After an early dip prompted by a sharp slowdown in Chinese retail sales in April, markets in Europe have recovered to some extent from their intraday lows, however, there has been a big mismatch between how the FTSE100 is performing and weakness in the DAX.
Sentiment continues to remain cautious, with the DAX sliding back as it becomes ever more apparent that the Chinese economy is likely to stay in the doldrums for a while yet, with the damage caused by covid restrictions unlikely to improve significantly until well into the summer.
To give an indication of how badly the Chinese economy has been hit by lockdowns, the latest car sales data for April showed that no cars were sold in Shanghai through the entire month, compared to 26,311 a year ago. For a major exporter like Germany that’s not good news, with weakness in the likes of Porsche, BMW and Mercedes-Benz.
On the FTSE100 the best sector has been basic resources despite weakness in commodity prices, although copper prices have managed to hold onto Friday’s gains.
Vodafone shares are also higher after reports emerged that Abu Dhabi’s Etisalat had bought a 9.8% stake in the UK telecoms provider for £3.6bn.
While Etisalat have insisted that they have no designs on wanting a seat on the board, the move is likely to increase pressure on Vodafone CEO Nick Read whose performance has come under increased scrutiny in recent months due to the underperformance in the share price, and inability to create alliances to shore up its position across the UK and Europe over the last two years. The shares have serially underperformed ever since management got rid of the Verizon stake.
Vodafone is due to report full year results tomorrow and shareholder patience could well start to run out without tangible evidence of an improvement.
Ryanair’s full year results have seen the airline post a full year loss of €355m, compared to last year's €1.01bn deficit. It is clear that the big jump in passenger numbers from 27.5m a year ago to 97.1m has helped in seeing a significant turnaround helped by annual revenues rising to €4.8bn.
While welcome, the improvement in revenues is still well below the levels we saw in 2020, when Ryanair turned over €8.49bn.
Nonetheless CEO Michael O’Leary expressed optimism about the summer, while being cautious on the winter months. On the outlook Ryanair said that fuel costs were 80% hedged for the full year, with an expectation that they will be able to improve passenger numbers to 165m over the year. The airline said it hoped to return to reasonable profit in 2023, however the recovery remains fragile, due to the Ukraine invasion, as well as covid risks heading into the winter months.
This cautious outlook has translated into a little bit of weakness for the likes of easyJet and Wizz Air, along with Rolls-Royce.
Bakery group Greggs share price has slipped back after reporting a 27.4% rise in like-for like sales for the first 19 weeks of the year, generating £495m in revenue. Management warned that cost pressures on consumers could start to impact sales, while higher energy costs might start to impact its margins. Trading is in line with expectations, with full year guidance kept unchanged.
Having finished last week very much on the up US markets slipped lower soon after the open after the latest Empire Manufacturing survey for May showed a steep drop off in economic activity for April to -11.6, although it's only fallen back to the levels it was in March.
The Nasdaq 100 is once again acting as the primary drag, in the wake of today’s poor data out of China, and the poor Empire manufacturing survey for May.
Twitter shares have continued to come under pressure, on course for the seventh successive daily decline in a row in the wake of last Friday’s pronouncement by Elon Musk that he was putting his potential acquisition of the business on hold.
JetBlue Airways is in the news after undertaking a hostile takeover bid for Spirit Airlines, after the latter rejected its $33 per share bid. Spirit has said it prefers to go with the deal it has made to merge with Frontier Airlines.
It’s been a pretty slow day for FX markets, with the US dollar index treading water close to last week’s 20-year highs.
The Australian dollar did come under pressure initially this morning after the release of the latest Chinese economic numbers, however these losses were fairly short lived given the currency hit 22-month lows last week, and we have an election coming up this weekend, with traders short covering positions heading into the vote.
Under normal circumstances oil prices would be in decline given the concerns about Chinese demand, after this morning’s shocking Chinese economic numbers served to increase concerns about economic activity there. If markets are worried about demand destruction it certainly isn’t being reflected in prices. Markets still appear concerned about the potential for any supply disruption with EU leaders increasing pressure on Hungary to sign up the Russian oil embargo.
Gold prices are also under pressure, down to new three-month lows as the yellow metal continues to buckle under the weight of the rising US dollar.
We’re also starting to see renewed upside in agricultural commodity prices with wheat and corn prices edging higher, with wheat back above $12 a bushel, and a two-month high, after India banned exports at the weekend, in the face of surging prices. Corn prices predictably have also jumped higher given it tends to get an uplift on a substitution basis.
The big story of last week was without doubt the meltdown seen across crypto markets. Without attempting to provide an explanation of the “why”, the stand out point was the incredibly sharp uptick in volatility seen across the asset class. Whilst price action in Bitcoin was rather more subdued, this still pushed out to 171% by Thursday, against a monthly reading of 76%. Alt coin Solana saw the most pronounced moves, with 423% being printed on Thursday against a monthly reading of 159%. For context, in early April Solana/USD was posting daily vol of around 100%.
Over in single stock CFDs, Peloton was in focus following its bleak earnings assessment, along with the cautionary note that capitalisation was running thin. Shares have rebounded off the lows with bargain hunters moving in but daily vol by Wednesday advanced to 487% against a monthly print of 227%.
Fiat currencies have seen a couple of fundamental central bank stories drive price action on specific crosses. That appointment of a new central bank governor in the Czech Republic drove daily vol on USD/CZK to 20.58% on Thursday against 13.99%, whilst attempts in Turkey to reign in the Lira’s ongoing decline by limiting trading hours also played out in higher levels of vol. On Wednesday, the daily print reached 24.05% against 9.51% on the month.
A choppy week for cannabis stocks, driven by a combination of factors including disappointing earnings releases and the idea that Federal legislation in the US is perhaps progressing slower than some may have liked, left the CMC proprietary basket of cannabis shares trading in a range of around 15%. That in turn played out in terms of heightened price action on a couple of occasions, with daily vol of 156% being reported on Friday, against a monthly print of 116%. With the sector heavily reliant on that US legalisation program, well-telegraphed updates have the potential to keep driving sentiment in the medium term.