Having spent most of the day treading water yesterday, European markets have tried to make cautious progress higher today, led by the CAC 40 with a strong performance from software maker Ubisoft helping set the tone, even if it isn’t in the blue-chip French index.
Europe
These gains have come about because of today’s news that Microsoft will propose licensing cloud streaming rights to all current and future Activision PC and console games to it for the next 15 years, as it looks to get its Activision acquisition past UK regulators.
Mining stocks are gaining despite a disappointing update from Australian miner BHP, which saw its profits fall by 37%, on the back of weakness in the Chinese economy. The gains in the mining sector appeared to be helped by a sudden late rebound in Chinese markets which saw them close higher for the first time in 8 days.
The sudden turnaround appeared to come out of the blue, suggesting the possibility of intervention. It certainly wouldn’t be the first time that Chinese authorities have intervened to support their stock markets.
In any case the firmer tone looks to have helped the FTSE 100 break a sequence of 7 successive daily closes, as it closes higher for the first time since 10 August, with Glencore, Rio Tinto and Anglo American leading the gains.
Oilfield services provider John Wood Group shares have ticked higher after reporting H1 revenues of $3bn and an 8.5% increase in adjusted EBITDA of $202m. The company increased its full year guidance for revenues to $6bn which is slightly ahead of consensus, and also raised its adjusted EBITDA, with margins expected to remain steady at 7%. Free cash flow is expected to be positive in H2 after turning negative in H1 to the tune of -$219m.
On the downside JD Sports has rolled over after US sector peer Dick’s Sporting Goods profit warning saw its shares plunge on the open.
US
After yesterday’s rebound, and the follow through in European markets today, US markets initially opened higher with earnings once again taking centre stage, while yields have taken a step back from their recent highs.
Sentiment also got a bit of a lift by chatter that a discussion on the Fed’s inflation target being reset to 3% might take place at Jackson Hole this weekend. If this were to happen, then it would mean that the central bank need not be as aggressive in returning inflation to target if the target were raised from 2% to 3%.
The risk in doing that is that inflation expectations become unanchored, and inflation becomes stickier than it should be, which is precisely why it won’t happen. The time to have done it was when inflation was below 2%. Doing it now just suggests that policymakers think it will be too hard a task to achieve the 2% target. That’s not really a message you want to send, which is why it’s a daft idea.
On the data front US existing home sales declined by -2.2% in July, following on from a -3.3% decline in June, as US homeowners currently on much lower fixed rate deals stay put. Through all this year we’ve only seen one monthly gain worth its name, in February, which saw gains of 13.8%, however that was mainly due to a sharp slowdown at the end of last year, when sales slowed sharply. Today’s July sales numbers put monthly sales back to where they were at the end of last year at just over 4m.
Zoom shares have slipped back despite reporting Q2 revenues of $1.14bn comfortably beating forecasts of $1.11bn, prompting it to upgrade its full year revenue forecasts to between $4.49bn and $4.50bn, while keeping Q3 revenue forecasts unchanged at $1.12bn, but nudging profits up to $1.08c a share. Q2 profits were also stronger than expected at $1.34 a share.
In IPO news, UK chipmaker ARM, which is owned by SoftBank has finally pulled the trigger on its US IPO, testing the appetite of the market for new issues at a time when sentiment remains cautious as well as a little fragile given current trends of rising interest rates.
Last year SoftBank booked a loss of $29.5bn, on its various investments and only finally managed to generate a profit in its most recent quarter, after 5 quarters of losses before it.
In other news, the UK’s CMA has confirmed that Microsoft had submitted a new deal to push its Activision deal through with a decision set to be made by the 18th October. Under the new proposal Microsoft will transfer the cloud streaming rights to all current and future Activision PC and console games to Ubisoft for the next 15 years. This should be enough to get the deal past regulators given the deal has already been approved by EU regulators and be enough for the CMA to save face.
On the flip side, Dick’s Sporting Goods shares have plunged after the retailer downgraded its full year profit guidance to between $11.50 to $12.30 a share, a sharp fall from the previous $12.90 to $13.80 a share. Dicks also missed on Q2 profits, coming in almost a dollar below forecasts at $2.82 a share, on net sales of $3.22bn.
Nvidia shares briefly pushed up to new record highs ahead of tomorrow’s Q2 earnings as markets front run a solid quarter, as well as the potential for a possible earnings upgrade.
FX
The US dollar has pushed off its lows of the day in the US session, pushing higher against the euro, but doing less well against the likes of the Australian dollar, and the Japanese yen.
The pound is also weaker despite better-than-expected public finances data for July which showed that self-assessment and corporation tax receipts helped keep the headline numbers down.
Commodities
Crude oil prices appear to be running out of steam after the recent push higher. With US driving season starting to wind down as we come into September, and concerns about Chinese demand very much front and centre, prices are struggling to hang onto the gains seen since the June lows.
Gold continues to struggle as US real yields continue to edge higher, along with the firmer US dollar contrive to keep a lid on any gains, with the 50-day SMA acting as resistance.
Volatility
Tesla saw its losing streak being broken on Monday as analysts warmed to catalysts seen as likely to support the company. The stock had slipped more than 25% over the last month, but yesterday’s 8% uptick was sufficient to give the EV manufacturer a significant uplift in volatility, with a one-day print of 76.54% against 65.73% on the month.
Another heavyweight stock to see big moves on Monday was Johnson & Johnson, where news that it was to spin off its Kenvue subsidiary took a toll. The underlying dropped by close on 5% before posting a modest recovery. One day vol stood at 54.02% against 32.23% for the month.
Sugar prices fell back to two-week lows yesterday as a slew of upbeat supply data from both Brazil and India continued to take a toll on the underlying. Prices still remain well above levels seen earlier in the year and there’s no shortage of fundamental drivers that could add direction in the near term, but one day vol advanced to 45.83% against 36.78% for the month.
Keeping with commodities and concerns that industrial action could impact exports of Natural Gas from Australia served to drive price action. Yesterday’s gains were however short lived, but this is likely to be a theme to watch as we move into the Autumn and demand increases. One day vol on nat gas stood at 52.18% against 48.02% on the month.
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