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DAX and euro under pressure after IFO survey slips to a two-year low

Gazprom

European markets started the new trading week on a bit of a downswing in the wake of the late sell-off in the US on Friday.

Europe

The early losses soon gave way to a more resilient tone, although the DAX has struggled due to a combination of a dreadful German IFO business survey which slipped to a two-year low and reports that Gazprom has slowed gas flows into the country due to a turbine problem.

These worries over gas flows are one reason why German business confidence has slumped with the head of the IFO saying that the German economy is on the cusp of recession.

Gazprom and turbine problems aside, today’s more resilient tone appears to suggest that the prospect of further economic weakness might act as a catalyst that could prompt central banks to pare back some of their more hawkish rhetoric when it comes to raising rates.

This change of emphasis appears to be helping to translate into a weaker US dollar, as markets weigh up the prospect that we could be nearer to the end of the rate hiking cycle than perhaps was thought to be the case only a couple of weeks ago, as we look ahead to this week’s Fed meeting.

The weaker US dollar is helping to act as a positive catalyst for commodity prices, which are slightly higher, helping to boost the likes of Anglo American and Glencore, thus helping to support the FTSE100. We’re also seeing UK banks ticking higher ahead of their Q2 numbers later this week, led by Standard Chartered.

Ryanair shares have jumped to one-month highs after reporting a Q1 profit of €170m on revenues of €2.6bn. The airline carried 45.5m passengers during the quarter, compared to 8.1m a year ago, with a load factor of 92%. Operating costs also jumped sharply to €2.38bn, while fuel costs have been 80% hedged for the current fiscal year.

As far as the outlook is concerned there was caution over what a resurgence of covid might mean in the Autumn, and especially H2, which the airline said was traditionally loss making. Full year traffic for full year 2023 is expected to rise to 165m, a rise of 11% from pre-pandemic levels.

Vodafone’s Q1 numbers have been greeted with relative indifference after the telecom giant reported a 1.6% rise in total revenue to €11.28bn, up from €11.1bn a year ago. Its German business saw a revenue decline of 0.5%, however this was offset by a decent performance from its UK market.

US

US markets initially opened higher but have struggled for traction in what is set to be a big week for several key constituents of the Nasdaq 100, as well as the start of this week’s Federal Reserve rate meeting which gets underway tomorrow.

Apple is in the news on reports that it is discounting its iPhone 13 Pro in China, its top tier phone for the next few days, as we look towards this week’s Q3 numbers. This seems a strange move for a company that has never traditionally offered discounts on its products, and perhaps suggests that sales in China have struggled or are struggling to gain traction.

Snap shares are down again today in the wake of the big falls on Friday, after being on the receiving end of a downgrade from Morgan Stanley. The slowdown in advertising revenues is translating into some nervousness that we could see similar weakness in this week’s quarterly numbers from Alphabet and Meta Platforms

FX

The weaker US dollar is helping to see a rebound in the likes of the pound; however, trading is somewhat messy heading into the rest of the week. The euro has found upside constrained on the back of this morning’s disappointing IFO survey, as well as reports that Gazprom will have to slow gas flows due to a turbine problem at its main compressor station in Nord Stream 1.

The Canadian dollar and Norwegian krone are slightly firmer on the back of a firmer oil price.  

Commodities

The weaker US dollar is helping to support a rebound in the oil price; however the upside continues to be limited by the shadow of this weeks Fed meeting.

 


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