European markets have seen another positive session today, and unlike yesterday we look set to hold onto the gains
Europe
The weaker US dollar is giving commodity prices a lift, helping to underpin the basic resources and energy sectors, pushing the likes of Glencore, Rio Tinto, Shell, and BP to the top of the FTSE100.
Catering group Compass is amongst the best performers on the FTSE100 today after reporting H1 numbers that came in ahead of expectations. As well as beating on current trading the company upgraded its full year outlook. H1 revenue rose 37.9% to £11.6bn, driven by new business wins of £2.5bn. The company also upgraded its full year revenue guidance to 30% from 20% to 25%, while announcing a £500m share buyback.
We’re also seeing some solid gains in the travel and leisure sector after TUI reported a big pickup in Q2 revenue of €1.9bn, helping to push H1 revenues up to just shy of €4.5bn, compared to €716.3m a year ago. This improvement meant that losses shrunk to €708m, from €1.5bn a year ago.
Management expressed confidence of a strong summer, with volumes already at 85% of 2019 levels, with the company confirming its full year outlook, and saying it expects to return to profit by the end of the year.
ITV shares have edged higher; however, the move has been underwhelming despite reporting a solid increase in revenues across all of its businesses. During Q1 the company said it had seen a 23% rise in revenues for ITV Studios and a 16% increase in total advertising revenues, while digital revenues rose by 24%. Guidance, however, was more subdued for Q2, with a 6% decline in advertising revenues expected due to tougher comparatives from last year which were boosted by the delay to Euro 2020, with June revenue expected to be down 15% from the same period a year ago.
On the digital side, while revenues were up 24% to £82m, total streaming hours fell 7% to 247m, reinforcing the wider trend that consumers are becoming more discerning about what they watch as we come out of the pandemic.
All in all, today’s update while a decent one, does little to inspire confidence that ITV has a clear strategy when it comes to its digital offering, and certainly doesn’t inspire confidence that it can reach its target of £750m of digital revenue by 2026.
US
US markets initially started the session lower, after US CPI didn’t cool off as much as expected in April. Core prices slipped back to 6.2%, while headline prices fell to 8.3% from 8.5%.
The increases in prices in other areas of the economy suggest that pricing pressures are much more widespread than just in energy, raising concerns that it may take a little longer to get under control, with the one silver lining being it didn’t increase from March.
These concerns about more persistent inflation have weighed on the Nasdaq 100 which is lagging, although the S&P500 and Dow have recovered into positive territory.
With the slide in the Nasdaq over the past few months, cryptocurrencies have also come under pressure putting a wholesale cohort of crypto adopters underwater.
This has had a corrosive effect on cryptocurrency turnover if today’s Coinbase numbers are anything to go by and has seen the share price drop another 20% today.
Since the record peaks in October last year the shares have slide over 75%, despite a decent end to the year in Q4, back in February when revenues beat expectations, rising to $2.5bn, however this wasn’t enough to stop the rot, amidst concern over revenue sustainability.
These sustainability concerns were realised after the closing bell yesterday as Q1 revenues slid to $1.17bn, well below expectations of $1.48bn, and well below last year’s $1.8bn.
The company also slid to a loss of $430m, with the shares sliding to new record lows. Weak guidance for Q2 hasn’t helped sentiment either with transaction and trading volumes declining, along with cryptocurrency valuations.
As we look ahead to today’s numbers, investors will be looking to the Q2 results from Disney, and Q1 numbers from Rivian when they report after the close.
FX
The US dollar has slid back across the board today despite today’s hotter than expected CPI numbers. When the numbers were released the US dollar did initially spike higher, however traders took this as an opportunity to scale out of their long positions ahead of tomorrow’s US PPI numbers.
While there was some disappointment that the inflation numbers were slightly hotter than expected, the fact we saw a decline from last month doesn’t appear to change the calculus that we’ll see another 50bps rate hike in June. If the CPI numbers had come in higher there might have been a concern that the Fed might be tempted to pull the trigger on 75bps.
This scaling out of US longs has been much more notable in the likes of the commodity currencies of the Australian and New Zealand dollar where positioning has been more extreme.
The euro has underperformed despite some heavy hints from ECB President Christine Lagarde that have been interpreted as a sign that the ECB could hike rates at its July meeting. This still seems a stretch given that in her comments she said that a rate hike would happen weeks after the end of net asset purchases in Q3. Given that the July meeting will be the first meeting in Q3 one can’t help feeling that markets could be jumping the gun on this. The June meeting is likely to give us a better steer on this.
Commodities
Oil prices have remained choppy with prices rebounding strongly today from two-week lows as uncertainty remains about the timing of an EU ban on Russian oil imports.
Currently the ban is being delayed over concerns by some eastern European countries led by Hungary on the impact on their economies. These countries are requesting more time to migrate to alternative sources, and this uncertainty is prompting increasing choppiness as oil traders look to test the upper and lower boundaries of the recent ranges.
Despite a slightly hotter than expected US CPI reading Gold prices have rebounded from three-month lows, largely down to the weakness of the US dollar, which has seen some scaling out of positioning ahead of US PPI, which is due tomorrow. Tomorrow’s PPI report should give us a much better indication of whether we are close to peak inflation in the US.
Volatility
Connected fitness company Peloton saw its shares thrust back into the spotlight yesterday off the back of its disappointing quarterly earnings release. Losses for the period were bigger than expected and management cautioned that the company was thinly capitalised. The stock is down more than 90% from its late 2020 highs, but the scale of the initial sell off yesterday was sufficient to encourage some bargain hunting. Daily vol came in at 480%, well up from the 227% on the month.
Sticking with single stocks, Chinese tech shares have been in the spotlight, especially those in the e-commerce space where dual threats posed by both a risk of US delisting’s and slowing domestic economic growth are leaving investors struggling to find support. Both JD.com and Country Garden saw their share price test recent lows yesterday before attempting to rally. Daily vol on JD sat at 385% against 194% on the month whilst Country Garden posted 294% against 154%.
Perhaps no surprise that this has spilt over into the Hong Indices as a result, with the Hang Seng printing daily vol of 71% against 39% on the month, whilst the city’s benchmark index of Chinese stocks came in at 105% on the day and 51% on the month.
In fiat currencies, the Turkish Lira slumped to fresh lows for the year against the greenback after Ankara published new rules in a bid to avoid large price swings. There’s a degree of irony that this has served to exacerbate volatility as a result, but the daily print on Dollar – Lira advanced to 23.67% some two and a half times higher than the 9.27% seen for the month.
And activity across all crypto assets remains elevated too, with a choppy day of trade for bitcoin leading the way, delivering daily vol for the benchmark of 118% against 59% on the month.
