European markets look set to finish a negative quarter on a positive note, with a softening in yields helping to lift the mood after EU headline inflation slowed more than expected in September to 4.3% from 5.2%, boosting optimism that further rate hikes from central banks won’t be necessary.
Europe
While the DAX and CAC 40 have seen significant losses over the last 3-months the FTSE100 has enjoyed a positive quarter, helped by solid gains for the likes of Rolls-Royce, BP, Shell, as well as housing with Taylor Wimpey leading the way in this sector.
It’s also been a good day for the FTSE250 after upward revisions to UK GDP which saw Q1 revised up to 0.3% from 0.1%, while previous years also saw an improvement with 2021 upgraded to 8.7% from 7.6% and 2022 upgraded to 4.3% from 4.1%. Household savings and real disposable income also showed a decent improvement in Q2, meaning UK consumers have a slightly bigger buffer when it comes to the slowdown that is coming in Q3 and Q4.
Amongst the best performers today has been the utilities sector after Severn Trent said it was raising £1bn to bolster its capital position, as well as laying out plans to invest heavily in the water infrastructure of the Midlands and Wales. The company says it intends to invest £12.9bn over the next 5 years, as well as creating 7,000 new jobs. £5bn of that money is expected to go towards reinforcing resilience, helping to reduce leakage and storm overflows, with £700m going into securing new water resources. Sector peer United Utilities is also higher.
JD Sportsshares are also rising strongly on the back of a positive read-across from Nike’s Q1 results last night, and its upbeat Q2 outlook.
US
At the end of what has been a negative month and quarter for stocks in the US, we’ve managed to see a positive open for US markets, with the latest core PCE deflator inflation numbers showing a further easing of inflationary pressure in August, slipping to 3.9% from 4.3%. This is welcome news for those who worry that inflation in the US is proving sticky, with personal spending slowing to 0.4% from 0.9%.
Nike shares jumped sharply after reporting Q1 revenues of $12.94bn, slightly below forecasts, while profits beat forecasts at $0.94c a share. For Q2 the company was more upbeat in contrast to its Q1 guidance back in June. Nike said it expects margins to expand by between 140-160bps and Q2 revenues of $13.59bn. On the downside its business with Footlocker has struggled, while it has also managed to make progress on its bloated inventory.
Carnival shares are also in focus after the cruise ship operator reported its latest Q3 results. The cruise ship sector has been one of the biggest laggards when it comes to the post-Covid recovery, with the shares still well below their pre-Covid peaks, and still operating at a loss. After reporting yet another loss in Q2 expectations were high for a return to profit. With record Q3 revenues of $6.85bn Carnival returned to profit, beating forecasts with $0.86c a share, however its Q4 estimates were a little on the low side, with the shares trading all over the map on the open. For the full year Carnival expects to be back at maximum occupancy with full year EBITDA kept within the guidance in June of between $4.1bn and $4.2bn. Q4 EBITDA to be between $800 and $900m.
FX
There was some good news on the inflation front for Europe after the latest EU CPI for September slowed to 4.3% from 5.2% in August, the lowest level since October 2021, while core prices slowed to 4.5%, helping to temper the euro’s gains against today’s US dollar weakness. Today’s rebound won’t be enough to prevent another weekly loss for the single currency, its 11th successive weekly decline and its worst ever run since it came into existence.
We had some more good news on the UK economy today after further revisions to UK GDP which showed the UK economy is bigger than it was pre-Covid and has also grown faster than France and Germany post pandemic. On the downside there was a softening in mortgage approvals to a six-month low.
The Japanese yen also saw a modest rebound on the back of today’s US dollar weakness; however, the effect was subdued after the Bank of Japan intervened in the bond market in an attempt to curb the recent rise in yields. The downside to this is that moves such as this make it all the more likely that USD/JPY will eventually break above the 150.00 area.
Commodities
After slipping back yesterday, crude oil prices look set to end the quarter on the up, with prices set to post their largest quarterly gain since Q1 of 2022, when Russia invaded Ukraine, reversing the losses of the previous 3 quarters. For now, prices are below $100 a barrel but given concerns over supply the risk is we could see that level in short order in the coming days. US inventory levels at Cushing Oklahoma have slipped to their lowest levels since 2014, even as US shale production hits record levels.
Gold prices have finished a negative week and month on the up, rebounding from 6-month lows on the back of slightly softer yields after US inflation came in slightly softer than expected.
Volatility.
Equity indices on Wall Street found some support yesterday with falling oil prices helping out and more than offsetting the impact of rising treasury yields. It’s looking as if it could still be a rather grim month on Wall Street, but that recent bout of upside has been sufficient to boost price action. One day vol on the S&P 500 hit 17.42% against 10 96% on the month whilst the NASDAQ told a similar story at 21.35% on the day and 15.07% on the month.
Perhaps no surprise that price action on WTI oil remains active after its retreat from one-year highs. One day vol on the contract printed 29.95% against 25.06% for the month.
That abnormal lull we saw in cryptocurrencies earlier in the week continues to look like an outlier, with Bitcoin Cash once again dominating. Gains here are now at 15% over the last week, with one day vol of 87.87% against 62.23% for the month.
And bargain hunters moved in on Copper on Thursday, following meaningful selling of the commodity off the back of inventory builds. There’s optimism that the Chinese Golden Week holiday may offer some broader economic impetus too, but otherwise this could yet prove to be an unsustainable rally. One day vol on Copper stood at 24.03% against 17.4% on the month.
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