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FTSE 100 underperforms as DAX hits three-month highs

BMW on a production line

It’s been a broadly positive session for markets in Europe with the DAX outperforming, pushing up to its highest level since 2 August, helped by a strong performance from its auto sector after an upgrade from JPMorgan for the likes of BMW, with the broker also waxing lyrical over Mercedes, with both manufacturers having the best strategy.

Europe

The FTSE 100 has underperformed again dragged lower by the likes of energy and financials with the weakness in Chinese markets acting as a drag on the likes of HSBC, Standard Chartered and Prudential.

The wheels have come off Halfords' share price today, sliding over 20% after the retailer downgraded its annual pre-tax profit outlook to between £48m and £53m due to a slowdown in sales in discretionary markets like cycling. The auto centres business on the other hand has performed strongly, posting a 33.9% rise in H1 revenue of £356.9m, helping to push total revenues up to £873.5m, a rise of 13.9%.

Harbour Energy shares have pushed higher after the UK oil and gas company reported that trading was in line with expectations and got an upgrade to “add” from Peel Hunt. Production output averaged 189 kboepd, with an even split between oil and gas, keeping full year guidance unchanged with operating costs of $16/boe, $2 higher than 2022. Revenue for the nine-month period is estimated to be $2.9bn, with full-year capex reiterated at $1bn. Harbour went on to say that the Talbot resource is on course to start delivering oil around the end of 2024, with 2 of 3 development wells completed.

Also doing well is JD Sports after US sector peer Foot Locker beat on Q3 revenues and profits and raised its full-year forecasts, and in so doing managed to wipe all its post August profit-warning losses. Travel stocks are also performing well, with easyJet building on yesterday’s gains on the back of a price upgrade from Barclays, and positive comment from Liberum.     

US

US markets opened higher after US Q3 GDP was revised higher to 5.2%, up from 4.9%, although personal consumption was revised down to 3.6% from 4%.

General Motors shares have pushed higher after the US car company reinstated its full year outlook, having withdrawn it due to the recent UAW strike action. The company now sees net income at between $9.1bn and $9.7bn, which is slightly lower than the previous $9.3bn to $10.7bn. It will also boost the dividend by 33% to 12c a share, as well as buying back $10bn worth of shares.

Back in August Foot Locker shares plunged to a 10-year low, just below $15, after sliding to a loss in Q2 of $0.05c a share and falling short on revenues at $1.86bn. Inventory levels came in higher than expected, with signs of softening demand in July. Since then, the shares have undergone a sizeable rebound and today’s Q3 numbers have continued to build on that with all those losses now reversed.

Q3 revenues came in better than expected at $1.99bn on an 8% decline in comparable sales, pushing the shares sharply higher. We also saw an upgrade to full year EPS guidance to between $1.30 and $1.40 a share and expects to see inventory levels return to flat to slightly lower.

GameStop shares are sharply higher for the second day in succession as traders hoover up various call options with strikes above $20 ahead of next week’s Q3 earnings numbers.

Snowflake is due to report after the bell with expectations of Q3 revenue of between $670m and $675m, however this is likely to come in higher at $713m due to higher demand for cloud-based solutions. Profits are expected to come in at 16c a share.

FX

The New Zealand dollar has had a strong session after the RBNZ left rates unchanged at 5.5% but delivered a hawkish tweak to its forward rate guidance, pushing average OCR rate guidance higher for 2024 and 2025.

The US dollar has continued to come under pressure, sliding to 3-month lows against the euro and the pound in the wake of yesterday’s dovish comments from Federal Reserve Board governor Christoper Waller.

The pound has continued to display resilience after a better-than-expected improvement in October mortgage approvals to 47.4k, from 43.7k in September. The decline in mortgage rates since their recent peaks appears to be offering a modest lift to demand.

The euro is lagging somewhat after both German and Spain flash CPI for November came in below expectations further reinforcing the narrative that economic weakness along with slowing prices is fuelling a wave of disinflation, which in turn could compel the ECB to quickly start cutting rates as soon as the end of Q1, start of Q2 next year.

Commodities

A winter storm in the Black Sea region has prompted concerns over disruption to oil supplies from Kazakhstan and Russia ahead of this week’s decision by OPEC+ on whether to introduce further cuts to production output. The weakness of the US dollar is also helping to underpin prices with Brent briefly pushing up to a one week high before retreating and has now slipped into negative territory, after weekly inventories showed a surprise build of 1.6m barrels, against an expectation of a 1.35m barrel draw.  

The continued weakness in yields is continuing to push gold prices up towards the record highs of earlier this year. This is the next key resistance area for gold bulls with a move through the $2,080 area potentially opening further strong gains through $2,100.

Volatility

Yesterday’s increasingly dovish comments from Federal Reserve officials proved sufficient to drive price action across several assets. Critically this weighed on the greenback, resulting in a few dollar-denominated commodities ticking higher. Platinum, which has been trading at multi year lows amidst over supply concerns advanced to levels not seen in two and a half months, with one day vol printing 28.03% against 23.71% for the month.

Support was even more pronounced for Gold, advancing to six-month highs and whilst price action on the underlying was limited, the gains for CMC’s proprietary basket of US stocks with exposure to the mining of the precious metal were notable. That advanced more than 5% on the day, returning to levels not seen since the summer. One day vol came in at 45.8% against 40.88% for the month.

That dovish outlook for the Fed heaped more pressure on the Dollar-Yen trade, extending the sell off we have seen since the start of the week. With expectations of a more hawkish outlook emerging from the Bank of Japan too, momentum could continue to build here so long as we don’t see any surprises in macroeconomic prints from Tokyo. One day vol on the pair stood at 8.78% against 7.08% for the month.

And at the single stock level, shares in Boeing advanced off the back of a broker upgrade on Tuesday, driving interest in the aircraft builder. One day vol rose to 44.29% compared with a one month reading of 36.55%. 


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