We’ve seen a broad-based rebound in European markets today, with the FTSE 100 back above 7,500 driven by a recovery in banks and energy. We’re also seeing decent gains for European banks, led by UBS, UniCredit, Commerzbank and Deutsche Bank.
Europe
Today’s rebound in the banks appears to suggest we may have found a short-term base, as confidence slowly returns after the volatility of the last few days and yields rebound, after the big losses from last week. Among the best performers we’re seeing strong gains from the likes of NatWest Group, Barclays, and Lloyds Banking Group. A rebound in oil prices is also helping to drive gains in BP and Shell, as fears over a banking crisis ease.
Rolls-Royce shares are higher on reports it has signed a memorandum of understanding with Finland’s Fortum to explore opportunities to deploy small modular nuclear reactors in Finland and Sweden.
B&Q owner Kingfisher shares initially popped higher earlier today, before turning lower, despite reporting a smaller than expected fall in full year pre-tax profits of 39% to £611m, while revenues also declined modestly to £13.08bn. The fall was driven by higher costs and discounting which ate into margins, which fell to 36.7%, a decline of 70bps. In Q4 total group like-for-like sales came in flat, indicating a more cautious consumer, however in the Q1 numbers so far there has been evidence of a pick-up with modest gains of 0 5%.
The statement showed that profits declined across all their businesses, with UK and Ireland seeing a 24% drop in reported profits with quarterly sales seeing notable drops on an annual basis, although the Screwfix business did see a pickup in sales of 4.9% during Q4, unlike B&Q which saw sales decline every quarter. On the outlook for 2023/2024, Kingfisher said Q1 has got off to a good start across all its regions, although the French business was being impacted by strike action. Management also warned of the impact of the poor weather in March which could impact the sales numbers.
Miners are also underperforming on the back of weakness in metals prices, with Fresnillo and Endeavour Mining at the bottom of the FTSE 100.
US
US markets have taken their cues from the rebound in European banking shares, opening sharply higher led by the banking sector, with the likes of JPMorgan Chase and Goldman Sachs leading the Dow.
Talk that the US government could be set to expand its deposit insurance scheme has given the sector a lift with First Republic Bank rallying strongly, while the likes of New York Community Bancorp, PacWest Bancorp also seeing solid gains, as confidence grows that the worst of the crisis may well be behind us.
Tesla shares are also outperforming after being on the end of an upgrade from Moody’s, out of junk status territory, and into investment grade.
After the bell, Nike is reporting its Q3 numbers with the reopening of the Chinese economy expected to offer a welcome boost to sales. In Q2 sales in China fell by 3%, which was a vast improvement on the 16% decline in Q1. Profits are expected to come in at $0.53c a share with close attention likely to be on inventories which were at a lofty $9.3bn in Q2.
FX
The euro has pushed up to its best levels in over a month, as fears over a banking contagion into Europe’s banking sector ease, and traders focus on tomorrow’s US rate decision, and the possibility that the Fed might hit the pause button. Given the shift that we’ve seen over the past couple of days it would be a very risky strategy for the Fed to pause at this stage, having leaned so aggressively towards some sort of hike only two weeks ago. It would also raise the question as to why they are pausing given that the recent turmoil appears to be easing. Optics are everything and anything other than a 25bps tomorrow, would signal that the central bank has further concerns about what is going on under the hood.
The pound is underperforming a touch after public sector borrowing came in higher than expected for February, rising to £16.7bn even as the tax revenue surplus in January was revised higher to £8.3bn from £5.4bn. With the latest CPI inflation number due tomorrow, we could also be seeing some pound profit taking, ahead of the prospect of a softer number, and the possibility of a rate pause from the Bank of England on Thursday.
Commodities
Gold prices have continued to slide back, with the continued rebound in yields ahead of tomorrow’s Fed meeting putting downward pressure on prices. The bigger question for gold bulls will be how the FOMC guides when it comes to further rate rises, if it does raise rates tomorrow.
Crude oil prices have continued to recover, rebounding from the 200-week SMA, and a 15-month low yesterday, as concerns about a banking crisis causing an economic slowdown to recede.
Volatility
Banking stocks again headlined on Monday although in most cases those early – and significant - losses were typically recovered by the closing bell. Banco Santander was one example here, dropping around 6.5% in early trade before staging a recovery to close almost 3% higher. One day vol sat at 151.37% versus 69.61% on the month.
Oil prices tested fresh recent lows once again in the week’s maiden session, with WTI crude coming close to the $64 level before recovering as a degree of stability appeared to grip the bank sector. One day volatility here printed 63.04% against 42.36% for the month.
Speculation as to what the Fed will do at the latest policy meeting which kicks off today appears to be driving price action on the Yen, as any hints of a change in pace could leave investors looking for an alternative home for funds. That has been lending support to the Yen across the board, with the upside looking particularly pronounced on the Australian Dollar cross. One day vol on Aussie Yen landed at 20.43% against 14.35% for the month.
Cryptos continue to calm with Bitcoin easing back from recent highs but remaining significantly elevated on the year at around the $28,000 level. One day volatility against the greenback printed 58.42% compared with 54.24% on the month, although price action remained more elevated across some of the altcoins, with Solana coming in at 133.54% on the day and 86.89% on the month.
