in our general direction.
This concern over the economic outlook has seen the FTSE100 and CAC 40 hit two-month lows today, dragged lower by China exposed sectors like luxury, which only a few weeks ago saw the French index hit a record high, as the likes of LVMH, Hermes and Burberry all slip back.
These concerns over the growth outlook in the past few days have also contrived to push the FTSE100 to its biggest monthly loss since September last year.
Prudential shares have slipped back on a combination of this morning’s weakness in Asia markets, and the slowdown in the China recovery story, as well as the resignation of CFO James Turner on a code of conduct matter.
Weakness in oil prices is also dragging on the likes of BP and Shell, which are also acting as a deadweight on the UK index.
Entainshares are lower after reporting that it expects to face a “substantial financial penalty” from HMRC as investigations continue into its former operations in Turkey.
On the plus side, B&M European Retail is seeing some solid gains after reporting full year results in line with forecasts. Total group revenue came in at £4.98bn, a rise of 6.6%, while group profits before tax fell 17% to £436m. For 2024 the retailer said it had got off to a positive start, with like for like sales for the first 9 weeks of the year rising by 8.3%, with an expectation that profits will be higher than in 2023.
US
US markets have opened lower as we head into the end of the month with the Nasdaq 100 seeing some weakness at the end of a month that has seen the index advance over 8%’ led predominantly by a very narrow cohort of tech stocks, including NVidia and AMD.
On the economic data front we continue to see a mixed picture with the latest April JOLTS job vacancy numbers pushing back above 10m, while the latest Chicago PMI slid sharply to 40.4 and its lowest level since the pandemic lockdowns.
Goldman Sachs shares are in the news on reports that the US bank is considering a fresh round of job cuts .
HP shares are also under pressure after reporting a disappointing set of Q2 numbers. When the company reported earlier this year, they projected revenues of $13.03bn, well below the levels of the same period in 2022. Yesterday’s numbers saw a 22% decline to $12.91bn with a drop in PC sales accounting for the bulk of the drop, declining 29% to $8.18bn. Profits, on the other hand did beat forecasts, at $0.80c a share, while adjusted operating margins also came in ahead of target. HP went on to narrow its full year EPS profit forecast by 10c either side, to between $3.30c and $3.50c a share.
American Airlines is slightly higher after upgrading its Q2 guidance, raising its profit estimates to between $1.45c to $1.65c a share, while keeping its full year forecasts unchanged.
FX
The US dollar is in the ascendancy again today pushing to its highest levels since mid-March, with the euro sinking below 1.0700 with the prospect that it could lose further ground in the coming weeks.
Today’s sharp slowdown in French and German inflation suggests that the ECB may well not have to go as hard when it comes to rate hikes in the coming months. What was particularly notable was that French April PPI cratered by -5.1% on a monthly basis, while German import prices slid by -1.7%.
We also saw bigger than expected declines in headline CPI in May for France and Germany, with France CPI slowing to 6% from 6.9%, while in Germany we saw a similar sharp slowdown to 6.3% from 7.2%, along with a monthly decline of -0.2%, all of which suggest that a deflationary impulse may well be coming this way in the coming months.
If this trend continues in the coming months, we may find that all of the expectations around central bank interest rate hikes, start to shift towards the prospect of when cuts might start to come if the inflation outlook starts to shift markedly.
Crude oil prices have continued to come under pressure today on concerns over future demand, however it is not just energy and metals that are seeing price weakness.
We are also seeing weakness in agricultural commodity prices with the CMC Agricultural Index, which consists of soybean, corn, wheat and coffee as key constituents, falling to its lowest level since November 2021. Wheat prices have fallen to their lowest levels since December 2020, having more than halved from their 2022 peaks.
Volatility
Netflix was one of the standouts in terms of price action on Tuesday with broker upgrades helping the stock outperform sector peers. Although the video streaming play slipped back a little from early highs, the underlying still closed almost 4% higher, with one day volatility printing 99.33% against 53.95% on the month.
News of the US debt ceiling resolution – albeit only another temporary one – provided some pockets of support, especially in the tech sector. A number of constituents in CMC’s proprietary basket of Automation and Robotics stocks posted some meaningful gains especially in early trade. The basket gave back around half of that opening upside but still closed ahead, with one day vol of 40.09% against a one month reading of 28.34%.
The Nikkei equity index saw a strong start on Tuesday before giving back all of its gains and downward momentum has been sustained overnight. There seems to be some profit taking in play following that recent test of 1990 highs for the index, with one day volatility being recorded at 18.87% against 14.27% on the month.
And crude was the stand out in terms of commodities after West Texas intermediate slipped back to levels not seen since the start of the month. Falling US consumer confidence and the prospect of more rate hikes from the Fed make for a difficult backdrop here. One day vol on WTI Crude sat at 43.28% against 32.82% for the month.
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