European markets have seen a strong end to the week as the messaging from yesterday’s ECB meeting continue to get absorbed.
Europe
While we’ve heard some pushback today from other ECB policymakers on the idea of a rate cut in April, it almost comes across as a bit half hearted, which is probably understandable given some of the dire economic numbers coming out from Germany and France.
This apparent reluctance to be dogmatic about rate cut timing has helped push the DAX towards its record highs from last year, and on course to post a record daily close, along with the CAC 40. The French index is also performing well due to strong gains in the luxury sector after a solid set of revenue and profits numbers from LVMH.
The FTSE100 is also seeing a strong session, rising to two-week highs and its biggest weekly gain since last September, driven by a strong performance from its big caps of AstraZeneca Shell, BP, HSBC, Unilever, and Diageo in a broad-based rebound.
Having hit record highs back in May last year LVMH shares slipped to 13-month lows earlier this month as concerns over global sales prompted widespread pessimism over the prospects of the sector, expectations over Q4 sales were already very low.
With the company reporting a surprise rise in sales over the quarter we’ve seen a strong rebound in their shares today after organic revenues saw a surprise increase of 10%, while total revenues rose 5.5% year on year to €23.95bn, driven by a rebound in US and Japanese markets. Champagne sales saw a big improvement particularly in Europe and Japan.
This outperformance pushed full year revenues up by 8.8% to €86.15bn with management expressing confidence that the worst was behind it and that 2024 would see a continued improvement in its growth prospects. The rebound in LVMH shares, along with the positive outlook, has translated into a rebound in the wider sector with Hermes and Burberry shares also seeing solid gains, while Diageo is also higher on the back of the rebound in the likes of Remy Cointreau as well as other spirits makers across Europe.
Remy Cointreau is higher despite reporting falling sales, after the Cognac maker outlined plans to cut costs and jobs in the face of slowing sales, as management delivered an outlook that was in line with forecasts.
Saga shares have pushed up to their highest levels in 10-months after the travel company confirmed it was looking for a partner for its cruise business which it says is operating close to capacity. Given how long it has taken to return the business to profit markets appear to think that this could be an effective way of keeping its costs under control as well as spreading the risk in helping to maximise profits.
US
US markets opened slightly lower despite the latest core PCE inflation numbers coming in slightly softer than expected at 2.9%. The weakness appears to be being driven by a move higher in yields due to December personal spending rising more than expected at 0.7% and the prior month being revised up to 0.4%, which indicates that demand in the US economy remains robust.
Chipmaker Intel shares have fallen sharply after outlining a weaker than expected outlook for Q1 sales, despite a robust set of Q4 numbers. Q4 revenues rose 9.7% to $15.4bn with client computing seeing a stronger than expected quarter, and profits of 54c a share. Revenue from datacentres and AI came in slightly below forecasts at $4bn, and it is here that market concerns appear to lie, given that AI is supposed to be the main growth area going forward. Q1 revenues were projected at a low $12.2bn to $13.2bn, well below forecasts of $14.25bn, while profit forecasts were also lower at 13c well below forecasts of 34c a share.
Having slipped to their lowest levels since May last year Tesla shares are once again in focus today after the EV company issued a recall to 200k due to a problem with the rear-view camera. The issue affects the latest 2023 models of the Model X, Y and S, which can be resolved with an over the air update, however it is the latest issue to dog the company when it comes to software issues and rather calls into question its quality control practices, given the number of issues that have come to light in the last 12 months.
Spirit Airlines has fallen sharply after JetBlue more or less called time on challenging the court decision to stop the merger, as reports emerged that it had informed Spirit that the merger may be terminated on or after January 28th
FX
The euro has been amongst the worst performers this week after yesterday’s perceived dovish pivot from the ECB yesterday, after ECB President Lagarde didn’t push back on the prospect of the idea of an early rate cut. Although we’ve had some ECB policymakers push back on that interpretation today which has pulled the euro off its 6-week lows, yields aren’t really buying it, and are only marginally higher after yesterday’s steep declines.
The pound on the other hand has managed to hold up reasonably well, with the improvement in recent services PMI numbers as well as a better-than-expected consumer confidence number for January lending some support, after it rose to a 2-year high. While many have speculated about when to expect a change of tone from the Bank of England on rate policy the UK economy appears to be performing much better than its European peers. This would suggest that the pressure on the Bank of England to cut rates is unlikely to be as intense as it is on the ECB in the weeks ahead. This should help the pound and in so doing keep downward pressure on inflation.
Commodities
Crude oil prices are slightly lower on the day but are still on course for their best weekly performance since October last year. Talk of further stimulus measures from China, as well as bigger than expected declines in inventories have helped to push prices to their highest levels in 2-months, with tensions in the Middle East never too far away.
There’s not been much in the overall direction for gold prices this week, although there does seem to be solid support at $2,000 an ounce, as uncertainty over the timing of central bank rate cuts keeps traders on the back foot with the resilience in US yields helping to keep a lid on any gains.
Volatility
US earnings news is providing some direction at the stock specific level with IBM making a meaningful impact. The company updated the market after Wednesday’s close, forecasting full year revenue growth ahead of expectations supported by continued demand for AI-related services. That was enough to send the stock up to levels not seen in more than a decade, with one day vol of 84.47% against 28.14% for the month.
Keeping with the single stock theme and AT&T continued to deliver elevated levels of price action following Wednesday’s numbers. Although the company appeared to have turned a corner in terms of customer growth, the earnings outlook wasn’t quite as vibrant. The stock has however been recovering losses since the numbers were released with one day vol of 64.75% against 36.95% for the month.
After testing three-year lows last week Corn prices found some support off bargain hunting but with the fundamentals pointing to a well-stocked market, this hasn’t been sustainable. The latest run of gains topped out on Thursday, boosting price action as a result. One day vol stood at 24.04% against 20.67% for the month.
Yesterday’s ECB rate call served up some optimism that the central bank may be looking to cut rates around the middle of the year. That was sufficient to see the Euro soften, with the Euro-Canadian cross standing out as the most active currency trade. With the underlying selling off by around 1%, one day volatility advanced to 7.1% against 6.04% for the month.
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