It’s been another challenging day for markets in Europe with concerns over a global economic slowdown once again driving sentiment, which in turn appears to be driving a move into bonds, pushing yields lower.
Despite these concerns, after an initially weak start to the day, we’ve spent the afternoon session pulling off the lows, with the DAX, CAC40 and FTSE100 all looking to close the day in positive territory.
The latest German ZEW survey for June was a shocker, with the expectations index falling sharply to -53.8, below the March 2020 pandemic lows, and matching the lows seen back in December 2011 at the height of the sovereign debt crisis.
The weakness of this survey speaks to huge pessimism on the part of investors as to the effect sky high gas prices might have on the German and wider European economy as we head into winter, with the euro sinking back to parity, and a new 19 year low, before it too rebounded.
Commodity prices are also reflecting concerns over economic weakness with oil prices once again under pressure, which in turn is translating into broader weakness in the basic resources and energy sector, with the likes of BP, Glencore, Anglo American and Shell acting as a drag.
We’re also seeing weakness in commercial real estate after RBC downgraded British Land, Land Securities and Hammerson due to concerns over a deteriorating economic backdrop.
These concerns are once again being reflected by resilience in the traditional safe havens of utilities and health care, with Centrica and SSE building on their rebounds yesterday, while airlines have also rebounded led by IAG.
Today’s rebound by IAG is a little counterintuitive, given the British Airways owner had been under pressure in the morning session after Heathrow Airport asked airlines to halt summer ticket sales due to its inability to cope with existing demand. The turnaround came about as a result of US airline American Airlines reaffirming its outlook for Q2 sales, despite the various problems facing the sector, and which gave a brief lift to other US airlines.
It’s been a mixed open for US markets, with the Nasdaq 100, Dow and S&P500 all treading water ahead of tomorrow’s CPI report, and the start of earnings season on Thursday, with JPMorgan Chase Q2 numbers.
Shares in electrical vehicle and blank check company Canoo have seen a big uplift after the company secured a deal with Walmart to supply 4,500 delivery vans. The vans are expected to come into service in 2023.
Sector peer Rivian is in the news as well on reports it plans to cut hundreds of jobs, as it looks to cut costs as well as ramp up its delivery schedule. Last week the company said it had delivered over 4,400 vehicles in Q2, up sharply from the numbers in Q1. Despite the improvement it still leaves the company well short of its 25,000 target for this year, with the company needing to produce up to 20,000 vehicles in H2.
American Airlines is higher after reporting that it expected Q2 sales to come in line with expectations, and that total revenue would be 12% above 2019 levels, although costs are also expected to be higher. Southwest Airlines is also higher after being on the end of a broker upgrade.
It’s been a mixed day for the US dollar, with the Japanese yen getting a bit of a bid from haven flows slipping back below 137.00 after posting a short-term peak at 137.75 yesterday.
The euro once again made a new 19 year low briefly touching parity against the US dollar before rebounding, while the pound also came under pressure hitting a fresh 26 month low against the US dollar before also trading off its lows.
Crude oil prices have remained under pressure after the head of the IEA Fatih Birol said that he expected the squeeze on global energy supplies to get worse. Birol said that the whole global energy system is in disarray and that the outlook for Europe will probably get a lot worse with the onset of winter.
Copper prices have also continued to slip back, down for the third day in a row, however they are still above the lows earlier this month, while other industrial metals are also under pressure, including palladium, platinum, and aluminium.
UK natural gas prices have jumped sharply today after a supply outage in Norway contrived to push prices up by over 15%, while rising demand due to hot weather is helping to underpin prices.
Gold continues to lag in the face of the higher US dollar, despite lower yields.
US listed stock in Chinadata Group Holdings came under sustained pressure during yesterday’s session, dropping back around 15% on the day. The company has previously been flagged for its significant concentration risk towards TikTok parent Bytedance so renewed moves by US regulators to oust the app from popular platforms may be taking a toll here. Daily vol advanced to 171% against 130% on the month.
European car manufacturers may have seen a positive finish at the end of last week, but the reality of an impending recession, higher borrowing costs and increased input costs resurfaced yesterday with losses being seen across the sector. As a result, activity was marginally elevated in CMC’s proprietary basket of EU Automobile shares with the underlying falling by 3.4% and reversing all of Friday’s gains. Daily vol stood at 54.47% against 53.58% on the month.
The rollercoaster ride continues for Lumber, with the underlying price selling off sharply in the first few minutes of trade before plotting a recovery course over the session. The instrument is continuing to struggle to establish fair value, daily vol sat at 172% against 150% on the month.
Elsewhere, activity across other asset classes remains relatively subdued. Daily crypto vol is printing below the monthly reading, it’s a similar story for indices where only the South Africa 40 is showing marginally higher vol, whilst in fiat currencies it’s the US Dollar/Norwegian Kroner trade that stands out, with daily vol of 19.36% against 18.58% on the month.