European markets have seen another positive session, although the FTSE100 has slipped back, failing again to hold above the 7,400 level, with the rise in the pound post US PPI appearing to act as a bit of a drag on the UK index.
The biggest drag has been Vodafone after the telecoms company posted a rather uninspiring set of H1 numbers, as it downgraded its full year outlook.
They’ve been a serial underperformer since the company disposed of its Verizon stake all the way back in 2014, falling year over year, and have shown little sign of mounting any sort of recovery.
Earlier this year Vodafone rejected an €11bn offer by Iliad for its Italian business, while last year the company span off its Vantage Towers unit, and earlier this month agreed to sell part of its stake in that business to a joint venture with KKR.
Having rejected what looked like a generous bid from Iliad for an underperforming asset, and yet agreeing to a JV with KKR there appears to be little sign that management have a clear strategy for the business.
Earlier this year there was a largely indifferent response to the company’s Q1 numbers, and today’s H1 numbers appear to be similarly lacklustre, the shares falling back after the telecoms giant reported a 2% rise in revenues to €22.9bn, helping to boost operating profits by 12% to €2.9bn, with a decent performance in the UK business offsetting weakness in Italy and Spain
Despite this the company downgraded its outlook for the full year to the lower end of its range, as well as announcing a €1bn cost saving program by 2026, as high inflation erodes margins.
CEO Nick Read is under pressure to turn the business around and reduce debt levels, so it is interesting to note that net debt went up, rising by €3.9bn during the half to €45.4bn, a number which was partly made up of equity dividends of €1.3bn, and €1bn of share buybacks.
The recent rally of Ocado shares also appears to have come to a shuddering halt today. The shares have surged in recent days after the Lotte deal was announced, so a pullback was long overdue, given that over 20% rise we’ve seen so far this month.
On the plus side, Centrica shares are higher as the £250m share buyback scheme gets underway.
BAE Systems has been one of the notable outperformers this year on the FTSE100, boosted by the war in Ukraine and its position as one of the UK’s largest defence contractors. With an order book backlog of £52.7bn, the company has seen a big jump in orders this year alone, with another £10bn of orders, on top of the £17.9bn in H1. The company kept its full year guidance unchanged.
Another notable outperformer this year has been Imperial Brands, whose full year numbers have seen the company post a decline in revenue of -0.7%, to £7.79bn, with sales in its tobacco division making up £7.58bn. Its NGP products still make up a very small part of the company’s revenue mix at £208m, although that was still an improvement of 10.8%. The shares slipped back slightly.
Energy providers have edged higher on reports that any windfall tax would be levied on “excess profits” begging the question as to how “excess” is defined, with SSE and National Grid trading either side of the flat line.
US markets opened strongly higher, led by the Nasdaq 100 after US PPI for October came in well below expectations, at 8% on the headline rate, while core prices fell to 6.7% from 7.2%, with the US dollar also falling off sharply, along with yields.
With the Nasdaq leading US markets higher, tech stocks once again have outperformed led by the likes of Advanced Micro Devices, Nvidia and Qualcomm.
Walmart shares jumped sharply after the US retailer reported Q3 revenues of $152.8bn, and profits of $1.50c a share, both well above expectations. Profits for the quarter were wiped out by a one-off $3.1bn opioid settlement, meaning that the profit turned into a net quarterly loss of $1.8bn. Despite that Walmart also upgraded its full year guidance and posted gross margins of 23.8% also slightly ahead of forecasts, as well as announcing a $20bn share buyback. Walmart has also managed to reduce its inventory level down to 13%, haling it from Q2’s 26%, helped by sales growth of 8.2%.
Home Depot’s numbers weren’t anywhere near as good but nonetheless the shares edged higher after reporting Q3 revenues of $38.87bn an increase of 6%, and profits of $4.3bn or $4.24c a share, but unlike Walmart only reaffirmed its full year guidance, citing an uncertain outlook for its caution about its Q4. With Target due to report its own Q3 results tomorrow the bar has been raised for the rest of the sector.
The US dollar was already on the back foot leading up to today’s US PPI report, with the weaker than expected number giving the greenback another nudge to the downside, with the pound being amongst one of the main beneficiaries, rising close to a 3-month high.
While Fed officials have been at pains to push back on the narrative that inflation may well have peaked the numbers appear to be speaking for themselves. Not only has CPI been falling since the summer, but so has PPI and while core prices do appear to have been slightly stickier, these are also falling as well. Fed officials may well be urging caution but investors already appear to have made up their minds, with yields falling and the US dollar lower.
The pound had already been edging higher in the lead-up to this afternoon’ s numbers boosted by comments from Chancellor of the Exchequer Jeremy Hunt doubling down on fighting inflation, as well as pledging to keep the public finances in check. The subsequent miss on the headline PPI number saw the US dollar sink and the pound surge above 1.2000 for the first time since 18th August. It also rallied back towards the top of its recent range against the euro.
Against the Japanese yen the US dollar continued to slide, slipping below last week’s lows, before rebounding.
Despite the weaker US dollar and hopes that inflation could be starting to fall sharply, crude oil prices have remained under pressure, as covid cases continue to rise in China, and the latest retail sales numbers for October declined -0.5%. For all the optimism over an economic reopening the penny finally appears to be dropping that even if Chinese officials are talking about it, they remain some way off implementing it.
Gold prices jumped to a 3-month high, in the wake of this afternoon’s PPI report, before slipping back, as a slightly weaker US dollar, and lower yields kept a floor under prices.
Shares in US EV maker Canoo have seen elevated levels of price action in recent days. Last week’s earnings impressed, driving renewed interest in the stock which has been on the back foot since last November. An uptick in orders does seem to be allaying some concerns that the company may have been coming close to running out of road, with one day volatility printing 295.85% versus 169.3% on the month.
Activity levels across cryptos remain elevated, but there are signs that a degree of order may be returning following the FTX collapse. Bitcoin is struggling to retake the $17000 mark with daily volatility here coming in at 91.64% against 67.48% on the month, whilst Solana remains the stand out, printing 251.5% on the day compared with 199.7% on the month.
Copper prices had pushed out to five-month highs, spurred along by hopes of China’s economy taking off again, but with the US Dollar consolidating after some modest losses, that appears to have resulted in metals traders taking stock. One day vol came in at 34.99% against 31.96% on the month.
And in fiat currencies, it was the Swiss Franc that topped out in terms of price action on Monday. The head of the Swiss National Bank flagged the high probability of further rate hikes, noting that appreciation of the Franc was helping offset some inflationary pressures. One day vol on EUR/CHF came in at 10.2% against 8.2% on the month.
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