European markets have got off to a strong start to February, after last night’s push back by a number of Federal Reserve officials, who poured cold water on some of the hawkish narratives being put out with respect to the Federal Reserve’s hiking timeline.
Europe
This timely corrective, from the likes of Bostic, George and Daly, appears to have reset expectations of a 25bps move in March, and away from the narrative that had been suggesting we might see a move of 50bps.
This corrective could get added weight later this week, if we get a weak January payrolls report on Friday. Over the last two weeks we’ve seen consensus expectations revised lower from 238k to 150k, although we are seeing some estimates which suggest that we might see a negative number, due to an increase in sickness levels as a result of Omicron.
Amongst the best performers we’re seeing some decent gains amongst the basic resource and banks, with the likes of Rio Tinto, Glencore, and Anglo American near the top of the pile, while HSBC and Lloyds Banking Group are also doing well.
Supermarkets have been a mixed bag after the latest Kantar grocery sales data for the 12 weeks to 23rd January showed a fall of 3.8%, on a like for like basis. Rising prices also played a part in the decline, with prices rising sharply in the period after Christmas, by as much as 3.8%, a rise of 0.3% from December. In terms of market share only Tesco and Waitrose improved their market share over the 12-week period, despite weaker sales compared to a year ago, helping to push Tesco shares up on the day.
Sainsbury saw sales fall 4.8% year on year, as well as losing some market share, with the shares slipping back. Vodafone and BT shares are also lower ahead of their earnings numbers later this week.
US
US markets are trading in a mixed fashion, after yesterday’s strong rebound into month end, however gains have been difficult to sustain, with US yields tracking higher, after the latest ISM manufacturing report showed that prices paid came in hotter than expected, rising to 76.1 in January.
On the earnings front Exxon Mobil shares have surged to their highest levels since May 2019, after posting its biggest profit since 2014, with operational cashflow rising to its highest level in 10 years. The surge in oil and gas prices has certainly helped with a breakeven price between $35 and $40 a barrel, the company says it plans to expand its Permian basin production by 25% in 2022.
This appears to be an acknowledgement that while demand for fossil fuels remains high it makes sense to produce more, in order to keep a lid on prices, while at the same time investing more in renewables as the company looks to reduce its emissions that way. Perhaps there’s a lesson for Shell and BP here?
Boeing is in focus today after winning a huge order from Qatar for up to 50 of its 777X cargo aircraft, as well as 25 of the largest versions of the 737 Max. The deal is expected to be worth more than $20bn.
UPS shares have also moved higher after reporting Q4 revenue rose 11.5% to $27.7bn, and profits came in at $3.59c a share, well above consensus. On the guidance front the company was equally bullish saying it expected to see 2022 revenue at $102bn, above expectations of $100bn, while raising margins to 13.7%. Sector peer FedEx is also higher.
AMC Entertainment has also moved further away from last week’s 8-month lows after reporting Q4 revenues of $1.17bn, its best performance in two years, and above expectations. The company still reported a loss of between $195m and $115m, however this was much better than last years $946m Q4 loss. Today’s pop in AMC has also helped GameStop its fellow meme stock.
FX
Yesterday’s push back, by a number of Fed officials, on unexpected and too aggressive tightening measures has sent the US dollar and yields sharply lower over the past 24 hours. The interventions acted as a decent corrective on market that appeared to be getting ahead of itself in pricing out a timeline for rate increases and balance sheet reduction.
This corrective has in turn helped underpin a renewed appetite for risk, with the greenback sliding across the board
The euro has underperformed, after German retail sales collapsed by -5.5% in December, due to the various restrictions that were imposed across the country because of the spread of Omicron. This appears to have offset concerns about inflation, which continues to track higher, with French CPI rising in January to 2.9%, from 2.8%, against and expectation of a fall to 2.5%. Last week Spain saw CPI at 6%, while yesterday Germany CPI only fell modestly to 4.9% despite base effects that should have seen it come in much lower.
These hotter than expected prints will increase the pressure on the ECB to consider a rate rise this year, despite protestations to the contrary by ECB President Christine Lagarde. Bond markets are already moving to reflect the possibility the ECB will be forced to act. German 10-year yields are now firmly positive once more, while German 2 year yields are at their highest level in over 5 years, at -0.46%.
Commodities
Crude oil prices are tracking slightly softer, just below 7-year highs, ahead of this week’s OPEC+ meeting, as speculation mounts that they might decide to boost production by more than the 400k barrels a day that is expected.
Gold continues to be pulled back and forth because of the ebb and flow of the US bond market, as well as the strength of the US dollar.
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