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European markets edge higher in the absence of a Gaza escalation

European markets have started the week cautiously higher in the absence of an escalation of tensions over the weekend, although you can be sure that investors will be keeping a wary eye on events in the Middle East as Israel weighs its next move.

Europe

The FTSE100 is edging higher helped by resilience in basic resources and energy with Shell seeing its share price hit a record high. This move would appear to justify the recent decision by new CEO Wael Sarwan to refocus new capex on the company’s key revenue earners of oil and gas, which while slightly weaker today is probably likely to remain well supported while the Middle East tensions remain.  

It is also becoming increasingly obvious given the challenges facing the global economy that the fixation on net-zero will eventually have to collide with reality and be managed in a more economically sustainable way in the face of exponentially rising costs. BP shares on the other hand have lagged as the look for a new CEO in the aftermath of the departure of Bernard Looney continues.

UK wealth manager St. James Place is also rebounding, having seen a huge drop on Friday in the wake of concern over the impact of new UK consumer duty rules on its business model.  

GSK and AstraZeneca shares are acting as a modest drag on the FTSE100, after a Friday profits warning from sector peer Pfizer over a sharp slowdown in Covid vaccine sales, although the weakness is fairly modest given that neither GSK or AstraZeneca has little Covid revenue to speak of anyway.

Ocado shares are lower after being downgraded by Barclays to underweight citing concerns over a slowdown in its robotics division, on concerns over a limited customer pipeline which could impact its medium-term growth targets.

US

US markets have opened the week cautiously higher after a weekend that saw a lot of noise, but little sign that an Israeli incursion into Gaza was imminent, although it still seems likely that it will happen at some point. 

Absent any news out of the Middle East the focus is likely to be on earnings this week with the latest numbers from Goldman Sachs, Bank of America, Netflix and Tesla later this week.

Pfizer shares have shrugged off a big downgrade to full year revenue and profit expectations due to a slowdown in covid vaccine and Paxlovid sales. The Pfizer share price had already been in retreat from the December 2021 peaks of over $60, with the shares down almost 50% since then, as investors priced the prospect of lower revenues from the pandemic peak sales of 2021, which suggests that this downgrade may already have been priced in. Today’s news of a big downgrade to the company’s outlook serves to underline how much the post covid bubble has burst and collapsed revenues, as well as profits. Full year revenue guidance was reduced from $67bn to $70bn to $58bn to $61bn. while annual profit guidance was slashed to $1.45 to $1.65 a share from $3.25 to $3.45 a share. 

Other vaccine makers are also sharply lower with Moderna and BioNTech shares coming under pressure, even as Moderna reaffirmed its full year forecasts, while Novavax has shrugged off the EU delaying approval of its own Covid vaccine candidate. 

Manchester United shares have also slipped back sharply on the weekend reports that the Qatari Group who were bidding for the club have pulled out citing unrealistic valuation from the Glazer owners.

Apple shares are also on the back foot on reports that its new iPhone 15 is selling a lot more slowly in China than expected, amidst speculation that it might be losing out to the new Huawei Mater 60 Pro which went on sale a few weeks before. 

FX

The US dollar is slightly softer today, with equity markets a touch firmer, as markets stay in a holding pattern, with one eye on events in the Middle East.

The pound edged slightly higher after Bank of England chief economist Huw Pill reiterated his “Table Mountain” comments from a month ago when he said that rates would have to remain higher for longer in order to get on top of current inflation trends.

Commodities

Crude oil prices have slipped back after trading close to one-week highs, having retraced just over 50% of the decline of the previous week. The lack of further escalation over the weekend has helped to cap the gains thus far, while reports that the US is easing restrictions on Venezuelan oil is helping to limit the upside, although the balance of risks remains for further upside. given the fluidity of current events in the Middle East. 

Gold prices have pulled back a touch after posting their best week since March, with firmer yields acting as a bit of a drag, pulling prices off 3-week highs.

Bitcoin prices underwent a pump and dump on fake news reports that the SEC had approved the new iShares bitcoin ETF, a report which was swifty denied by BlackRock, which said the application was still under review. 

 


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