European markets have had a more positive tone today on the back of a modest decline in yields and a weaker US dollar. After four days of declines the FTSE100 has finally seen a positive session today, closing higher for the first time in 5 days, briefly rising to its highest level since 11th January before slipping back.
Europe
The main driver of today’s gains has been a strong performance from oil giant BP whose shares rose to their highest levels since November after announcing underlying profits of $2.99bn, beating forecasts of $2.76bn, while announcing a further buyback of $1.75bn, pushing the total for the first half of next year up to $3.5bn.
Judging by the tone of today’s trading announcement BP is prioritizing returning cash to shareholders over a change of strategy when it comes to its “Performing while Transforming” policy of reducing oil and gas production vs 2019 levels by 25%.
While today’s share price reaction has been positive, and unlike Shell, BP has reduced its net debt there is some doubt as to whether such a strategy is sustainable in the longer term with activist investor Bluebell Capital calling the current policy “irrational”.
Other strong performers have been the likes of Prudential and HSBC who are rising on the back of expectations that China will embark on some form of fiscal stimulus, after Chinese stocks rallied strongly in anticipation of such a move.
Increased chatter about a government share sale of its stake in NatWest has continued today, ahead of its full year numbers next week. A date some time in June has been mooted however NatWest would need to see confirmation of a permanent successor to Alison Rose confirmed, to create certainty around the stewardship of the business. The current temporary incumbent is Paul Thwaite who’s been doing the job for 9-months now.
Given the paucity of names who have been linked with the role perhaps it would be better for all concerned that rather than wasting money on looking for an external candidate perhaps the time would be better spent on confirming Thwaite in the position as it is now given, he’s been doing the role since Rose departed 9-months ago.
US
US markets opened modestly higher on the back of today’s more resilient tone in Europe, and the slight softening of 2-year yields, although they have since become more mixed with the Nasdaq 100 lagging.
Palantir shares have jumped sharply after the company reported its first ever annual profit of $210m while revenues for Q4 rose by 20% to $608m driven by sales of its AI powered software which it sells to governments as well as some private clients. For 2024 the company said it expects to see Q1 revenues of between $612m and $616m and full year revenues of around $2.66bn. Having reported a profit in each of the last 4 quarters the company stands a good chance of being pushed into the S&P500.
Spotify shares are also having a good day after reporting a better-than-expected increase in Q4 subscribers. Premium subscribers rose to 236m during the quarter although on revenues and profits the company missed forecasts, with revenues coming in at €3.17bn and losses coming in at 36c a share. For Q1 the streaming company was more upbeat with an expectation that operating income would come in at €180m.
DocuSign shares have slipped sharply after the company announced it was cutting 6% of its workforce as it looks to restructure the business and that the prospect of private equity buyer interest in the struggling business had cooled.
FX
The US dollar has undergone a modest pause after the gains of the last couple of days with the pound clawing back some of its recent losses as traders parse today’s BRC retail sales and construction PMI data which showed modest improvements in January.
The Australian dollar also rebounded from 2-month lows after the RBA left rates unchanged and Governor Bullock kept the option open to raise rates again if required by not ruling the option out in contrast to the likes of the ECB, Bank of England and Fed who have all said that rate hikes are done.
There’s not been much reaction to a report that the Bank of Japan is on track to shift monetary policy in April and set the scene for an end to NIRP, as well as looking at other policy areas Perhaps the lack of market reaction speaks to a feeling that we’ve heard it all before with traders preferring to wait until there’s something more tangible.
The euro has lagged after yet more disappointing economic data out of Germany, with the surprise increase in factory orders in December being dismissed as a one-off given that the rebound was due to big orders for aircraft parts, which disguised broader weakness elsewhere.
Commodities
Crude oil prices have edged higher as the tit for tat between the US and Houthi rebels in Yemen continues with the Houthis attacking more ships in the Red Sea, which the US has said it will continue to counter with retaliatory action.
Gold prices have rebounded modestly from one-week lows after two days of sharp declines, which saw the US dollar and yields rebound strongly.
Volatility
Italian lender UniCredit saw its stock lifted significantly on Monday in the wake of strong earnings news. The bank advised that its entire EUR8.6bn profit would be returned to shareholders – that’s the equivalent of around 20% of the company’s market cap – and expectations are for a similar performance to be logged for the year ahead. One day vol on the stock rocketed to 462.55% against 105.73% on the month.
Keeping with single stocks and Tesla had a less impressive day, with the underlying falling more than 6% in early trade off the back of a broker reducing its target price on the stock and a big corporate order being called off. The stock did recover some of those losses before the close but still ended the day meaningfully lower. One day vol stood at 83.39% against 65.37% for the month.
There has been a theme of weaker grain prices globally as demand remains subdued, but wheat contracts appeared to find some support during Monday’s trade. Whether this can be sustained may well be dictated by Thursday’s release of the monthly WASDE report, but one day vol on the crop stood at 33.58% against 30.53% for the month.
And the ASX in Australia saw some downside pressure on Monday ahead of the RBA decision. High inflation seems likely to offer little incentive when it comes to softening monetary policy and that indeed was the case when the central bank made their call a few hours ago. One day vol on the index printed 13.63% against 11.26% for the month.
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