European and US stocks have continued to recover more of their lost ground this week, despite there being little prospect of a ceasefire, or imminent cessation of hostilities between Russia and Ukraine.
As we head into the weekend, we have retreated from the highs of the week on rising scepticism that Russia’s interest in a negotiated agreement is in any way serious, although the FTSE 100 is proving to be slightly more resilient. There are also rising concerns about President Putin’s state of mind, after a speech where he lashed out at “scum” and “traitors”.
Talk of a ceasefire continues to come across as premature at a time when the rhetoric from Russia is anything but conciliatory and would also require a major climbdown from one side or the other. With their respective positions still being miles apart, and Russia still targeting civilians, an imminent de-escalation doesn’t look likely at this point, hence today’s modest pullback.
On the plus side Ocado shares have bounced back after sliding sharply yesterday in response to concerns over rising costs, when it updated its guidance for the rest of the year. We’ve also seen similar rebounds in the likes of B&Q owner Kingfisher, who report their full year numbers next week, as well as B& M European Retail.
Pub chain JD Wetherspoon today reported H1 revenues of £807.4m, a decline of 13.5% from 2020, with like-for like sales falling 11.8%. In January, CEO Tim Martin confirmed that the pub chain would be incurring an H1 loss due to the Plan B Covid restrictions implemented by the government just before Christmas. This loss before tax was confirmed at -£21.3m, although CEO Tim Martin did express confidence that H2 would be much better once all restrictions are removed and the weather warms up. On the downside rising costs are expected to be a headwind, although the pub chain said it was confident that increases in prices were likely to be below the levels of inflation.
Ted Baker shares have jumped sharply after it was confirmed that it was in talks with US private equity firm Sycamore, who are considering making a cash offer for the business. The company has until 15 April to firm up its interest, or pull back for six months. At its most recent trading update Ted Baker indicated that progress was being made in turning around a business riven by scandal and stock accounting errors. The Q4 trading update showed that group sales rose 35%, compared to a year ago, and up from the 18% rise in Q3. Margins were also better, rising 350bps across all channels. Inventory levels also improved, while sales in stores and retail were showing signs of recovery, as volumes start to head back to pre-Covid levels.
Whether the talks lead anywhere remains to be seen, but the Ted Baker brand remains a solid one despite all the recent problems, and while the shares are cheap at just above 100p, it would be a shame if all the hard work of the current management team resulted in the company being bought up on the cheap. Let’s not forget that in 2018 the shares were at £30 with a market cap of £1.3bn.
US markets opened lower, taking their cues from today’s weaker European session, although we are still on course for a positive week.
GameStop latest Q4 numbers followed in the footsteps of Q3 with the company posting a bigger than expected loss, sending the shares sharply lower. While revenues beat expectations at $2.25bn, Q4 saw the company post a huge loss of $1.86c a share, against an expectation of a profit of $0.84c a share.
The losses appeared to be driven by higher-than-expected costs due to the hiring of extra staff as it looks to launch an NFT Marketplace by the end of Q2 2022. Investors appear sceptical that this type of move will reap significant rewards at a time when its core market shows little sign of picking up.
The last couple of quarters have seen the outlook for FedEx chop and change, with a profits downgrade in Q1, followed by a profits upgrade in Q2. Yesterday’s Q3 numbers have seen the company change tack again and have served to highlight the impact of rising costs on its overall performance. Higher wages as well as rising energy costs, saw the company miss on profits, although revenues did beat expectations coming in at $23.6bn. Disruptions caused by the Omicron variant caused staff shortages, and although some of this disruption and higher costs has been offset by higher prices, the rises haven’t completely offset the hit to profitability. The company did keep full year guidance unchanged, but it is becoming clear that rising costs are likely to be a challenge to meeting this expectation.
Despite this week’s hawkish Fed pivot the US dollar has slipped back in what appears to be a classic case of selling the news. Somewhat more bizarrely the euro has been one of the better performers despite there being little sign of a cessation of hostilities in Ukraine.
The Japanese yen has been the worst performer, sliding to 6-year lows against the greenback, with the potential that it could lose even more ground as interest rate differentials between it and the US dollar get wider. This morning’s Bank of Japan meeting showed there was little appetite amongst Japanese policymakers to tighten policy, in contrast to the Federal Reserve. As such we could well see USD/JPY move through the 120 level in fairly short order.
Prices for Brent crude oil have once again seen big moves this week, dropping briefly below $100 a barrel earlier in the week before rebounding sharply, although we still look set to finish the week lower. Talk of the resumption of supply of Iranian crude to the market has helped prompt this move lower, along with an Omicron induced slowdown in China, where cases are surging.
Gold prices have also been on a rollercoaster ride and look set to post their biggest weekly decline since August last year. Rising US yields have dimmed the attraction of the yellow metal and could well continue to weigh on prices
The see-sawing of sentiment around Chinese stocks continues, albeit at a slightly more modest level than we were seeing a few days ago. It does however mean that this market is dominating in terms of price action once again, with Pinduoduo and JD.com remaining in the spotlight, but it was the Hong Kong listing of Chinese property developers Country Garden that topped the board. Daily vol here printed at 644%, up from 240% on the month.
This meant that Chinese indices also remained active with the A50 posting daily vol of 91% versus a monthly print of 54%, whilst the Hong Kong 50 recorded 74% for the day against 46% on the month.
Commodities markets are looking rather more subdued. Lumber continues to offer exaggerated levels of intraday vol but the daily print has now slipped below the monthly. Cocoa price action also remains on the radar after downside pressure on prices as a result of improving crop forecasts out of West Africa. UK Cocoa posted daily vol of 47.75% against a monthly print of 44.86%.
As for fiat currencies, that Bank of England news yesterday pushed Sterling to the fore. Whilst the quarter-point hike was widely expected, the pound sold off heavily in the immediate aftermath of the news, before resuming its march higher. Cable saw daily vol hit 10.93% against a monthly 8.57%. Then a quick look at our proprietary share baskets showed China Tech taking the lead here, printing 395% on the day against 202% on the month, and in terms of ETFs, it was the iShares A50 tracker that topped out with daily vol of 99% against 68% on the month.