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Turnaround Tuesday, as European stocks rebound after three days of losses

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European markets have seen a modest rebound from yesterday’s two-month lows, after the carnage of the last three days, as investors look for signs of a possible base.

Europe

US yields, which yesterday hit their highest levels since 2018, have also slipped back further, as uncertainty remains over what the global economy will look like in a few months’ time.

The wider question is whether we’ve seen a short-term base, or whether the rebound we’re seeing today is merely a temporary respite from further weakness.

The DAX is leading the way for markets in Europe, led by Bayer after the German chemicals giant posted a big increase in net profit to €3.3bn from €2.1bn a year ago. This was helped by a decent jump in revenues, driven by strong sales in fertilisers and pesticides.

The FTSE100 is also seeing a decent session, however it is still some way short of reversing the losses we saw yesterday.  

Today’s rebound has been led by some of the more beaten down areas of the market, with Melrose Industries doing well after hitting one-year lows yesterday. It is also notable that while we are seeing some decent gains today consumer staples are still lagging the wider market, showing that investors remain concerned about consumption trends, and the effect higher inflation will have on consumer spending patterns. 

British Gas owner Centrica has seen its share price rise today after reporting that it expects to see full year adjusted EPS to come in at the higher end of expectations. The energy marketing and trading division has secured strong volumes in both renewable energy and gas to improve UK and European supply security. The sale of Spirit Energy Norway is due to complete during Q2 subject to regulatory approval.     

US

US markets have had a much more positive tone today, with the Nasdaq 100 leading the rebound, although today’s recovery needs to be set in the context of not only yesterday’s losses but also the losses over the past week or so.  

If you thought things couldn’t get any worse for the Peloton share price with the shares already at record lows, and down over 90% from their pandemic peaks, then you’d have been wrong.

After a dismal Q2, the company cut its estimate for full revenue to $3.7bn to $3.8bn, a big reduction from the $5.4bn which it was at the end of its last fiscal year. The company also adjusted its Q3 revenue estimates lower to a number just below $1bn, at $971.6m, with an EBITDA loss of between $125m to $140m.

Even with such a low bar the company still managed to miss out, reporting $964.3m, and EBITDA losses of $194m, while for Q4 the company said it expects to see $675m to $700m, well below previous estimates of $821m. Peloton also said it expects EBITDA losses in Q4 of $115m to $120m.

Cinema chain AMC Entertainment managed to post a lower-than-expected loss of $0.52c a share when it reported its Q1 numbers yesterday, helped by higher-than-expected footfall, as people returned to enjoy the big screen experience. This has helped the shares rise in early trade, with the new Spiderman and Batman films helping to push revenues up to $785.7m, above estimates of $769.9m, and a huge improvement on last years $148.3m.

Revenue from admissions made up $443.8m of that total as the cinema chain saw over 39m people come through its doors, as the cinema chain cut its operating losses to $167m from $428m in the same quarter last year. In the earnings call AMC CEO Adam Arons expressed the hope that Q4 box office could exceed pre-pandemic levels, as well as saying that AMC is looking to acquire more theatres and move into other industries. While this may come across as exuding confidence in the outlook it can’t hide the fact that the business still has huge debts of over $5.5bn, and perhaps it might be more prudent to stabilise the balance sheet before embarking on further diversity or expansion plans. 

Online used car marketplace Vroom has seen its shares surge after posting a smaller than expected loss in its latest Q1 numbers, although today’s rebound needs to be set in the context of a 20% decline yesterday, and the fact that the shares are down over 80% year to date Q1 sales came in better than expected at $923.7m, while gross profits rose to $81.6m. Vroom’s biggest problem is its overheads as operating losses widened to $315.9m. The company said it expects to achieve between $135m and $165m in savings over the course of the rest of the year, with the loss of 270 jobs. For 2022 the company said it expects to sell about 50k cars on the ecommerce side. We also saw the appointment of a new CEO, Tom Shortt.

FX

The pound is flat on the day after retail sales numbers from the British Retail Consortium showed that total spending in April was down 0.3% from the same period a year ago as the cost-of-living squeeze prompted a scaling back in spending.

Not only have we seen a 54% rise in energy bills, but food prices have also risen sharply since the start of the year prompting a 1.7% decline in like for like sales following on from a -0.4% fall in March. One silver lining was an increase in travel spending due to the timing of the Easter break, however the next few months are likely to be tough ones for retailers and consumers alike.

It’s been a mixed day for the US dollar losing ground against the Swedish Krona, after Riksbank governor Stefan Ingves refused to rule out a 50bps rate hike, although he did say that further rate rises were likely in the coming months.

Commodities

This week’s oil price weakness has been largely driven by reports that the EU is having difficulty in reaching a consensus on its Russian oil ban, while yesterday’s weak China trade numbers have also weighed into the overall calculus, as concerns grow over Chinese demand, with the major cities of Beijing and Shanghai on the receiving end of new restrictions. Earlier today we slipped to one-week lows, although we have recovered a little since then.  

Gold prices, which fell close to two-month lows today, have struggled to rally, despite a drop in US yields. The lack of rebound probably has more to do with the fact that we’re seeing a decent rebound in stock markets, after three days of losses.

Volatility

Lumber has found itself in the spotlight again, after the underlying slipped towards fresh lows for the year. We’ve seen a lot of two-way price action on this trade in recent months, but right now the rising cost of borrowing is seen as putting off homeowners from undertaking redevelopment projects. That in turn is constraining demand, but in terms of commodities it was the most volatile on Monday with a daily print of 299% against 186% on the month.

Crypto assets were in focus yesterday with a collapse in the bell weather Bitcoin price leading the way. Rising interest rates seem to be a key driver of sentiment here, perhaps knocking some of the air out of the price, but the question must be where this will end. For those who saw digital assets as a safe play in a rising inflation environment, this could be seen as a wakeup call, but it’s also worth noting that we’ve seen the pattern before where volatility remains subdued in traditional asset classes, cryptos finds elevated levels of price action. Daily vol on Bitcoin pushed out to 130%, but Solana was even more active at 213% on the day versus 90% on the month whilst Tron remains active, posting 198% over 101%.

Elsewhere, global growth fears are affecting broader equity markets so whilst elevated price action was reported across many bourses, those seeing the heighted levels of vol had other specific factors in play. Some European markets struggled off the back of hawkish notes from ECB policymakers over the weekend, leaving the French index to print 36.3% in the day versus 21.2% on the month, whilst the Dutch benchmark came in at 35.7% versus 27.3%.

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