European markets have traded in a lacklustre manner today as higher gas prices serve to contain any attempt to push strongly higher.
Europe
We’ve also seen yields rise sharply ahead of the start of tomorrow’s three-day Jackson Hole Symposium which appears to be prompting some weakness in government bonds.
Expectations have been rising all week that we could see signalling towards more aggressive rate action from not only the Federal Reserve, but the Bank of England, and the ECB as they try and play catchup to contain the inflation genie, as expectations start to become ever more embedded.
The FTSE100 has once again struggled, down for the 3rd day in a row, although it is well off its lows of the day. The strain appears to be being predominantly felt by basic resources on this morning’s news from China that has seen new covid curbs introduced in cities outside Beijing, with Rio Tinto amongst the biggest fallers.
HSBC is lower after Hong Kong issued a Typhoon warning, causing the early closure of trading activity for the day, as well as possibly delay the open tomorrow morning.
House builders are also lower over concerns about what rising interest rates and an impending recession will do to housing demand over the winter period, with Taylor Wimpey and Persimmon near the bottom of the index.
Aveva shares have surged on reports that Schneider Electric is considering paying $9bn for the remaining shares that it doesn’t already own. Aveva Group operates across a multitude of different sectors including oil and gas, hydrogen, LNG Gas Processing and renewables to name a few in operating and designing computer software to run processes and data management. Despite today’s gains the shares are still over 25% below the highs we saw last September, in another example of an overseas business trying to pick up a UK asset on the cheap.
US
It’s been a slow session so far for US markets, which opened slightly lower, after US durable goods for July came in unchanged, well below expectations of a 0.8% rise.
If the US consumer is as resilient as the retail sales numbers suggest it is, it’s not necessarily being reflected in the performance of US retailers. Yesterday Nordstrom became the latest retailer to warn on its forecasts by downgrading its full year sales outlook from 8% growth, to 5% to 7%. Profit expectations were also slashed to a mid $2.60 from $3.53.
Continuing the retail theme, given recent warnings from Walmart and Target about high margin goods being shunned, the likes of Williams-Sonoma are very much in the firing line. As a purveyor of these types of items the owner of Pottery Barn may well start to see early signs of this trend towards essential goods at the expense of higher value items. Gross margins are currently at 43.8% rising 80bps in Q1, while operating margins came in at 17.8%. At the time the company kept its full year guidance of mid to high single digital annual net revenue growth unchanged, with the goal of increasing annual revenues to $10bn by 2024. This seems ambitious, especially when you consider that at the end of the last fiscal year annual revenues came in at $8.25bn and are expected to come in at $8.6bn for this year.
Concerns about the outlook appear to be a recurring theme, with US chipmaker Nvidia expected to report its latest Q2 numbers. At the beginning of August, the chip maker slashed its revenue outlook to $6.7bn while gross margins were likely to fall to 43.7% from 65.1%, potentially impacting profits as well. The downgrade was attributed to a big drop in gaming revenue which is down 44% from Q1, to just over $2bn. Profits are expected to come in at $0.50c a share.
Snowflake shares appear to have found a short-term base, with expectations for Q2 revenues set to improve to between $435m to $440m. Its biggest concern is its operating margins which appears to be weighing on its ability to generate a profit. Snowflake has made great strides in growing its client base, which was up to 6,322, from 5,944 at the end of last year.
Peloton shares are on the up, ahead of their Q4 numbers which are due tomorrow, after signing a deal with Amazon to make its products available on its store and US marketplace.
Bed, Bath & Beyond is also on the up on reports that it has secured itself a new funding deal.
FX
The US dollar has continued to move higher, albeit below its previous peaks with rising natural gas prices in Europe trying to exert further downward pressure on the likes of the euro and the pound, despite yields in both jumping sharply higher, with UK 2 year yields up over 20bps today alone.
Reports of new China covid lockdowns in cities outside Beijing is weighing on the Australian dollar, as well as copper prices as investors mull the prospect of a stuttering Chinese economy over the next 6 months, as the authorities there battle with rising covid infection rates.
Commodities
UK natural gas prices are up again sharply today, back close to the record highs seen earlier this week.
Brent crude prices have jumped back above $100 barrel as the reverberations from this week’s intervention from the Saudi Arabian oil minister continues to underpin prices.
Volatility
Lumber prices rebounded modestly off the lows yesterday with the market still appearing to be on a quest for fair value. A slew of drivers is delivering price action, with that COVID-era bubble, inflation and recession fears all playing a part. The break higher yesterday left the asset as the most active commodity once again, with daily vol coming in at 233% against 140% on the month.
The Hungarian Forint was the standout in terms of fiat currencies after hitting fresh lows against the US Dollar. Again, there are multiple factors in play here, including a slowing economy and the fact inflation, whilst already high, is still expected to have further to go. A possible move by the central bank to hike short term interest rates later in the week doesn’t seem to be providing much support either, driving daily vol on the pair to 21.69% against 18.4% on the month.
In cryptos, EOS saw the top knocked off its recent gains, but the coin remains up by around a third since the end of last week. Vol also remans elevated with a daily print of 132% being recorded against a monthly reading of 91%.
And finally in terms of single stocks, Celsius Holdings saw elevated action again on Tuesday, advancing close on 10%. The company recently announced that PepsiCo had taken a stake in the business, in turn bolstering sentiment, with the underlying up by around a third over the last month. Daily vol came in at 206% against 138% on the month.
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