It’s been a fairly low-key end to the month for European markets which have seen a strong October rebound after two months of declines.
The DAX has seen an especially strong rebound, wiping out all its September losses, while the FTSE100, despite rising to a one month high, has lagged, due to losses in financial services companies which have seen a rough month.
The main drag today was initially in basic resources after the latest Chinese manufacturing and non-manufacturing PMIs slipped into contraction territory in October. It’s hard to see these numbers improving in the coming weeks as covid cases continue to rise, with today’s announcement that Disney’s Shanghai theme park will close indefinitely from tonight unlikely to improve sentiment.
That changed soon after the US open when Australian miner Rio Tinto rebounded sharply from 11-month lows, with some putting the rebound down to reports that Tesla had held discussions about taking a stake in Glencore. While this may well have some truth in it, the fact that investors waited until the US open seems odd, although Glencore shares also rallied soon after US markets opened as well, so there might be some truth in it. The growing popularity of electric cars is likely to mean that automakers will want to secure sources of lithium and cobalt so what better way than to sign a deal with a producer who has expertise in that area.
easyJet is amongst one of today’s biggest gainers after a weekend report that British Airways owner IAG might be looking at an acquisition, after last week's latest numbers showed a return to profitability. Given that easyJet was the target of a reported bid from Wizz Air earlier this year and is struggling to turn a profit, it's only natural that its shares have seen some interest given that they were only recently trading at 11-year lows. IAG has had a strong month share price wise, up over 25% month to date.
International Distributions Services, or Royal Mail to you and me, has seen its shares surge after the government signalled it wouldn’t be taken any action after Czech billionaire Daniel Kretinsky increased his stake in the business to 22% earlier this year, while signalling that they probably wouldn’t block further increases in that stake.
Banks are also rebounding having seen some big falls at the end of last week, with some attributing the recovery to the prospect that current tax rates wouldn’t increase from the levels they are expected to go up to next year, when the headline corporation tax rises to 25%. NatWest and Lloyds are helping to drive today’s recovery after their losses of last week.
US markets look set to end a strongly positive month on the back foot, as some end of month profit taking kicks in, ahead of this week’s eagerly anticipated Federal Reserve rate meeting.
The latest Chicago PMI numbers for October once again pointed to a weaker manufacturing sector slipping to 45.2 from 45.7.
Tech stocks are once again acting as the main drag with Meta down sharply, while chipmakers are also under pressure, with Nvidia and AMD under pressure.
On the plus side, meme stops are getting an end of month uplift with decent gains for AMC Entertainment, GameStop and Bed, Bath and Beyond.
The US dollar is back in the ascendancy ahead of the start of tomorrow’s FOMC rate meeting when the Federal Reserve is expected to raise the Fed funds rate by another 75bps. The last two weeks have seen the US dollar give up some of its recent ground on the perception that we might see a slowdown in the pace of rate increases starting in December. It’s perhaps not surprising that headline inflation is coming down in the US given the strength of the US dollar this year. The downside to this for the global economy is that the US is exporting its inflation problem to the rest of the world.
This has been borne out by today’s EU CPI number for October which jumped from 10% in September to a new record high of 10.7%, thus adding to the problems for the ECB as they strive to balance the risks between hiking aggressively and the longer-term impact on the growth glide path of the economy of higher rates.
The pound has also slipped back as the latest consumer lending data showed that mortgage and credit card lending slowed in September, with the market turbulence that came towards the end of that month unlikely to have helped.
Crude oil prices have slipped back on the back of this morning’s contractions in China October PMIs, and the decision to close the Disney theme park in Shanghai until further notice due to rising covid cases. Every recent rally in oil prices has always been predicated on a belief that Chinese demand has the potential to rebound very rapidly. That might have been true if we were heading into the summer months and the prospect of warmer weather. It seems highly unlikely heading into winter with Covid cases rising and the Chinese government unlikely to relax restrictions as the weather gets colder.
The big rise in EU inflation is also likely to weigh on demand and potentially tighten financial conditions further, thus impacting demand as well.
Gold prices have remained under pressure, with the move higher in the US dollar as well as yields keeping the focus towards the recent lows just below $1,620 an ounce.
After Credit Suisse issued disappointing Q3 results on Thursday along with a gloomy outlook for the remainder of the year, the underlying share price fell sharply. Price action remained elevated on Friday amidst a degree of bargain hunting, with one day volatility coming in at 156.1% against 97.08% on the month.
Natural Gas prices had a turbulent end to the week amidst those ongoing concerns over distribution. With European storage facilities close to full and plentiful supply especially in Texas, US Nat Gas prices slipped more than 10% in the latter part of the week, although there was a degree of support emerging heading into the weekend break. The fundamentals here will continue to play out over the winter but daily vol on Natural Gas came in at 75.54% against 68.76% on the month.
Amongst currencies, the Euro was the standout as markets continued to digest that 75bps hike from the ECB. Initially the hawkish move had provided some meaningful support, but a sharp reversion on Thursday was followed by a turbulent end to the week. One day vol on EUR/CAD printed 10.17% against 9.69% on the month.
And rounding out with Cryptos there were again some pockets of activity seen on Friday, with Avalanche recording daily vol of 66.08% against 53.49% on the month, whilst Ethereum came in at 61.74% against 52.9%. That all combined to bump up activity in CMC’s proprietary All Crypto Index, which printed daily vol of 58.01% against 45.04% on the month.
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