It’s been a lacklustre trading session for European markets with higher rates and disappointing economic data weighing on sentiment throughout the day, although we are edging higher into the close.
Europe
It’s becoming increasingly difficult to determine an overall direction for markets at this point with little in the way of a catalyst one way or the other.
A surprise 25bps rate hike from the Reserve Bank of Australia, the second month in succession they’ve done this, along with another poor German factory orders number for April has tempered risk appetite and raised concerns about the economic outlook, while oil prices have given up all their Saudi production cut gains from yesterday.
The main drags on the FTSE100 have been BP and Shell due to weakness in oil and natural gas prices.
On the plus side British American Tobacco shares are higher after today’s H1 trading update saw the company reiterate its full year guidance with new CEO Tadeu Marroco reiterating that there would be no change in the current strategy to reach £5bn of NGP revenues by 2025.
On combustibles the performance in the US has been disappointing, with global tobacco industry volume expected to see a decline of 3%.
Abrdn shares are also up for the second day in a row after announcing a £150m share buyback program yesterday.
US
The slightly risk off tone that saw US markets close slightly lower yesterday has continued today with a softer European session weighing on sentiment as investors weigh up the prospect of higher rates after the RBA raised rates for the second month in a row.
Apple shares slipped back into negative territory despite reaching new record highs earlier in the day as the company showcased its latest new product, a new augmented reality headset called Vision Pro, priced at an eye-watering $3,500. The disappearance of the early share price gains is likely to have been disappointment over the price point, putting it out of reach of ordinary people, and this limiting its mass market appeal. There is also the fact that these types of devices have continued to struggle to gain traction. You only have to look at the problems Meta has had with its own virtual reality headset and the losses incurred there, and its price point are much lower with the most expensive price point being at $1,000.
Coinbase shares are lower after the SEC announced it was taking steps through the courts accusing the company of being an unregistered broker in its role as a broker, exchange and clearing agency for crypto currencies. Without the appropriate licensing from the SEC for all these functions the company was operating without the protections that prevent fraud and manipulation, as well as the proper safeguards against conflicts of interest and routine inspection by the SEC.
FX
The Australian dollar is the best performer after the RBA raised rates by 25bps for the second month in a row, in an unexpected move taking the cash rate to 4.1%. Today’s decision could have gone either way, but in the past few weeks there has been a sea change in Australia when it comes to how the RBA is viewed, as well as its competence. Today’s move suggests that the recent criticism has cut through and the hawkish guidance delivered in the wake of today’s rate hike suggests that more hikes could be coming, and there is certainly room for them to go higher. For months the RBA has been behind the curve and the risk is that in trying to catch up they do more harm than good.
Aside from the Australian dollar we’re also seeing a bid in the Canadian dollar, ahead of tomorrow’s Bank of Canada rate meeting which could see them follow suit with a similar surprise hike.
The US dollar is also higher on the back of a similar premise, given that the Canadian central bank might be perceived as a leading indicator for next week’s Fed meeting.
Commodities
The inability to hold onto yesterday’s rebound to one-month highs bodes ill for the oil price which is once again under pressure over concerns about future demand as both US services data and this morning’s decline in German factory orders raised further concerns about the global outlook.
Volatility
Shares in Apple hit all-time highs on Monday before reverting off the back of the tech giant’s latest developer conference. The highlight here was a new augmented reality headset that retails at $3,500 – a number that some investors seemed to feel was a bit too toppy, helping the stock unwind those latest gains as a result. One day vol hit 73.43% against 31.35% for the month.
CMC’s proprietary basket of gaming stocks was something of a standout on Monday after Unity Software – the second biggest constituent – popped higher. That was off the back of news that the company’s software would be used in the new Apple VR headset, resulting in the underlying stock adding 17% on the day. Apple is also a key constituent in the basket, adding further dynamics in terms of price action. One day vol for the cohort stood at 54.58% against 28.92% for the month.
Oil prices spiked higher following the weekend meeting of the OPEC+ group. Gains proved broadly unsustainable however, finishing the day around Friday’s closing level. West Texas Intermediate proved to be the most active, printing one day volatility of 41.68% against 34.22% on the month.
And in equity indices, the Nikkei saw elevated levels of price action with the contract once again posting fresh highs not seen since 1990. Last week’s upbeat US employment data and broader positive sentiment across Asia are both seen as contributing factors. One day vol on the index sat at 19.99% against 15.24% for the month.
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