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China travel move lifts Europe, as US CPI points to Fed pause

It’s been another positive session for markets in Europe, although the FTSE100 has underperformed against its European peers due to over 10% of the index going ex-dividend, including the likes of AstraZeneca, Rio Tinto, Shell, NatWest, Barclays, BP, and HSBC, which has served to knock over 30 points off the index.

Europe

The announcement by China to end its ban on overseas travel groups to other countries has also helped boost travel, leisure, and the luxury sector, especially the CAC 40, with LVMH, Hermes, and Kering, getting a lift along with Burberry in the UK. 

On the plus side, house builder Persimmon shares are getting a lift despite see a sharp fall in completions from the same period a year ago. These fell from 6,652 a year ago to 4,249 as total group revenue fell to £1.19bn from £1.69bn.

Underlying operating margins fell from 27% to 14% translating into a sharp drop in profits to £151m. While group average selling prices were higher, Persimmon said that demand has slowed from a year ago and that it is has reduced headcount by 300 in the last 6 months with a few to making more headcount reductions as it looks to save £25m. Average private sales came in at 0.59, while cancellation rates weren’t showing signs of distress yet, while forward sales were steady with the housebuilder saying it was confident of meeting its target of selling 9,000 homes this year.

Betting company Entain shares are slightly higher after reporting a 14% rise in H1 net gaming revenue of £2.4bn, while posting an underlying pre-tax profit of £287.6m. The company also said it was taking a £585m charge on respect of the probe by HMRC into its Turkish business, pushing it to a loss after tax of £502.5m. On the outlook Entain kept its full year guidance unchanged.

Deliveroo shares have edged higher after reporting a 5% increase in H1 revenues, to just over £1bn, despite a 6% decline in orders. Despite lower orders Deliveroo has managed to deliver a 10% improvement in GTV per order to £24.20, while boosting gross profit to £365.1m. Losses narrowed to £82.9m from £153.8m a year ago. Deliveroo also raised its full year adjusted EBITDA guidance from £20-£50m to £60-£80m.  

US

US markets opened higher after US CPI for July saw a lower-than-expected rise to 3.2%, and core prices slipped back to 4.7%, increasing expectations that we’ve seen the last of the Fed rate hiking cycle. With the shelter component stripped out there are increasing signs of little, to no inflation at all, in the US economy.

If Disney’s Q2 numbers were any guide the Disney+ streaming operation appears to have hit a critical mass when it comes to subscriber additions, losing 4m over the quarter. This trend continued in Q3 with the loss of another 11.7m users, falling to 146.1m, taking the total loss of subscribers since the end of last year to 18.1m. The only segment to add users over the quarter was Hulu which added 200k subscribers, although it was notable on the Disney+ business when the India Hotstar business was stripped out, Disney+ added 800k subscribers during the quarter. 

Q3 revenues came in at $22.33bn, which was a solid increase on the same quarter a year ago, while profits fell to $1.03c a share. The revenue improvement was entirely driven by its parks division which saw revenues rise to $8.3bn over the same period last year. Its entertainment division saw revenues decline from $14.36bn to $14bn.

The streaming business saw losses narrow to $512m, as higher prices helped boost revenue to $5.5bn, however operating expenses across both businesses rose by the sum of $927m.

To deal with rising costs Disney has taken the decision to increase its prices again, by as much as 20% from October to better monetise the service. The risk here is that this will prompt further subscriber cancellations with Disney+ set to rise to $13.99 a month. The costs of the ad-supported versions won’t change.

Alibaba shares opened higher after beating forecasts on Q1 revenues and profits. Revenues came in 14% higher at RMB234.15bn, with strong growth in international commerce retail jumping 60% to RMB17.14bn, however its cloud business was disappointing, only seeing 4% growth year over year, while the domestic e-commerce business performance was also underwhelming, revenues rising by 12%. Nonetheless profits were solid coming in ahead of forecasts at RMB17.37, on the back of a better handle on costs. JD.com and Tencent shares are also higher.

FX

The US dollar has come under pressure today after the latest US CPI inflation numbers came in on the softer side of expectations, with headline CPI edging slightly higher to 3.2% and 0.2% month on month, while core CPI slowed to 4.7%.

With weekly jobless claims edging higher to 248k, there is nothing in today’s economic numbers to suggest that another rate hike is coming, with yields drifting lower, giving a lift across the board to the likes of the Australian dollar, euro, and the pound.

This weakness in the greenback could gain further traction tomorrow if July PPI numbers exhibit similar benign inflationary tendencies.   

Commodities

Despite pushing up to a fresh 9-month high crude oil prices have retreated a touch after some strong gains so far this week, as future expectations of H2 demand continue to increase. According to OPEC data productive output could see a 2m barrels a day deficit during Q3 as Saudi cuts continue to bite. The cuts have prompted criticism that rising oil prices could cause demand destruction in the coming months, with the risk that they could trigger a new slowdown, especially if demand in China picks up, and pulls prices up through $90 a barrel.

Gold prices have reacted to the weaker US dollar, and CPI print by edging off the one month lows we saw yesterday.

Volatility

US Natural Gas prices leapt to a five-month high on Wednesday as the sustained period of hot weather continued to drive demand for energy-intensive cooling services. One day volatility printed 72.36% on the day, up from 48.07% on the week, with the pattern being repeated across oil distillates, too. EIA data showed a bigger than expected draw on reserves and US Heating Oil prices have been rallying noticeably since mid-session on Tuesday. One day vol stood at 38.07% against 31% for the month.

CMC’s proprietary basket of licensed Cannabis growers gave back some of the week’s earlier gains on Wednesday, ensuring that price action remained elevated as a result. Regardless, prices remain around the summer’s highs with one day vol coming in at 107.95% against 99.5% for the month.

The Italian government scaled back the extent of windfall taxes it had threatened to levy on the banking sector, news that gave a lift to Italy’s benchmark equity index. The underlying added 1.3% on the session, pushing one day vol to 19.77% against 16.06% for the month.

CMC’s proprietary basket of gaming stocks also elevated levels of action. Heavyweight constituent NVIDIA struggled as despite aggressive sales order news, there’s concern that the AI-driven gains for the microchip sector could be nearing an end. What’s more, upgrades to an, as of yet unreleased piece of tech, also seem to be unsettling. Sector peer AMD also lost notable ground, with one day vol on the basket coming in at 34.24% against 29.9% on the month.

 


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