European markets are off to a positive start to the new week, helped by further declines in natural gas prices, which have slipped to their lowest levels in almost 18 months on the European Netherlands TTF contract.
The FTSE 100 has recovered after slipping below the 7,900 last week, and is on course for a new record close, with trading fairly subdued ahead of tomorrow’s keenly awaited US consumer price index report.
Today’s weakness in oil and gas prices has prompted some underperformance in the energy sector, however this is more than offset by resilience elsewhere, specifically in industrial and consumer staples with Weir Group, Spirax-Sarco Engineering and Smiths Group outperforming. Weir and Smiths have been lifted by being preferred picks for Goldman Sachs and rated as buys.
We’ve seen a little bit of softness in housebuilders, with Persimmon at the bottom of the FTSE 100 after being reduced to “sell” by Deutsche Bank, while Taylor Wimpey and Barratt Developments were cut to “hold” from “buy”.
Cineworld shares are higher on reports that Vue has lined up the financing to bid for the indebted cinema chain, in what is likely to be a humbling experience for its owners the Greidingers, who got into their current situation by overpaying for the US Regal chain of cinemas back in 2017. Let’s hope Vue doesn’t make a similar mistake by overpaying for a business that has a current market cap of £70m and debts of $8.8bn.
In the wake of last week’s losses, US markets have taken their cues from today’s European session by opening higher, although progress is being tempered ahead of tomorrow’s US CPI report for January.
The tech sector is leading the gainers, with the Nasdaq 100 outperforming, with Microsoft shares getting a lift on various positive broker comments and price upgrades, on the back of last week’s announcement that Bing would be improved by AI.
Manchester United shares spiked by over 5% in early trade on reports that Qatar is on the verge of preparing a bid by the end of the week, however the shares have since slipped back from their intraday highs.
It’s been a mixed day for the US dollar, gaining strongly against the Japanese yen as reports continue to emerge that Kazuo Ueda will become the next governor of the Bank of Japan. Not much is known about him given that he has been working in academia since 2005 after he left the Bank of Japan board, where he served between 1998 and 2005. Traders appear to be second guessing whether he is likely to lean towards the dovish or hawkish side, although tonight’s Q4 GDP numbers could offer some clue if they come in ahead of expectations.
The euro has underperformed on the back of some more nuanced commentary from the likes of ECB governing council members De Guindos and Centeno, who said any rate hikes after March would be very much data dependant.
The New Zealand dollar has been the best performer after January services activity jumped to 54.5 and a three-month high, up from 52 in December.
Crude oil prices have slipped back from last week’s peaks due to a stronger US dollar and the resumption of crude oil exports at Turkey’s Ceyhan terminal at the weekend.
Gold prices are slipping back towards support at the $1,850 area and 50 day SMA as rising short-term yields and a stronger US dollar act as a dead weight on its recent gains. Nervousness ahead of tomorrow’s US CPI is exerting upward pressure on yields, with the picture set to become clearer once the numbers for January inflation drop.
Shares in Standard Chartered had a somewhat turbulent end to the week after the idea that First Abu Dhabi Bank remains interested in buying out the company resurfaced. Takeover rules mean that they can’t make another unsolicited approach for a few months and there are a slew of barriers in the way here, which goes some way to explaining the short-lived gains on Thursday. Friday’s quick reversal left the underlying stock some 5% lower, with one day volatility of 187.57% against 61.34% for the month.
That move from Standard Chartered took a toll on CMC’s proprietary UK Banks basket of stocks which dipped more than 2% on Friday. Stan Chart is the second biggest constituent here, but losses were reflected across the wider sector. One day volatility on the banking cohort sat at 41.4% against 22.61% for the month.
Oil prices showed some weakness on Friday as markets looked beyond the threat that Russia would cut production, with fears instead focused on how the next steps from the Federal Reserve may impact demand. Once again it was distillates that saw the higher levels of price action rather than the underlying crude contract. One day volatility on low sulphur gasoil sat at 51.29% against 45.54% for the month, compared to Brent crude oil, which printed 37.33% on the day and 22.34% on the month.
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