European markets have got the week off to a positive start, helped by a strong Asia session after authorities in Shanghai said businesses could start to reopen on Wednesday 1st June, as Omicron cases continued to fall. This optimism over an economic reopening in China, helped push the Nikkei 225 to a 3-week high.
Europe
In Europe we’ve seen the DAX and FTSE100 both push to their highest levels in over a month, before falling back from intraday highs.
The rally in the retail sector has picked up where it left off last week, led by the likes of JD Sports and Ocado
Just Eat shares have risen to two-week highs despite reports at the weekend that it will have to take a multi-billion pound write down on its GrubHub stake. This isn’t news to anyone who has been paying attention to how the Just Eat share price has been performing over the past month or so.
It was announced back in April when the company announced its Q1 results, that it was considering offloading the GrubHub business, less than a year after completing the deal for the not inconsiderable price tag of £5.8bn. It was obvious then that they would struggle to recoup anything close to the purchase price, with the share price performance over the last 12 months down over 70%.
Since that announcement was made the shares fell over 20% to a low of 1,416p, although they have rebounded since then.
The GrubHub business has been struggling along with the rest of the delivery sector against the backdrop of increased competition and tight margins. In its most recent quarter GrubHub saw a slide of 5% in orders, although it wasn’t alone in that with the southern European and ANZ regions seeing a 4% decline, and UK and Ireland seeing no change.
Ted Baker shares are also higher on media reports that Authentic Brands is in discussions with the group on a £300m takeover bid. Last week the troubled retailer said it had selected a counterparty to take over the business, and that any due diligence was likely to take a few more weeks. Earlier this year the board rejected a bid from Sycamore Partners which valued the business at £254m.
At its most recent trading update Ted Baker reported a 20.5% rise in Q1 revenues to £428.2m, while narrowing losses before tax to -£44.1m. Authentic Brands is a New York based fashion brand which recently bought Reebok from Adidas for $2.5bn, and also owns marketing rights to names like Bandolino, David Beckham and Forever 21. The willingness of the board to consider a sale is also curious given the hard work in turning the business around over the past 2 years. It was only four years ago that the business was worth £1.3bn.
US
US markets are closed for Memorial Day.
FX
The US dollar has continued to weaken, slipping to its lowest level in over a month, as certainty over further US rate rises beyond July, continues to diminish.
The euro has continued to edge higher, pushing to its highest levels this month, and to a five-week high, as German inflation hit a new record high on the EU measure of 8.7%, well above expectations of 8.1% and a 0.9% rise from April’s 7.8%. With Spain CPI also rising to 8.7% the focus continues to shift to whether the ECB may come under pressure to do more than a 25bps rate hike in July and go for a 50bps move pushing the headline rate back to 0%.
Commodities
Brent crude oil prices have edged above $120 a barrel as EU leaders meet to try and agree a limited oil embargo deal on Russia, with some exclusions, which would include Hungary. For the most part this is probably already priced with the main driver now being this morning’s reports that Chinese demand may be about to pick up strongly, after Shanghai authorities announced they are allowing the reopening of businesses from June 1st. The weaker US dollar is also acting as a modest tailwind for crude oil prices. A big rebound in Chinese demand, which has been subdued for 3 months, could well see further gains, towards $130 a barrel.
Gold prices have continued to tread water albeit near to last week’s recent peaks against the backdrop of a slightly weaker US dollar.
Volatility
Looking over the last week, one standout story amongst single stocks was Canopy Growth, the Canadian listed cannabis grower. Shares were hit at the start of the week off the back of an analyst downgrade which took a toll on the underlying price and drove daily volatility on Tuesday to 348%. Although the stock managed to recover some of those losses, Friday’s earnings miss served up another blow, again lifting daily vol to 347% in the week’s final session, against a monthly print of 196%.
In terms of CMC’s proprietary share baskets, the Social Media cohort has been very much in focus, driven not only by that broader retreat for tech stocks, but also off the back of Snap’s profit warning. Tuesday saw the most pronounced level of activity here with daily vol of 371% against a monthly print of 124%, with activity remaining elevated into Wednesday’s session.
Fiat currencies saw the Turkish Lira dominating in the earlier part of the week as speculation – correctly – mounted that the country’s central bank wouldn’t attempt to hike interest rates yet again in a bid to rein in inflation. Activity here topped out on Tuesday with daily vol against the US Dollar of 19.78% against a monthly print of 13.38%, but the Hungarian Forint then took over as the nation’s government sought to collect $2bn in windfall taxes from banks and energy companies. Daily vol on Dollar/Forint reached 22.73% on Thursday against 17.96% for the month.
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