After yesterday’s losses, European markets have seen a modest rebound, with the energy sector lagging on the back of the pullback in oil prices, and which has seen Brent crude prices slip back below $80 a barrel, after a surprise build in weekly inventory data.
Europe
The FTSE 100 has once again outperformed, probably helped by weakness in the pound, as well as being led higher by the pharma sector and AstraZeneca, after the company announced it would be exercising its option to fully acquire Caelum Biosciences for $150m, with the potential for further payments of $350m, as the pharma giant looks to consolidate its position in treating amyloidosis, which is a build-up of protein deposits in vital organs.
The Next share price hit a record high today after the retailer reported half-year results that were better than expected, as well as raising its full-year guidance for the fourth time this year, having done so for the third time in July. Full price sales for the last eight weeks rose 20%, well above expectations, while for the whole period the company saw an 8.4% increase in sales compared to 2019.
This outperformance has seen profits before tax rise by 5.9% to £347m, compared to 2019 levels, prompting management to upgrade full year guidance up to £800m, from £764m, although this did come with a caveat, that some areas of its business were coming under pressure from rising costs, and staff shortages which might affect its delivery services in the lead-up to Christmas.
Next’s numbers have given a modest lift to the retail sector with Zara owner Inditex higher, along with H&M and JD Sports.
The more defensive utilities sector has underperformed today, while the wooden spoon has gone to Royal Mail, whose shares have dropped to their lowest levels since February after UBS downgraded them to a sell, with a price target of 440p, citing rising labour costs as a risk to its margins.
US
US markets have seen a modest rebound after yesterday’s sell off, which is welcome, but it all feels a little bit half hearted, as if investors seem reluctant to go back in. This may have more to do with caution ahead of the end of the month and the quarter, as we gear up for the final quarter of 2021.
Pending home sales for August saw a decent rebound of 8.1%, beating expectations of a rise of 1.4%.
Notable gainers include Netflix, which is near to record highs and getting a boost from optimism over its foreign language content, due to the success of Squid Game, the South Korean gameshow.
Boeing shares are also higher after its China 737 MAX flights were completed successfully.
Electric car maker Lucid Group has seen its shares surge on optimism after it announced it has started production on its new long range electric car, which retails at $169,000.
FX
The US dollar index has cracked above the 94 level for the first time since early November last year, as the tapering narrative continues to dominate sentiment. The gains in the US dollar are coming even though US bond yields have drifted back from their highs this week, and these gains in the greenback are happening across the board, with the New Zealand dollar, and Norwegian krone getting hit the hardest, though the pound isn’t too far behind either.
The pound has taken another dive lower, dropping below 1.3500 against the US dollar, and into negative territory for this year, on the back of concern over a deteriorating UK economic outlook, which appears to be outweighing any support it might have got from the prospect of a tightening of monetary policy. There could also be an element of scepticism that for all the hawkish noises coming from MPC members, the Bank of England will ultimately baulk at a rate rise, especially if the economy starts to struggle because of higher energy prices acting as a brake on consumer demand.
Considering the recent falls in the value of the pound we’ve seen this week, we’ve also started to hear the same comparisons that we heard earlier this year, that the currency was behaving like an emerging market currency, as if volatility in the pound was a new phenomenon for currency traders.
For those of us with slightly longer memories, sterling volatility is not new, we saw bigger swings in the 1980’s and 1990’s, when the pound was pegged to the Deutschemark, and then came out of the ERM. Earlier this year some of the pound’s moves were being described as “neurotic”, when they weren’t really anything out of the ordinary, if compared to recent norms. If recent moves are being described as neurotic now, I’m not sure there’s an adjective available to describe the extent of some of the moves we saw back in the 80’s and 90’s. Not for nothing was the cable trade known as the “widow maker” across London trading floors, during the 1980’s and 1990’s. Today’s moves are small beer in comparison, and really ought to be treated as such, and not hyped up to be something they are not.
Commodities
Crude oil prices have continued to slip back after posting a new three year high above $80 a barrel yesterday. A surprise build in the latest API inventory numbers also helped to act as a drag on prices, while the US dollar continues to go from strength to strength.
Gold and silver prices are also continuing to fall as the US dollar steamrollers everything before it. Silver is getting crushed, falling to its lowest levels this year, trading at levels last seen in July 2020.
US natural gas prices are also 5% lower, although European prices have continued to soar, with another record high today.
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