After such a positive session yesterday, European markets have slipped back on a trifecta of concerns over higher prices, higher rates and shrinking margins, after the Reserve Bank of Australia surprised consensus by hiking its headline rate by more than expected.
Sentiment was also hit by disappointing economic data. German factory orders data for April, slumped more than expected, by -2.7%, while in the UK the latest retail sales numbers from the British Retail Consortium showed like for like sales in May declined 1.5% year on year.
High value items like furniture and electronics, were the biggest casualty of the retail sales numbers, as consumers prioritised lower value items to help preserve a semblance of a cash buffer.
This morning’s BRC report served to impact on the retail sector with weakness across the board, a trend that was exacerbated further after US retailer Target issued a profits warning on the current quarter.
Today’s biggest fallers have been the likes of Currys, Marks & Spencer, Kingfisher, as well as fast fashion chains Boohoo.com and Asos, as the sector looks to navigate a perfect storm of rising costs, and price sensitive consumers.
JD Sports is also lower after being fined again by the Competition and Markets Authority, this time for reportedly price fixing Glasgow Rangers kit merchandise, along with Elite Sports, to the tune of £2m.
Ted Baker shares have also come under pressure after the company announced that the bidder for the business, which was said to be Authentic Brands wouldn’t be proceeding with its £300m takeover offer. Ted Baker management went on to say they would be looking at the other bids they received to determine whether to pursue any of those.
Digital education publisher Pearson today announced the sale of its K12 courseware businesses in Italy and Germany for £163m to Sanoma Corporation.
British Gas owner Centrica announced its performance and outlook remain unchanged from the trading update issued on 10 May 2022.
Transport provider National Express has said it anticipates full year revenue of £2.7bn, with current revenues currently tracking 2019 levels. UK bus travel is back at 85% of pre-pandemic levels, while in Germany revenue is 4 times pre-pandemic levels due to the impact of new contracts. The company also reintroduced short term guidance, predicting revenue growth of £1bn from 2022 to 2027, while margins are expected to take longer to recover, due to higher cost pressures.
On the plus side resilience in basic resources and energy has seen the FTSE100 outperform the DAX and CAC40, limiting the losses in the UK index, with BP shares hitting fresh two year highs, while miners have also been resilient, with BHP, Anglo American and Rio Tinto all being upgraded by Jeffries, on the basis of optimism over higher demand out of China.
US markets were already heading for a lower open even before today’s profit warning from US retailer Target. Today’s slide in European markets is in stark contrast to yesterday’s buoyant tone, with concern about higher prices, higher rates and shrinking margins prompting weakness across the board.
Target shares are down after the retailer warned that it will take a short term hit to profits and margins as it looks to clear a good proportion of its $15.1bn inventory, in order to make room for products that customers want. These products are likely to be of a lower margin as the cost of living squeeze impacts consumer spending patterns. Today’s warning has seen the likes of Walmart also come under pressure on expectation they will have to take similar steps.
Apple’s latest WWDC saw the company announce a raft of software and hardware updates. The updates included a new MacBook Air, a MacBook Pro, as well as a new iPhone and iPad update called iOS16.
The saga between Tesla CEO Elon Musk and Twitter continues to simmer as Musk insists that Twitter furnish him with the relevant information around fake and spam accounts. The standoff here looks set to continue with Twitter management insisting that Musk fulfil his obligations with respect to his bid.
The Japanese yen has continued to slide, heading towards levels last seen in 2002 when it was trading at 135.00, prompting concerns that the Bank of Japan might step in to halt the decline.
The Australian dollar initially spiked higher after the RBA surprised a lot of people by hiking rates by 50bps, however the move was unable to take out the highs of last week, prompting a bit of a pullback, however the AUD is still one of the better performers today, alongside the Canadian dollar.
Crude oil prices are showing little sign of weakness, despite concerns over higher prices prompting demand destruction. In a sense the potential reopening of the Chinese economy is bad news for lower prices, as the resumption of demand as Beijing and Shanghai reopen helps to support prices.
With equity markets looking soft, alongside a fall in US 10-year yields back below 3%, gold prices have perked up, erasing most of yesterday’s weakness.
There appears to be a growing correlation between weakness in cryptocurrencies and weakness in equity markets, with bitcoin back below $30k as it struggles to clear last week’s peaks at $32k.
Price action remains somewhat limited, but commodities do appear to be offering some trading opportunities right now. Notably, sugar contracts jumped higher after the weekend break, with prices here evidently being driven by read across from gasoline, on the basis that more sugar will be used to produce ethanol, in turn limiting supplies of the raw product. Daily vol on white sugar printed 52.61% against 32.04% on the month.
Further easing of COVID restrictions in China saw the country’s stocks find favour on Monday, with the tech sector seeing broad-based gains. This resulted in exaggerated levels of price action for CMC’s China Tech basket of shares, with daily vol coming in at 229% against 139% on the month.
Cryptos still remain somewhat subdued on the daily versus monthly metrics following that shake out a few weeks ago, but Chainlink is proving to be something of an outlier here. The underlying added as much as 10% in Monday’s trade, driving daily vol to 225% against a one month print of 146%. Across other asset classes, vol remains in short supply.