It’s been another positive day for the FTSE 100 and another record high, with the 8,000-level continuing to act as a magnet for investor sentiment, and a market that seems to just want to go higher. We have seen the early morning momentum fade in a similar fashion to yesterday’s price action, which does suggest an element of caution, but we are still putting in higher lows.
Europe
The DAX is also performing well after German CPI for January fell from 9.6% to 9.2%, as well as being buoyed by a decent set of Q1 numbers from Siemens which pointed to a much more positive outlook, as the company raised its full year guidance for EPS to €8.90 and €9.40 a share from €8.66.
The FTSE 100’s resilience has been helped by a strong performance again from the big caps with the UK’s biggest company, AstraZeneca helping to lead the way higher, having seen a bit of a falloff in recent weeks having hit a record high earlier this year. Astra’s Q4 and full year results have seen the UK pharma giant report better than expected revenues and profits for the year, pushing the shares higher on the day. Total revenues for the year rose 19% to $44.35bn, which was helped by the integration of the Alexion business, with solid growth in all areas of the business, despite Q4 revenues coming in slightly short of forecasts.
An improvement in operating margins by 400bps to 30% helped offset this, as profits beat expectations. Looking forward, revenues from its Covid-19 medicines is expected to decline significantly over the course of the next fiscal year, however it is not expected to prevent total revenues for 2023 from growing in the low double-digit percentage. This due to significant expected improvements in its China revenues as well as in the sales of other new drugs like Farxiga for diabetes and Tagrisso for cancer.
Also leading London’s market higher Standard Chartered shares have retested the highs of earlier this year on reports that Abu Dhabi’s FAB is weighing a bid for the bank once UK takeover rules have elapsed, although it’s not immediately clear how a deal would unfold due to the complexity around the number of regulatory approvals that would be needed to get any sort of deal off the ground.
There’s been a modest reaction to the full year numbers from Unilever which has seen the company report decent growth across all its business divisions, although margins have come under pressure.
Underlying sales growth increased by 9%, with annual revenues rising to €60.1bn, despite a fall in overall volumes of 2.1%. There was double-digit percentage growth across all its business areas, with the exception of nutrition which rose 6.1%. Unilever says it has been able to increase prices but the ability to continue to do so will be constrained by elements of demand destruction as consumers struggle with higher prices. The company said demand is expected to fall during the first half of the new fiscal year, and then pick up again in H2. The shares have seen good gains from last year’s low after the 3 failed bids for GSK, sent the shares plunging. Management remains under pressure to improve margins and boost the growth potential for a business that has underperformed its peers and fallen significantly away from its 2019 record highs.
ITV shares popped higher due to chatter on a Betaville report that there could be some takeover chatter regarding the broadcaster. These reports have been circulating a lot in recent weeks. The ITV studios part of the business is a particularly attractive asset, and not surprisingly has attracted interest, however it’s hard to believe ITV would countenance selling off its biggest asset at a time when it’s just launched its revamped ITVX service. In the short term it looks as if there’s more smoke than fire here.
It’s not been a good start to the year for British American Tobacco, with the shares down over 15% from its 2022 highs of last summer, with the share price sinking to 11-month lows today despite reporting a 2.3% increase in full year adjusted revenues to £27.655bn. Revenue from its NGP products has continued to see strong gains, although it remains a very small percentage relative to its legacy revenue. New Category revenues increased over 40% to £2 89bn.
BAT reiterated its confidence that NGP revenues would reach £5bn by 2025 and expressed optimism that it could meet its 3% to 5% currency growth targets as it looks to offload its Russian and Belarus businesses. The main reason for today’s slide appears to be disappointment that the company wouldn’t be buying back any more of its shares. This seems a strange response given that it’s an eminently sensible action to take if you’re projecting to sell fewer cigarettes against a backdrop of slower growth.
Entain shares have also slumped after MGM Resorts said it was no longer interested in pursuing its interest in the business.
