European markets have a much more positive vibe today, despite all the noise around further Russian escalation as they struggle to make inroads into Ukrainian territory.
Europe
The recovery in Hong Kong markets over the past few days, along with rising yields appears to be acting as a tailwind for HSBC and Standard Chartered, along with Prudential, all of whom do a large amount of business in the region. We’re also seeing decent gains for NatWest Group and Lloyds Banking Group.
The DAX is outperforming led by Deutsche Bank, with the FTSE100 lagging.
JD Sports is also doing well as a result of a positive read across from Nike results last night, while the rise in yields is helping banking stocks
B&Q owner Kingfisher full year results have seen the business report record revenues and profits for its latest fiscal year. A 33.1% rise in statutory pre-tax profits of just over £1bn, comfortably beat expectations of £950m, while sales rose 6.8% to £13.18bn.
Despite various covid related closures over the last 12 months, most areas of the business performed well, with UK, Ireland, and the France business standing out with strong increases in profits, though its notable most of the heavy lifting, revenues and profits wise was done in Q1. When you look at the second half of the year like for like sales declined in both quarters, and are set to do so again in Q1, and it is this trend that may well be behind the share price decline today.
It is also notable that its businesses in eastern Europe, saw profits collectively decline by 5.8%, with Poland and Turkey particularly disappointing.
In terms of the outlook for 2023 like for like sales are down 8.1% from last year, however last year’s Q1 performance was exceptional, so comparisons aren’t particularly valuable, although on a 2-year basis, sales are up 16%. Nonetheless management were cautious about the coming year citing heightened macroeconomic and geopolitical uncertainty, with the shares slipping to the bottom of the FTSE100.
Also under pressure Oxford Nanopore slid back after posting a bigger than expected loss of £166m, due to higher costs, part of which were down to the recent IPO. In terms of revenues the picture was much more positive with revenues rising 17% to £133.7m, while the company also raised its guidance.
US
Against a backdrop of yet more Fed hawkishness, this time from St. Louis Fed President James Bullard, following on from chairman Powell yesterday, we’ve seen US bond markets lose further ground today. This has help push yields to fresh 2 year peaks, as the drumbeat of faster and quicker rate hikes gets ever louder, and markets start to price in the possibility of a Fed funds rate of over 2% by year end.
Despite the increase in yields, US markets have shrugged off yesterday’s modest decline, opening higher, with the Nasdaq 100 pushing up to one-month highs, and above the levels seen prior to the Russian invasion of Ukraine.
The relative insouciance of equity markets to rising yields could well be the perception that the Fed still has plenty of room to get the Fed funds rate back to their pre-pandemic levels of 1.5% to 1.75%. This may help explain why a 50bps hike in May is, along with another rise is being received fairly calmly.
Alibaba shares have opened strongly higher after the company announced it would be increasing the size of its share buyback program from $15bn to $25bn, effective over a two-year period ending March 2024. Earlier this month the shares hit their lowest levels since July 2016, but have rallied strongly since then, although they are still down over 50% from their peaks in the middle of last year.
There was some concern as to whether Nike would be able to meet expectations on its Q3 results due to the slowdown in China and the announcement it was pulling out of Russia earlier this month. Investors need not have worried, notwithstanding the fact the shares have fallen over 20% from the highs seen in December. Revenues came in at $10.87bn, helping to generate profits of $1.4bn or $0.87c a share, beating expectations of $0.71c a share. Its North American market proved to be the main dynamic behind the better-than-expected numbers, however inventory problems meant that the company wasn’t able to perform even better even though its Vietnam factories are now fully operational, with last night’s numbers pushing the share sharply higher in early US trade.
Adobe will be posting its Q1 numbers later today, with the shares down sharply since the start of the year, despite reporting record revenues and profits in 2021. In Q4 the company reported record revenue of $4.11bn, pushing total fiscal revenue to $15.79bn, a rise of 23% year on year. Its guidance proved to be its Achilles heel with the company predicting a slowdown in revenue growth. For Q1 the company said it expected to see revenues of $4.23bn, and EPS of $3.35c a share, while on a full year basis revenues are expected to rise to $17.9bn.
FX
The US dollar has moved sharply higher over the last 24 hours, on the back of last night’s comments from Fed chair Jay Powell, with the greenback hitting its highest levels against the Japanese yen in over 6 years, above 120.00.
The pound has also continued to move higher ahead of tomorrow’s CPI numbers for February and which are likely to see inflation hit 6%, and another 30 year high. Nonetheless better than expected tax revenues year to date should give the Chancellor room to mitigate some of the worst effects of the sharp rise we’ve seen in energy prices these past few months and limit the damage to the UK economy.
Commodities
Brent crude oil prices edged up towards their highest levels in almost 2-week highs earlier today, however, have since slipped back as it becomes apparent that the EU remains some distance away from agreeing on any sort of sanctions on Russian oil imports.
With the rise in treasury yields and the firmer US dollar, gold prices have drifted lower. The weaker tone also chimes with a more positive vibe in US equity markets, which has seen the Nasdaq 100 lead the way higher.
Volatility
The tragic news from China yesterday of a passenger plane crashing into mountains saw Boeing’s share price come under significant pressure, driving price action in the company’s stock. Daily volatility hit 161%, up from 101% on the monthly reading as a result.
Lumber prices remain in focus too, with fresh downward pressure emerging here as the underling fell by almost 6% on Monday. That, in turn, served to push daily vol out to 323% against a monthly print of 213%, but with prices still significantly elevated from pre-pandemic levels, assuming we see further supply normalisation here then it’s likely to remain an active play.
Sticking with commodities, Cotton also served as an interesting play with the underlying surging to 10 year highs off the back of drought fears and eclipsing levels seen earlier in the year off the back of those distribution issues in India. That left daily vol at 60% against 38% on the month.
Fiat currencies looked rather subdued, but in terms of cryptos it was Etehereum Classic that was a true stand out, with daily vol advancing to 522%, up from 142% on the month as the altcoin continued to soar in value. The underlying has tacked on 50% over the last week.
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