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FTSE 250 set to post its best weekly gain this year

Having seen such a strong rebound in equity markets this week there was always a chance that a strong US jobs report might undermine the move higher that we’ve seen due to the sharp slide in bond yields, and the less negative geopolitical outlook that has helped to lift sentiment these past few days.

Europe

Unlike September, when US jobs surged by 297k, jobs growth slowed in October to 150k, while the unemployment rate ticked higher to 3.9%, in a sign that the US economy is now starting to slow in a manner that will please the US central bank. This sort of goldilocks report, not too hot and not too cold, will be catnip to those who are increasingly of the opinion that the Fed is done when it comes to further rate hikes.

The reaction in European markets has been relatively subdued to today’s US jobs report, which perhaps isn’t surprising given the strong moves higher to two-week highs that we’ve already seen this week, and with the weekend approaching we appear to be seeing some end of week profit taking. The FTSE 100 is underperforming due to weakness in some of its bigger cap companies with BP, Shell and AstraZeneca all coming under pressure. BP and Shell in particular are slipping back with crude oil prices on course to close at a four-week low.  

Today’s best performers on the FTSE 100 are Entain and Flutter Entertainment who are doing well after US sector peer DraftKings posted better than expected Q3 revenue and upgraded its full year guidance for 2023. We’ve also seen a decent rebound in commercial real estate this week on the belief that the Bank of England is done on the rate hike front and the belief that the next move will be a rate cut sometime halfway through 2024.

The effects of this shift in sentiment can be clearly seen in the performance of the FTSE 250 this week, with the index up over 6% on the week, its best weekly gain this year, and most of that in the past 2-days, with strong gains from various REIT’s as well as the likes of Workspace Group and Hammerson. Housebuilders and property management companies are also seeing a strong rebound.

US

US markets have continued to look resilient even against the big gains seen already this week with another 10bps slide in the 10-year yield helping to push US stocks to their highest levels in over 2-weeks, although we might start to see some profit taking as we head into the close and the weekend given how far we’ve come in the past few days.

The October ISM report for services was also a little soft, coming in at 51.8, while employment also slowed sharply even though new orders were resilient.

US online betting companyDraftKings shares are seeing good gains after posting better than expected Q3 revenues of $790m, while raising its full year 2023 guidance midpoint to $3.69bn from $3.52bn, and introduced positive revenue guidance for its fiscal year 2024 of between $4.5bn to $4.8bn.    

A $2bn shortfall on China sales has taken a bite out of the Apple share price today, with the shares slipping back despite posting Q4 revenues of $89.5bn and profits of $1.46c a share. The revenue breakdown was as follows, with iPhone revenue of $43.8bn, a2.8% increase on last year, while Mac revenue fell 34% to $7.61bn and iPad revenue fell 10% to $6.44bn. Wearables were also disappointing, slipping 3.4% to $9.32bn, while services revenue rose 16% to a record $22.31bn.

On a regional basis China sales saw a 2.5% revenue decline to $15.08bn in a sign that the new Huawei device is starting to eat into Apple’s market share. On the plus side Apple must be hoping that any decline in China will be offset by its growth in India which CEO Tim Cook said he was confident would continue to grow.

For the full-year Apple posted a modest decline in sales to $383.28bn, while profits came in just shy of $97bn, down from $99.8bn a year ago. For Q1, which tends to be its most profitable quarter, Apple said they expect similar total revenues to last year of about $117bn, and that iPhone revenue is expected to grow from last year.

FX

The US dollar has slipped sharply in the wake of today’s US payrolls report and ISM services data in a move that has offered a well overdue respite to the likes of the pound, as well as the Australian dollar, which is squeezing higher ahead of next week’s RBA rate decision which could see a 25bps rate hike.  

The pound has managed to push above 1.2300 against the US dollar, to a six-week high, and is also outperforming the euro as well, helped by the idea that while the UK economy is still weak, it’s not as weak as it is in Europe judging by today’s services PMI which came in slightly above forecasts. If anything, it's surprising the euro has been as resilient as it has been given that based on recent data markets somehow believe that the ECB somehow has another rate hike left in its locker. The ECB would be out of its mind to hike rates again given where the data is now, and it's more likely they will be the first central bank to cut rates early next year.    

The Canadian dollar has risen for the third day in a row after the latest Canada jobs report showed that the economy added 17.5k jobs in October while the unemployment rate rose to 5.7%.

Commodities

Crude oil prices look set to close lower for the second week in a row as investors grow more confident that the tension in the Middle East will remain fairly contained, despite Israeli refusals to countenance a cease fire. There have been isolated examples of third parties looking to get involved with Yemen declaring war on Israel earlier this week, however the threat there is minimal with the US Navy positioned between it and the various missiles that have been flying over.

Gold prices edged up to the $2,000 an ounce level in the aftermath of the US payrolls report and the decline in yields, however prices have since retreated from those highs with the highs posted earlier this week acting as a natural barrier to further gains.  

Volatility.

Earnings news once again proved to be a key driver for price action at the single stock level, with BT Group’s share price adding close to 10% at one point on Thursday. The print beat expectations and despite a cautionary note in terms of broadband competition increasing, investors were committed to taking a glass half full approach. The stock did give back some of its gains heading into the close but one day vol stood at 106.9% against 42.84% for the month.

Cannabis stocks had an active session on Thursday with gains being seen across the board. That lifted CMC’s proprietary basket of licensed marijuana growers with the cohort adding in excess of 5% in response to Wednesday evening’s positive news emerging from lawmakers in the US in terms of using the plant at a medicinal level. One day vol stood at 112.81% against 87.32% on the month.

Cryptos were back in focus on Thursday, giving back some gains after the latest attempt to break higher failed to prove sustainable. Solana was the most active, testing new highs for the year before retreating. One day vol on SOL/USD stood at 144.18% against 87.02% for the month. In fiat currencies, the Pound saw moderately elevated levels of interest off the back of the Bank of England’s monetary policy statement. Despite the hawkish tone here, any support against the Euro was lacking although early losses proved to be short lived. One day vol on EUR/GBP stood at 5.3% against 4.65% for the month.


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