The woes have continued today for Swiss Bank Credit Suisse, which is continuing to live up to its new moniker of Debit Suisse after reporting a Q4 loss of $1.5bn and expects to see further losses in 2023. The banks performance hasn’t been helped by client outflows, as doubts continue to circulate over management’s ability to turn the business around. Confidence is a fragile thing and when doubts about a bank start to circulate most investors tend to vote with their feet, with the shares sliding back
US
US markets have continued their Jekyll and Hyde behaviour, opening higher after yesterday’s losses, as the tug of war between the bull and bear camps continues. The latest set of weekly jobless claims continues to point to a tight jobs market in the US, coming in at 196,000, a modest increase on last week's 183,000.
Disney shares have seen strong gains today after beating expectations on Q1 revenues and profits. Revenues came in at $23.51bn, a rise of 8% from a year ago, while profits came in at $0.99 a share. The streaming side of the business saw subscriber numbers decline to 161.8m, in contrast to Netflix who saw streaming numbers surge in their latest quarter. Losses in this “direct to consumer” part of the business came in at just over $1bn, although revenues were higher at $5.3bn. The parks business helped to offset the weakness here, with revenues of $8.74bn and profits of over $3bn. New CEO Bob Iger also outlined a turnaround plan to maximise profits as well as announcing the loss of 7,000 jobs in an attempt to save up to $5.5bn. The company will be split into three divisions, entertainment which will include Disney+ and the TV and studios business, the ESPN business, and the parks and holidays business.
Robinhood Markets shares have pushed higher despite reporting Q4 net revenues of $380m, which fell short of expectations. Transaction revenues also fell short, coming in at $186m, while losses came in at $0.11 a share. Part of the Q4 loss was in relation to a $57m charge after a glitch in its trading app caused the firm to incur losses. In Q1 the company says it expects to record a charge of $485m in relation to the cancellation of stock-based compensation for its executives to help it cut costs.
FX
The US dollar has come under pressure across the board even as US yields remain steady near their recent peaks.
The pound has shrugged off the headlines from today’s testimony by Bank of England officials to the Treasury Select Committee, with Bank of England governor Andrew Bailey saying that he expects inflation to fall back sharply by the end of the year, while uber dove Silvana Tenreyro claimed that rates were too high, and that she would be minded voting for a rate cut before too long.
The lack of market reaction perhaps isn’t too surprising, as Bailey’s comments aren’t that different to what Fed chair Powell has been saying since last week. As for Tenreyro, she has always been an outlier, and apart from Dhingra has no support on the MPC. Furthermore, her claim that a base rate of 4% is too high when CPI is at 10.5%, food price inflation is at 16% and Unilever CEO Alan Jope says that we aren’t at peak prices yet, is ludicrous and hard to rake seriously. The next move is still likely to be another hike as we look to tomorrow’s Q4 GDP numbers, where we’ll find out if the UK economy entered a technical recession.
Commodities
Crude oil prices, which had been rising earlier this week, have slipped back from one-week highs after US oil inventories hit their highest levels in months. While a lot of people have been concerned about rising demand from a China reopening, it overlooks the fact that Chinese oil stocks are probably already quite high due to lockdowns and any attempt to refill these supplies could be done at knockdown prices through Russian imports. After all who else is Russia going to sell its oil to.
Gold prices are also firmer on the back of today’s US dollar weakness, up for the fourth day in a row now as it looks to reverse some of the losses we saw at the end of last week.
Volatility
Alphabet’s release of its AI service known as Bard was a hotly anticipated event yesterday but some fundamental errors in the demo gave the market little cause to get overly excited. Instead, shares fell by more than 5% at the open and continued working their way lower as the session played out. One day vol on the C class stock printed 76.4% against 53.84% for the month.
That general air of malaise was seen across the wider tech sector, with CMC’s proprietary Social Media basket of stocks struggling during the day. Whilst Alphabet was the biggest faller, Zoom dipped more than 6%, and Snap closed in excess of 5% lower too. That served to drive one day vol in the cohort to 68.19% against 55.65% for the month.
CMC’s proprietary Big Tech basket of stocks also took a tumble. Again Alphabet is a key constituent here, but with the wider sector struggling yesterday in the wake of the underwhelming AI release, the basket lost around 2.5%, with one day vol of 51.95% against the one month reading of 40.18%.
Sugar prices saw elevated levels of activity on Wednesday, with a weaker dollar and rising oil both combining to push the raw contract towards the top of its recent range. One day vol printed 43.19% against 34.19% for the month as a result.
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