Despite a negative start, European markets pulled off their intraday lows, having been dragged back by the late slide in the US yesterday evening.
Europe
The nature of today’s gains was initially cautious and incremental in nature, with the lack of negative drivers and positive earnings updates, helping to give a more positive bias to the day’s price action.
We got additional traction in the afternoon session on reports out of Moscow which indicated that gas flows out of the Nord Stream 1 pipeline would resume as scheduled on Thursday, albeit at a lower capacity. This is welcome news if true, given that earlier today European Commission officials were assuming the pipeline would not restart.
Worries over the longer-term outlook remain as evidenced in weakness in oil and copper prices, but for now the focus is on earnings.
Informa shares are riding high on the FTSE100 after reporting that it expects to resume paying dividends in H1 and reaffirms its full year guidance of revenues at the upper end of £2.15bn and £2.25bn. Adjusted operating profit is expected to come in between £470-£490m, excluding the acquisition of US based Industry Dive for $389m in cash.
Supermarkets have shrugged off this morning’s report from Kantar that put grocery inflation at 9.9% over the past four weeks, perfectly showcasing the squeeze on consumer incomes. On the sales front Tesco was the only supermarket amongst the big four to post a sales increase of 0.1%. Sainsbury’s was next with a decline of -2.2%. The likes of Aldi and Lidl have been the major winners, seeing sales growth of 11.3% and 13.9% respectively.
Also doing well Fevertree shares are up for the second day in a row after sliding to six-year lows last week. The rebound appears to be being helped by Barclays expressing confidence in the longer-term outlook, despite cutting its outlook to equal weight, and slashing its price target to 1,000p, in a move that almost comes across as damning it with faint praise.
GSK spin off Haleon has continued to underperform, after yesterday’s underwhelming stock market debut, as investors continue to ask questions about its valuation at a time when consumer confidence is low and business costs are rising.
US
After a negative finish yesterday on the Apple hiring slowdown, US markets have opened higher, as we look towards some more important earnings announcements.
IBM shares have slipped back despite reporting Q2 revenues that were better than expected at $15.54bn, and profits of $2.39c a share. The declines appear to be as a result of a downgrade to its free cash flow forecast, to the lower end of $10bn, which seems a case of nit-picking, when the range was $10bn to $10.5bn.
Netflix is due to report its latest Q2 results after the bell later today, with a fairly low bar when it comes to expectations. The streaming giant is expecting to see a net loss of 2m subscribers during the quarter after downtrading its expectations from 2m in Q1. Netflix is facing increasing competition from the likes of Disney+, Amazon, and now new boys on the block Paramount+.
FX
The US dollar has come under further pressure today losing ground across the board, with some notable losses against the euro after it was reported that European Central Bank officials were looking to discuss a 50bps rate hike later this week.
The timing of this shift is curious given that 25bps has been widely briefed for weeks, so the sudden change of emphasis given the lack of any real catalyst is a little puzzling. It does seem apparent that there are sizable splits on the governing council on the speed of rate hikes given the high levels of inflation currently being experienced across the bloc. This could merely be a way to boost the euro by jawboning a move higher, while delivering the 25bps hike as promised. Of more importance will be details on progress on a fragmentation tool to deal with sharp rises in Italian yields as rates start to rise. Whether rates go up or not is little more than a sideshow to this.
The pound has also been slightly more resilient after the latest unemployment data showed that hiring in the 3 months to May rose by 296k as the rising cost of living prompted a large-scale return to the workforce. While this is welcome news, it is not having the desired effect on wages that it might be, although we did see a modest rise in weekly earnings from 4.2% to 4.3%. This is still less than half of where headline CPI currently is with an expectation that tomorrow’s June CPI numbers will rise to another record high of 9.3%. Kantar this morning reported that grocery price inflation is at 9.9% which suggests the worst is yet to come. These higher prices will only increase the scrutiny on the Bank of England as it looks to get its act together, with the potential we could see more than a 25bps rate hike when they meet at the beginning of August.
The Australian dollar has also seen gains over speculation that the RBA could be much more aggressive on rate rises in the coming months, after the publication of the latest RBA minutes.
Commodities
Having seen a strong rebound yesterday, on the back of Saudi Arabia’s refusal to agree to unilateral production rises on the request of the US, crude oil prices have slipped back as concerns return to the demand side of the story, and possible recession concerns in Europe.
Weakness in copper prices is also weighing on the basic resources sector, as concerns about growth and demand prompt a pullback after yesterday’s recovery off 18-month lows.
Volatility
The Hong Kong listed manufacturer of heated tobacco products Smoore Group saw volatility in its shares jump on Monday There’s no explicit news behind the move, but with its focus into China, sentiment was rattled going into the weekend break off the back of those Chinese GDP figures. It seems as if some bargain hunting has now been in play with the underlying adding around 5% at one point. Daily vol advanced to 175% against 124% on the month.
Having been subdued for some time, digital assets sprang back to life at the start of the week with Bitcoin enjoying its best day in a month and many other cryptos following suit. Ethereum classic delivered the most in terms of price action, with daily vol standing at 160% against 87% on the month after optimism over new software release continued to lend support to the underlying price.
As for soft commodities, Rough Rice found itself topping the asset class after notable gains yesterday morning. There’s no fundamental news here so this may be attributable to the futures contract expiry at the end of last week. Daily vol however advanced to 108%, up from 48% on the month.
And finally in fiat currencies, the Turkish Lira is topping the board, with the dollar rate testing 17.5 which is seen as something of a technical level. There has been no break higher yet but this is one market participants appear to be mindful of. Daily vol hit 18.21% against 17.28% on the month.
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