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FTSE 100 edges higher, as BT loses signal

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European markets got off to a strongly positive start to the day in early trading, with the DAX pushing up to its best levels this year, as it looks to retest the record highs set at the back end of 2021. 

The afternoon session has seen a modest retreat from the highs of the day, with US markets initially acting as a drag, before pulling higher on comments from House Republican Kevin McCarthy that a debt ceiling deal could be on the floor of the house by next week. On that basis, confidence is growing that the melodrama playing out in Washington DC is merely a piece of political theatre, and that a deal will happen eventually, as it has on so many previous occasions.   

Europe

The FTSE 100 rebound has been much more modest with the telecoms sector once again acting as a ball and chain around the index’s progress. This time it’s the turn of BT Group, the shares down sharply after reporting its Q4 and full year results. Vodafone had already set the negative tone at the start of the week when it announced 11,000 job losses, and today BT has followed suit and gone even further as the telecoms company announced it was planning on cutting 42% of its workforce by 2030. Coming on top of a disappointing set of full year numbers, BT shares have dropped sharply having been on a decent run of late. Today’s full year results have seen revenues decline 1% to £20.68bn, which was broadly in line with forecasts, while pre-tax profits fell 12% to £1.7bn.

EasyJet shares pushed up to 11-month highs after reporting that it was on course to return to profit this year. The improvement has been driven by a number of factors, including the relaxation of pandemic-related travel restrictions, strong growth in the easyJet holidays business, and a step change in the airline's ancillary offering, not to mention higher ticket prices. Ancillary revenue, which includes things like checked bags and seat assignments, saw a big increase, rising to just shy of £2bn, and is forecast to increase to £2.47bn in the current fiscal year.

Burberry shares have slipped back despite reporting a solid set of full year numbers in line with its sector peers LVMH, Hermes and the like, in a case of buying the expectation and selling the fact. Full year revenues rose 10% to £3.1bn. Same store sales saw a 7% increase, with a strong performance in Q4 on the back of the return of the Chinese consumer, which saw mainland sales rise by 13%. The only disappointment in terms of sales growth was in the Americas which saw a 7% decline in Q4 sales. For 2024 guidance was kept unchanged, which is a little surprising given the strong recovery in the Chinese consumer, which might suggest that management don’t think the Chinese demand rebound is sustainable, and also another reason why we’ve seen some profit taking in the shares today.

Aston Martin shares have popped higher after China’s Geely Automobiles upped its stake in the business to 17%, at a cost of £234m, becoming its third largest shareholder in the process.

International Distribution Services, or Royal Mail to you and me, has seen its shares fall to their lowest levels this year, after reporting a £748m operating loss for the full year 2023. The Royal Mail business slipped to an operating loss of over £1bn compared to a £250m profit a year before, in a sign of how much damage the recent strikes have done to the business. Some of the slowdown has been as a result of lower volumes with fewer Covid-19 testing kits, and a weaker retail market, however the industrial action has really hurt the business, and will have caused real long-term damage meaning that any future efficiencies will probably have to cut much deeper to make the business fit for the 21st Century. Net debt also rose by 52% to £1.5bn.

US

After a decent session yesterday, US markets opened slightly lower after weekly jobless claims fell back to 242k from 264k, and Dallas Fed president Lori Logan said that she saw the data doesn’t support the idea of a pause at the June meeting.

Furthermore, Walmart’s Q1 numbers showed the US consumer is still holding up well, despite this week’s mixed set of retail numbers from Target and TJX yesterday. The US’s number one grocery chain comfortably beat expectations on both revenues and profits, driving the shares higher in early trade. 

Walmart Q1 revenues rose by 7.6% to $152.3bn and profits came in at $1.47c a share, against a forecast of $1.30c. ecommerce saw solid growth of 27% in the US, while international sales also saw a strong performance, with an increase in gross margin by 12bps, led by Flipkart and China. Walmart also beat on its quarterly comparable sales forecast of 5%, with a sales increase of 7%, while also raising its profit guidance from $6.05c a share to $6.20c a share. For Q2 Walmart said it expects adjusted EPS of between $1.63c to $1.68c a share.

Cisco Systems shares have fallen back despite reporting Q3 revenue of $14.57bn and profits of $1 a share, both of which were ahead of forecasts. The outlook was also positive, with the company raising its full year profits guidance to between $3.80c and $3.82c a share. Nonetheless, the shares have come under pressure after management said they had seen a big drop off in orders during the quarter.  

US regional banks are also attempting to build on the rebound we saw from yesterday with PacWest outperforming, while Western Alliance is also looking to push higher.  

FX

The US dollar has continued its move higher with today’s weekly jobless claims numbers coming in below expectations, rising to its highest level against the Japanese yen above 138.00 and its highest level this year.

Comments from Dallas Fed president Lori Logan this afternoon, that current economic data doesn’t support the need for a pause in June, have also helped provide an additional tailwind to the US dollar.

The euro has slipped below 1.0800 heading below its April lows as US 2-year yields move back up to 4.2% as markets start to price in the prospect of a June rate hike, a prospect that was priced at 2% a week ago and which has now moved to 40%.  

The pound has also come under pressure against the resurgent US dollar, with concerns about the housing market, and broader UK economy refusing to take a back seat.  

Commodities

After some strong gains yesterday, which were driven by a decline in US gasoline inventories, crude oil prices have slipped back, with the stronger US dollar helping to cap the top side in the short term. 

The strength of the US dollar and rise in short term US yields continues to weigh on the gold price, as the yellow metal falls to its lowest levels since the 3 April. 

European and UK natural gas prices have also continued to fall, slipping to their lowest levels since June 2021.  

Volatility

Corn prices continued their sell off on Wednesday, breaking below fresh 12-month lows in the process. The downside pressure is being seen across other gains too, with the recently announced two-month extension to the Black Sea export deal being seen as a key driver. One day volatility advanced to 42.64% against 27.49% for the month, whilst wheat prices also moved noticeably lower with one day vol of 45.09% against 37.48% for the month.

USD/CAD was once again the stand out for price action in terms of fiat currencies, with the pair making a brief push higher before staging a complete reversal. There seems to be some positioning taking place here as the market looks towards Friday’s Canadian Retail Sales reading in light of the hotter than expected inflation print which was reported earlier in the week. One day vol on the pair printed 7.34% against 5.69% for the month.

A number of altcoins found support on Wednesday, with Litecoin being of specific note, extending its week and a half winning streak. One day vol on the digital asset came in at 63.94% against 58.69% for the month.

And at the stock specific level, Vodafone was in focus for a second day with some heavy selling being seen after US markets opened on Wednesday. The underlying sold off by around 2.5% in less than an hour, sliding into negative territory and leaving one day vol at 87.25% against 44.2% on the month. 


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