While US markets have had a predominantly weaker tone today, with the Nasdaq 100 down heavily, European markets, while weaker, are holding up relatively well in comparison even as they trade at or close to one-week lows. Tech shares are leading the weakness, however there are bright spots not in least travel and leisure.
Europe
easyJet shares have soared after reporting an upbeat Q1 trading update which saw the airline report a much reduced £133m loss before tax. Optimism is high that easyJet holidays will be able to add strongly to the bottom line and the early signs are encouraging with the business adding a £13m profit during Q1. Guidance here was raised from 30% growth to circa 50% year on year, with bookings for it and the airline delivering record revenue days during January. The upbeat picture has helped deliver a lift to the wider sector with Jet2, Wizz Air, and IAG all higher.
Aviva shares are also higher a fairly positive update to its general insurance business, with the insurance company reporting a £50m cost due to the freezing weather in December and January.
Pub chain JD Wetherspoon shares have slipped back after reporting a 13.1% rise in H1 like for like sales from a year ago. In the 12-week period to the 22 January sales were higher by 17.8%, however compared to pre-pandemic levels, sales are still down by 2%. Not surprisingly costs are also higher, with the company still looking to offload some of its pubs. It has sold 10 so far for a net inflow of £2.9M, with another 35 pubs still on the market. On the outlook that continues to remain challenging with chairman Tim Martin once again challenging the logic of a tax system that allows alcohol to be zero rated for VAT in supermarkets but charged at 20% in all hospitality settings.
US
US markets opened sharply lower today as the investor optimism of earlier in the week ran into the reality of a weaker economic outlook, after Microsoft management warned of a weaker earnings outlook over the next few quarters.
Microsoft’s Q2 numbers were by and large ostensibly positive despite some weak areas, however the downbeat guidance has seen the shares come under pressure as the penny finally starts to drop that the next few quarters are likely to be challenging for even the most competitive businesses. Microsoft said the next few quarters were likely to see further slowdown in growth, even in strong areas like Azure, and that new business was already becoming more difficult. They also said that existing customers were asking for its help to make cost savings around their existing services. Microsoft also said subscriptions were also likely to slow, and that revenues would remain flat in Q3. This has prompted the shares to open lower along with the rest of the sector, with Amazon and Alphabet shares also under pressure on the back of the weak cloud outlook.
Having posted a loss of $3.3bn in Q3, Boeing has followed that up with another loss in Q4, albeit a smaller one of $663m, or $1.75c a share, as the aircraft maker continued to grapple with elevated costs, across its various business divisions. Revenues were much better than Q3, coming in at just below $20bn, boosted by new aircraft deliveries which helped to boost its cashflow by more than expected, and into positive territory for the first time since 2018
Tesla is due to report its Q4 numbers after the bell, with most of the market attention likely to be on how bullish CEO Elon Musk is likely to be when it comes to expectations for fiscal year 2023. At the Q3 call Musk warned over rising lithium prices, while Tesla has already implemented savage price cuts in response to rising competition. How much will these eat into its margins, and how well is demand holding up at a time when the cost benefit analysis of owning an electric car has diminished on the back of soaring electricity prices.
FX
The Australian dollar has surged after the headline CPI jumped much more than expected, from 7.3% in November to 8.4% in December, undermining the idea that we may have seen peaks inflation. On a quarterly basis price pressures also increased rising to 7.8% in Q4, and up from 7.3% in Q3.
This upside surprise is likely to have shifted the calculus when it comes to when the RBA calls time on its rate hiking cycle, as well as increasing concern that inflation could well be a lot stickier than markets are currently pricing. It also poses a problem for central banks when it comes to deciding whether its sensible to consider slowing the pace of rate hikes.
The Canadian dollar has slipped back after the Bank of Canada raised rates by 25bps as expected but also signalled that the next few meetings would see rates stay on hold while the central bank assess the impact of recent rate hikes on prices as well as the wider economy.
The US dollar also slipped back in the wake of today’s dovish tilt by the Bank of Canada as traders perceived a similar tilt from the Federal Reserve next week, with the Japanese yen, Swiss Franc and Pound also getting a lift.
Commodities
Crude oil prices look set to slide back for the second day in a row, after another rise in US inventories as well as yesterday’s weak guidance from Microsoft undermined the narrative of a sharp demand led rebound which has helped lift price for two weeks in succession. With US inventories up for the second week in a row, attention is shifting away from China led recovery to concerns about a US slowdown.
Gold prices are trading steadily near to their recent peaks, with the weak US dollar and decline in yields helping to keep a floor under prices in the short term.
Volatility
Stock specific volatility data from Tuesday has been somewhat skewed by a technical issue on the NYSE that resulted in what was described as a wild market open. Many stocks – including heavyweights like AT&T, Exxon and Walmart - saw prices start some considerable distance out before reverting. An investigation is underway.
Looking at other asset classes, in commodities, silver pricing remained the most active. Despite sentiment suggesting that there are further gains to be had here, the market dipped lower in early US trading before staging something of a comeback. As noted yesterday there are fundamental reasons why more upside could yet be seen here, but those sentiments aren’t materialising yet and further slowing of inflationary pressures could add further headwinds here. One day vol on silver came in at 33.22% against 30.67% for the month.
CMC’s proprietary basket of remote lifestyle stocks found itself in focus with a broker downgrade for Peloton off the back of falling demand being part of the issue here, although that turbulent start for the wider equities market will also have taken a toll. The underlying finished a little over 1% lower, with one day vol printing 61.89% against 42.67% for the month.
Bitcoin slipped back in the latter part of Tuesday’s trade, losing around $800 in a matter of hours. The sell-off appears to have concluded however, but this was sufficient to leave the legacy coin looking rather more active than usual. One day vol came in at 40% against 33.08% for the month, whilst CMC’s diversified proprietary index of major cryptos printed 43.94% on the day compared with 36.94% on the month.
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