It’s been another choppy session for markets in Europe with today’s attempt at a rebound once again being capped by concerns that Russia will expand its insistence on being paid in roubles beyond Poland and Bulgaria, to the likes of Germany and Italy.
Europe
This seems the most likely outcome given reports by TASS, which Austria have strenuously denied, that they have agreed to pay Russia in roubles.
Whether true or not, it appears that Russia is striving to create division by cranking up the pressure on European countries to pay in roubles or risk being cut off.
This new strategy, which has been a long time coming, appears to be a concerted effort to force European countries to breach sanctions, and has been variously described as weaponization or blackmail, but however you describe it, extortion seems a more appropriate description.
The FTSE100 is outperforming, largely due to a rebound in metals prices, led by gains in the likes of Anglo American, Rio Tinto and Antofagasta, after a strong recovery in Chinese markets.
GlaxoSmithKline shares are also doing well after reporting strong Q1 sales of £9.8bn, a rise of 32%, with CEO Emma Walmsley citing strong Shingrix sales, which helps in the treatment of Shingles. Covid-19 sales of its Xevudy treatment also generated sales of £1.3bn.
The pharma giant also said it was on track to demerge its consumer healthcare division in July, which will be renamed Haleon, though whether the split will generate the £50bn that Unilever was prepared to pay for it earlier this year remains to be seen. This division generated sales of £2.6bn in Q1, a rise of 14%.
AVEVA Group is today’s worst performer on the FTSE100, the shares falling to three-year lows, after reaffirming its full year targets but warning that revenues in 2023 could well fall back, due to the war in Ukraine and sanctions on Russia. Earnings are also expected to take a hit due to rising costs including wage inflation as well as other expenses.
Lloyds Banking Group shares pushed up to 3-week highs after the bank offered up a decent set of Q1 numbers, but have been unable to hang onto those gains, sliding into negative territory. Statutory profit after tax came in at £1.2bn, a modest fall from the same quarter last year, pushing the shares to a three-week high, with a modest increase in impairments of £177m taking the gloss off a little. The impairment was in relation to possible impacts related to higher inflation.
Operating costs also rose modestly from a year ago, to just shy of £2.1 bn, although they were down on Q4. On the outlook Lloyds said it was boosting its guidance on net interest margin to 2.7% and raising the return on tangible equity to above 11%.
UK house builder Persimmon has followed in the footsteps of its peer Taylor Wimpey yesterday saying that it is trading in line with expectations, however the sector is one of the worst performers today.
Q1 forward sales came in at £2.8bn, with H1 forward sales expected to be slightly softer, with a pickup expected in H2. This slightly downbeat assessment of H1 completions has seen the shares slide back, with concerns over higher mortgage rates, prompting concern about the ability of housebuilders to meet their margin targets on future sales.
Average selling prices are higher at £266k. Management said they are on track to deliver 75 new outlets during H1.
Cladding provision of £75m is considered sufficient with the house builder saying it expects to deliver volume growth of 4-7% for the full year, while maintaining its margins.
US
US markets have seen a modest rebound in early trade as investors pause for breath and look ahead to the latest numbers from Meta later today, and Amazon and Apple tomorrow.
Microsoft has led initial gains after some decent Q3 numbers with the shares rallying quite nicely on the open, however the wider market gains are struggling to maintain traction with the Nasdaq rolling back from its early highs, while the NYSE FANGS+ Index has slipped back again to a fresh 18 month low.
Revenues came in at $49.36bn, slightly higher than expected, as did profits at $2.22c a share. Personal computing saw revenues of $14.52bn, helped by decent sales of Windows 11 and Xbox, while its intelligent cloud business which includes Azure generated $19.05bn in revenue.
Despite the narrative of focussing on a miss on YouTube ad revenues of about $500m, Alphabet’s Q1 numbers weren’t that bad, although that hasn’t been enough to stop the shares from slipping back sharply on the open. Advertising still makes up the majority of the company’s earnings with services revenue coming in at $61.47bn, below expectations of $62.58bn. Total revenues beat expectations, rising to $68.01bn, while operating margins came in at 30%.
With Facebook owner Meta due to report later today investors will be looking for weaker trends in its ad market, with a miss here likely to see the shares punished again, after the big falls seen in the aftermath of its previous trading update in February.
Tesla shares had a shocker yesterday, falling to one-month lows as markets weigh the possibility Musk might need to sell some of his stake to fund the acquisition of Twitter. They are currently trading higher today, rebounding off the 200-day MA.
Robinhood Markets shares have also fallen back after the company announced it was cutting 9% of its workforce, ahead of its quarterly numbers which are due out tomorrow.
Boeing shares have also plunged after posting a surprise Q1 loss of $1.24bn as revenues came in light at $13.99bn, almost $2bn below expectations. The aircraft manufacturer said it will be pausing production of its 777X, through 2023, which will incur $1.5bn in extra costs starring in Q2. Both its civil aviation and defence divisions incurred losses in Q1.
FX
The US dollar index has continued to push higher, surpassing the peaks seen in March 2020 and rising to its highest levels since December 2016.
The euro has led the way lower falling below its 2020 lows and looking on course to retest the 1.0340 levels seen in January 2017, amidst rising scepticism that the ECB will be able to anything significant to stem the tide of losses, even if they were to adopt a more hawkish stance. German consumer confidence also hit a record low in April of -26.5.
The pound has also come under pressure after another disappointing retail sales report for April, this time from the CBI which saw sales activity slide to a one year low.
The Japanese yen has also started to lose ground again, ahead of tomorrow’s Bank of Japan monetary policy decision
After yesterday’s Russian inspired move higher, crude oil prices have continued to oscillate wildly, sliding back towards the recent range lows despite fears that Russia will cut off the rest of Europe, having seen it cut off Poland and Bulgaria. Russia is starting to insist that payments for energy need to be made in roubles, while the EU is insisting that to do so would be a breach of sanctions, and so the tap dance over roubles for Russia goes on. Prices pulled off their lows after Germany said it was prepared to support a gradual ban on Russian oil.
Gold has continued to look soft, slipping to two-month lows against a US dollar, which is now at 5 year highs, and showing no signs of slowing down.
Volatility
Eastern European currencies were something of a standout yesterday in terms of price action following that decision by Hungary’s central bank to hike interest rates by a full percentage point. That was sufficient to propel daily vol on Dollar-Forint to 17.12%, up from 14.45% on the month, but it also resulted in gains for the Zloty, which in turn saw daily vol of 22.53% against the dollar versus 14.42% on the month.
Broad weakness in the resources sector left many miners offside during yesterday’s session, with price action being especially choppy across many Australian stocks. South 32 topped the board after it dropped a further 8%, taking losses for the last five sessions to 16% and driving daily vol out to 370% against a monthly print of just 107%. Fellow Aussie stocks Mineral Resources, Fortescue Metals and BlueScope Steel also showed exaggerated levels of interest.
As for equity indices, the global trend remains downbeat given the worsening COVID situation in China. US Markets ended the day well into negative territory but earlier in the session, some attempts at a rebound were made. That was especially evident in South Africa and although the local market gave back most of its 1.5% of gains during the day, daily vol sat at 44% against 29% on the month.
Finally, Dogecoin is again the most volatile of the cryptos, with prices remaining unsettled as the market still attempts to understand whether Musk’s acquisition of Twitter has any meaning here. Daily vol sat at 141% against 104% on the month.
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
