European markets have taken their cues from last night’s weak US finish opening and traded sharply lower as the early year optimism starts to run into a little bit of turbulence, and some profit-taking, with the DAX and FTSE 100 both slipping to one-week lows.
Today’s biggest fallers have included housebuilders after the latest RICS house price balance survey fell further into negative territory, from -26% in November to -42% in December. All regions across England are showing falls in prices, weighing on the likes of Persimmon, Taylor Wimpey and Berkeley Group.
Markets stuck the boot into Dr Martens shares today as the shares plunged to a record low after bootmaker issued a profits warning, due to supply chain issues in its US operation which could reduce wholesale revenues by £15m-£25m, and EBITDA by around £20m. For the full year the company says it expects to see EBITDA in the region of between £250m and £260m below estimates of £285m. Revenues in Q3 also fell shy of company expectations for the same reason, coming in at £335.9m. Looking forward their sole concern now is resolving these issues and reversing this decline in profitability.
Boohoo shares have also slipped back after warning that sales would fall by 12% this financial year, and that profits would come in at the lower end of expectations. The online retailer blamed an uncertain demand outlook, although on the plus side they expected cost inflation to ease in the second half of the year, and ease pressure on margins.
Dunelm shares have also come under pressure, drifting back from its 8-month highs of earlier this month despite reporting a big jump in Q2 sales to £478m, a rise of 18%. This was in contrast to a weaker Q1, and helped push H1 sales to £835m, and a 5% improvement on the same period a year ago. Digital sales saw a 35% increase over the quarter. The retailer kept full year guidance unchanged, while also saying profit before tax was expected to be above current market expectations of around £172m.
Harbour Energy shares have slipped back after the small North Sea oil company announced that full year production was likely to come in at the top end of expectations at 208k oil equivalent barrels per day, with a 50/50 split between oil and gas. Full year revenues are expected to come in at $5.4bn, while as result of the extension of the windfall tax, the company said that it would have to set aside a higher amount than the $600m it set aside in its H1 numbers. Total capex for the year is also set to be lower at $1bn, down from the previous $1.3bn due to the decision not to proceed with several North Sea exploration and appraisal wells. Guidance for 2023 is forecast to be lower at between 185-200kboepd
Deliveroo shares initially popped to a two-month high after the online delivery company said it generated over £1bn of UK GTV for the first time ever in Q4, a rise of 9%, pushing total GTV up to £1.8bn. For the full year Deliveroo said it expects to deliver just over £7bn of GTV across all operations, a rise of 7% and that its adjusted earnings almost achieved breakeven during the second half of the year. This number is expected to continue to improve into the next fiscal year with EBITDA margins revised up from the previous -1.2% and -1.5%, to -1%. The gains proved short-lived despite the more upbeat outlook.
Having seen the biggest one day decline this year in yesterday’s trading, US markets have continued the softer theme today, opening lower even as weekly jobless claims fell to their lowest level since September last year at 190k. Building permits and housing starts for December both declined falling -1.6% and -1.4% respectively.
Procter and Gamble has seen its shares slip back on the open despite beating expectations on Q2 revenues, which came in at $20.77bn, while profits came in at $1.59c a share. The revenues beat came because of higher prices, as we saw a sharp slowdown in sales volumes, across all of its business sectors. P&G downgraded its expectations for full year organic sales growth to between 4% and 5%, while upgrading its revenue outlook.
Roblox shares slid sharply after Morgan Stanley downgraded the business to underweight.
Netflix is due to report Q4 numbers after the bell, with the shares up over 60% in the last 6 months, today’s numbers should offer evidence as to the success or otherwise of the new ad-supported service. Q4 revenues are expected to come in at $7.78bn, while net income is expected to fall to $163m or $0.36c a share, while operating margin is expected to fall to 4.2%, down from 8.2% a year ago. Netflix appears to be blaming the strength of the US dollar for the headwinds with respect to its Q4 expectations, however that argument fails to hold water given recent US dollar declines. From the tone of the shareholder letter in Q3, it’s clear that Netflix doesn’t expect a material contribution from the new ad tier in Q4, which started on 3 November. Recent indications do suggest it has got off to a slow start, while the recent weakness of the US dollar should help on the revenue front. As the company looks ahead to 2023 Netflix has said it would no longer be publishing guidance of subscriber numbers, and that they wanted investors to focus on the key metrics of revenue, operating income, margin, and net income.
The US dollar is broadly weaker, particularly against the Japanese yen, after a couple of Fed speakers said that they would be comfortable with another step down in the central bank’s rate hiking cycle to 25bps. Both Patrick Harker of the Philadelphia Fed, and Lori Logan of the Dallas Fed stated they would be comfortable with such a move. Both are voting members on the FOMC committee this year, which suggests that there is growing caucus on the committee for a slowdown even as recession risks rise.
With governor and vice chair Lael Brainard also expected to speak later today, attention will be on any comments she might make when it comes to monetary policy given she tends to lean very much towards the dovish side.
The euro has had a slightly firmer tone today after ECB governing council member Klaas Knot said that the ECB wouldn’t stop at a 50bps rate hike in February, but would follow up with further increases, and urged markets to the central bank seriously.
With metals prices sliding lower we’re also seeing weakness in the Australian dollar, as the recent moves becomes subject to some profit-taking, with the aussie slipping back from five-month highs.
After falling back yesterday, crude oil prices initially continued their decline as concerns grew that the US economy is starting to feel the effects of the sharp rise in interest rates since March last year. A big rise in US API inventories for the second week in a row would appear to suggest that demand is starting to drop off quite significantly. We have started to see a rebound off the lows after IEA Fatih Birol said that energy markets could be tighter in 2023 as demand picks up.
Today’s US dollar weakness is helping to lift gold prices back towards the highs of earlier this month, after yesterday’s brief dip below the $1,900 level.
Just Eat Takeaway posted upbeat results on Wednesday with full year profitability being reported when the market had been expecting a meaningful loss. Gains at one point exceeded 15% with the market buying into the idea that momentum could be sustained but by the close upside was a more modest 4%. One day vol stood at 151.86% against 83.14% on the month.
Bank of Japan policymakers came out with a more dovish stance than many had expected on Wednesday, lending support to stocks and giving the Nikkei a 2.5% boost. That drove one day vol on the index to 33.44% against 19.11% on the month. The news also served to give the US dollar a boost over the yen, although upside here proved difficult to sustain. One day vol on the currency pair printed 22.47% against 15.92% for the month.
Finally, copper prices continue their march higher hitting levels not seen since last summer as that optimism over demand from China continues to fuel the rally. Prices are up around 10% over the last two weeks, with daily vol coming in at 26.61% against 23.07% on the month.
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