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European markets tread water in cautious trade

European markets have struggled for direction today, with upward pressure on short term yields serving to act as a modest drag on the markets ability to build solidly on the gains seen yesterday. 

Europe

There still appears to be an abundance of caution when it comes to driving prices higher, in the wake of the turmoil of last week, with outperformance from the basic resources and energy sector offsetting weakness in commercial real estate, helping to keep the FTSE100 in positive territory.

BP is amongst one of the best performers after announcing a deal, along with Abu Dhabi’s ADNOC to finance a joint venture to take a 50% stake in Israel’s NewMed Energy in a move that would look for new natural gas resources in the Eastern Mediterranean. 

It’s been an up and down day for Ocado after the retailer published its Q1 numbers for its joint venture with M&S. There was an initially positive reaction, with the shares jumping 5% however the early gains quickly evaporated despite a rise of 3.4% in sales to £584m, while average orders per week rose 3.6% to 381k.

So, what caused the shares to quickly reverse course and head back towards the 5-month lows seen earlier this month?

Average basket value has remained flat, despite a rise in active customers to 951k, a rise of 13.8% year on year. This trend continues to show that with ever rising prices Ocado customers, like a lot of other retailers, are spending more money and getting less. Consequently, despite the improvement in revenues, Ocado kept its full year guidance unchanged.

It could well be disappointment at this, along with the latest snapshot of the grocery market by Kantar Worldpanel that appears to have sent the shares lower, although at this point one has to ask how much of the bad news is already in the price.

The winners in the supermarket sales stakes according to Kantar have once again been Aldi and Lidl who both saw 12-week sales rise by over 25%, while both Sainsbury and Tesco posted gains of 6.9%. Asda saw sales growth of 7.3%, while Ocado saw growth of 7.6%. Morrisons was the big loser with a gain of 0.1%. Iceland and Waitrose saw a 9.6% and 2.1% spend gain year on year.

With food price inflation now at a new record high of 17.5%, it’s clear that UK shoppers are spending more money for the same products, while the footfall increase at the main grocers suggests that people are shopping around a lot more in order to secure the lowest price.

Today’s numbers have helped to give both the Sainsbury and Tesco’s share price a lift. 

Oilfield services company JohnWood Group shares are lower after reporting a 3.9% rise in full year revenues to $5.44m while losses increased to $356m from $136m the year before. The increase in losses was mainly due to a $542m impairment on goodwill and intangibles. There was no mention in the numbers about the recent bids from Apollo for the business. 

US

After seeing a rather mixed finish yesterday, US markets opened slightly lower today as a firmer rates market serves to limit the upside, with the Nasdaq 100 feeling the effects of firmer rates the most.

On the data front the latest March consumer confidence numbers showed that the recent turmoil on financial markets had received very little cut through, with March seeing an improvement to 104.20 from an upwardly revised 103.40.

Disney shares are in focus after the media giant announced it would be undergoing a cull of 7k jobs. The cuts are taking place mainly in the unit which was developing metaverse strategies. The company is looking to make $5.5bn in savings as it looks to stem losses in its streaming service which is losing billions of dollars as it looks to take the fight to rivals Amazon and Netflix. Most of the cost savings are likely to come from its film and TV business, which is where the low-hanging fruit is likely to be.

The re-emergence of Alibaba CEO Jack Ma in to the public eye appears to have coincided with a new direction for the big Chinese e-commerce company, with the announcement that the business is set to be split into 6 different business units, which specialise in various key areas including e-commerce, cloud, retail and logistics as it looks to boost a share price that has lost over 70% of its value since its 2020 peaks.

Ride-hailing company Lyft shares are also seeing decent gains after the company announced that it is replacing its CEO and co-founder Logan Green with David Risher as speculation grows that it could be put up for sale.

Paramount Global is also seeing some decent gains after BofA upgraded the business while speculation that some parts of the business could be put up for sale.  

FX

The US dollar has continued to come under pressure slipping back for the second day in succession, although the losses are modest in nature.

The pound is getting a bid after recent data showed that shop price inflation has continued to rise, putting pressure on household incomes and keeping the prospect of further rate hikes from the Bank of England very much on the table. Bank of England governor Andrew Bailey’s admission that financial conditions weren’t yet tight enough helped to reinforce this perception.

The euro is also finding support after it was reported that ECB governing council member Isabel Schnabel was reported to have pushed for a more hawkish commitment in the latest ECB statement with respect to further rate hikes.   

Commodities

Crude oil prices are flatlining today with little in the way of positive or negative drivers .

Gold prices have rebounded modestly from yesterday’s lows with the weakness of the US dollar helping to support prices.

Volatility

Wheat prices continued to move higher during Monday’s trade, although stopped short of retaking the $7 level. There’s no further word from Moscow on whether exports will be suspended to account for the low prices, but markets seem to be buying in to the idea that at these levels, there’s upside potential. One day vol on the US Wheat contract sat at 37.84% compared to 34.83% for the month. A turbulent start to the week as markets attempted to account for the latest round of uncertainty in the banking sectors saw the Hong Kong equity index posting elevated levels of price action.

The Hang Seng traded in a 2% range, closing towards the day’s lows. One day volatility printed 31.75% versus 28.64% on the month.

Both fiat and crypto currencies saw a notable retracement in terms of volatility on Monday with the one-day figures typically printing below the month’s equivalents, despite some notable selling in digital assets mid-afternoon.

There was the occasional outlier such as Stellar Lumens which saw a one day print of 59.61% against 56.97% for the month but both asset classes were relatively subdued.

Finally in terms of single stocks, blue chip financials are seeing price action abate although Deutsch Bank remains on the radar after Monday’s 6% uptick, with one day volatility coming in at 118.84% versus 95.67% for the month.


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