It’s been a solid start to the month for European markets with gains across the board as weaker economic data, and a slide in yields raises the prospect that central banks may well be done when it comes to further rate hikes
Europe
Nonetheless after such a poor October performance for stock markets more broadly, what we may be seeing here is nothing more than a relief rally, although it’s no less welcome for that.
The turnaround plan at GSK appears to be progressing with the pharma giant reporting a 10% increase of Q3 sales to £8.15bn, smashing expectations of £7.77bn, while reporting a 6% increase in adjusted operating profits of £2.77bn. This outperformance has seen GSK upgrade its full year guidance on turnover to between 12% to 13% from 8-10%. Adjusted operating profit growth has also been upgraded to between 13-15%, from 11-13%. Despite this the shares gave up their early gains and slipped to the bottom of the FTSE100 with some blaming underperformance from its Shingrix vaccine.
UK retailer Next has once again come out with an upbeat trading statement, with Q3 full price sales rising 4%, and raising its guidance for the 4th time this year, this time raising its profit before tax to £885m from £875m, while also upgrading its full year sales guidance to an increase of 3.1%. This has helped give a lift to the likes of Marks and Spencer which has also been performing well this year, and Primark owner Associated British Foods.
ASOS on the other hand has seen its shares slide to 3-month lows after reporting a full year loss before tax of £296.7m, and a 10% decline in full year revenue to £3.55bn, while offering a weak outlook for 2024. The retailer said that it sees a sales decline of between 5% and 15%, with sales activity expected to pick in the second half of 2024.
Another profits warning from Aston Martinhas seen the shares plunge to 8-month lows after cutting its outlook for annual deliveries, on the back of today’s Q3 results. Q3 revenues have seen an increase of 15% to £362.1m while vehicle deliveries are up 2% to 1,444. Gross profits increased to £134.5m, with pre-tax losses narrowing to -£48.4m, pushing year to date losses to -£135.2m. Aston Martin said that demand for the DB12 has been strong, however the company cut its full year delivery target by 300 to 6,700 vehicles, blaming supply chain issues, now resolved, for the shortfall. Demand in China was also weak during Q3.
BP shares have underperformed after yesterday’s Q3 profits miss after JPMorgan downgraded its expectations for Q4 income, while Shell’s have edged higher on the back of the rise in the oil price.
In another blow to the renewables sector Danish wind farm company Orsted has seen its shares plunge after scrapping its wind power project in New Jersey in the US and taking a $4bn write down in the process. Following on from a similar decision by Siemens earlier this year this underlines the challenges facing large scale renewables projects and is the truth that dare not speak its name. Building wind farms is very resource intensive and very expensive and certainly not as cheap as disingenuous windbag politicians would have you believe. If only we could harness the wind coming out of our political overlords!
US
US markets have opened modestly higher taking their cues from a positive European session, and the latest ADP payrolls report which came in weaker than expected at 113k. This is the second time in as many months we’ve seen ADP come in short of expectations, however as a leading indicator for this week’s Friday’s non-farm payrolls report its about much use as a chocolate teapot, given that NFP last month posted a bumper 336k.
We also saw a weaker than expected ISM manufacturing report for October which slowed to 46.7, with prices paid that stayed weak while employment fell to 46.8.
These weaker economic numbers will be welcomed by the Federal Reserve later today as evidence that the US economy is slowing and that a pause is appropriate, and that we could well be done as far as further rate hikes are concerned.
Chipmaker Advanced Micro Devices are in focus after reporting Q3 revenue of $5.8bn and profits of 0.7c a share both of which beat forecasts, however a weak Q4 forecast initially acted as a drag on the shares in the premarket, however this weakness proved short lived, with the shares opening higher. The company said that it expected to see revenues come in between $5.8bn and $6.4bn, which was below forecasts of $6.37bn, citing weaker demand for gaming consoles, which won’t be enough to offset the strong growth being seen in data centres.
WeWork shares have plunged in early trading on a report that it plans to file for bankruptcy again, as soon as next week.
FX
The US dollar has weakened modestly in the wake of the latest ISM manufacturing report, which came in softer than expected on all its components, while September JOLTs job openings came in at 9553k.
The Japanese yen has rebounded modestly after the Bank of Japan bought bonds in an unscheduled operation to curb rising yields after lifting the cap on YCC to 1% yesterday, in a move that is reminiscent of the little Dutch boy who tried to plug the leaky sea wall with his finger.
Commodities
Having started the week on the back foot crude oil prices appear to have found a little bit of a base and are on the up again today, however despite today’s advances today’s economic numbers from the manufacturing sector continue to point to a weak demand outlook, which could limit the upside absent any escalation from the Middle East.
Gold prices are seeing a modest rebound after two days of declines with a retreat in yields and a slightly softer US dollar giving it a lift.
Volatility.
BP reported quarterly earnings on Tuesday, and these came in some way below expectations with weak gas trading results being seen as the driver. The stock sold off by around 5% as a result, moving one day vol up to 79.89% against 41.31% for the month.
A shortfall in Chinese manufacturing for October served to knock sentiment in the country’s tech sector yesterday. That was evident in CMC’s proprietary basket covering the US listing of 10 constituents from the cohort including Alibaba and Weibo. Losses did exceed 3% at one point, although around half of that was recovered by the close. One day vol stood at 48.3% against 38.85% for the month.
The Yen remained an active trade in terms of fiat currencies following that less expansive tweak in YCC policy by the Bank of Japan compared to what many had expected. That was sufficient to propel Euro-Yen out to fresh 15-year highs, with one day vol on the cross of 11.33% against 7.08% for the month.
And that weakening of the Yen also served to drive the Nikkei 225 meaningfully higher. The equity index is still some way below the levels seen back in the summer, but momentum is being sustained for now. One day volatility printed 25.31% against 20.11% for the month.
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