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UK markets end the week on a positive note, while US data continues to soften

It’s been another good week for the FTSE 100, on course for its third successive weekly gain, although it remains well short of its March peaks, with banks and commercial real estate still some way short of returning to the levels we saw at the beginning of March when the UK index was trading around 7,900. 

Europe

Its European counterparts of the DAX and CAC 40 have performed better and reversed their March losses as concerns over financial stability continue to melt away, although as the tepid nature of the FTSE 100 rebound illustrates, there is some residual scarring still prevalent in some areas of the market.

The lack of bad news this week has helped drive this week’s move higher, with the gradual improvement in European services data showing that there is room for optimism when it comes to economic activity over the summer months.

Shell is one of the better performers today after announcing that its gas trading and production for Q1 was performing well and that even with the slump in prices seen over the last quarter, profits are expected to remain strong. Shell did go on to warn that due to one-off tax charges, the business would incur a Q1 loss.

TUI shares have jumped sharply higher after the travel company CEO Sebastian Ebel said it expected summer 2023 travel activity to return to pre-pandemic levels.

US

US markets opened cautiously lower today with the main focus on tomorrow’s March non-farm payrolls report, which is expected to see 235k jobs added and unemployment to remain at its lowest levels since the late 1960s.

Weekly jobless claims were disappointing, coming in at 228,000, well above expectations, while the previous week’s number of 198k was revised up to 246k. The two previous weeks were also revised upwards by 56k and 38k respectively, reflecting a sharp reassessment of how the US labour market has been performing over the past few weeks. In a sense, this shift in the claims numbers, while helpful in the context of framing the tightening debate, also means that the prospect of a pause in May has become much more likely, especially if tomorrow’s non-farm payrolls and next week’s CPI numbers point in the same direction.   

On the earnings front, Levi Strauss shares have fallen sharply after the company expressed caution over its Q2 outlook. For Q1 the company posted a 6% rise in revenue to $1.69bn and profits of $115m or $0.29 a share. All in all the numbers beat expectations however there was some disappointment that the company left its full-year guidance unchanged, which is for annual revenue of $6.3bn to $6.4bn. 

Constellation Brands shares have edged higher after raising the dividend to $0.89 a share from $0.80 a share. Q4 revenues came in at $2bn, and profits beat expectations. Beer sales saw a slowdown of 2% coming in at $1.54bn while wine and spirits fell 9% to $462.2m. 

FX

It looks set to be another good week for the pound despite a disappointing construction PMI number for March which saw a fall from 54.66 in February to 50.1 in March. A decline in housing activity was being blamed for the weaker number, which may have had something to do with the cold snap that we saw at the start of the month. Optimism amongst builders was higher rising to one-year highs with an increase of those who expect to see an increase in output over the next 12 months.

The Canadian dollar shrugged off a positive jobs report for March which showed bigger-than-expected increases in both full and part-time employment. The unemployment rate fell to 5%.

Commodities

Crude oil prices continue to stabilise close to their recent highs after the production cuts announced over the weekend by OPEC+ and set for their 3rd successive weekly gain.  Rising uncertainty over the economic outlook in the wake of today’s US data is compounding concerns over an economic slowdown, with prices still below the high point reached on Monday. If OPEC+ had hoped that its weekend move would help drive prices back toward $90 in short order, the economic data appears to be having other ideas. 

Despite today’s softness in US 2-year yields gold prices have slipped back ahead of the weekend as caution sets in ahead of tomorrow’s jobs report, with some profit-taking starting to kick in ahead of the Easter weekend.  A particularly strong jobs report could well pull yields off their lows of the week when markets reopen next week, especially if inflation numbers next week, also surprise to the upside.

Volatility

Vodafone saw elevated levels of price action during Wednesday’s trade after news broke that the mobile telecoms company was considering the sale of its Spanish unit. That was sufficient to see the price spike higher, although gains proved difficult to sustain through the afternoon session. One day vol on Vodafone sat at 72.02%, around double the one-month reading of 35.14%.

Keeping with single stocks and shares in industrial heavyweight Caterpillar had another down day, extending losses from earlier in the week as fears over the US facing a hard economic landing mount. The underlying is down around 8.5% from highs at the start of the week, with Wednesday’s one day vol reading coming in at 54.91% against 45.58% for the month.

Conflicting signals from the soft commodities sector served to boost price action across the asset class, with Soybeans being a notable standout. The underlying flip-flopped quite dramatically during the session, pushing one day vol out to 19.53%, up from the 18.53% recorded for the month. A similar pattern was seen for Corn.

And finally, the Reserve Bank of New Zealand stunned markets with a 50 basis point rate hike when many had been expecting just a quarter point add. However the resulting gains proved to be short-lived, with Kiwi Dollar-Dollar handing back all of the upside as the day progressed. One day vol stood at 15.03% against 12.69% for the month..


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