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AstraZeneca drags the FTSE 100 off its highs

AstraZeneca logo and Vaccine

Despite a brief look above 7,400, and another 20-month high earlier this morning, the FTSE 100 has slipped back, but it is still on course to post a solid week of gains, along with record highs this week for the DAX, CAC 40 and the Stoxx 600.

Europe

Today’s pullback by the FTSE 100 has been largely down to some disappointing numbers from AstraZeneca, which are acting as a big drag on the index, to the tune of about 40 points, with declines in BP and Royal Dutch Shell also not helping, due to weakness in the oil price.

Having seen steady gains leading up to today’s Q3 numbers, hopes were high that AstraZeneca would be able to deliver a decent set of numbers as it drives through its Alexion integration. Sadly, today’s numbers haven’t delivered, with the shares falling back sharply.

Total revenues have come in ahead of expectations at $9.87bn, which is fairly decent, however better than expected revenues from the Covid-19 vaccine helped to drive that, coming in at $1.05bn. More importantly the vaccines business now looks on course to generate some positive returns as new vaccine contracts get signed. Revenues from its core business fell significantly short of expectations at $8.8bn, as the company slipped to a quarterly loss of $2bn, due to a significant increase in costs, due to the integration of Alexion, and other R&D costs.

Year to date revenue is still up by 32% at $25 4bn, with the company saying it still remains on course to meet its full year core EPS guidance of between $5.05c and $5.40c a share.

Darktrace is also having another down day in what has been a very choppy week for the cyber security company as it looks to stabilise after two weeks of losses, which has seen the shares slide over 35% since the 22 October.  

On the plus side Burberry is among the better performers today, retracing some of its losses from yesterday, but also getting a lift after a decent H1 update from sector peer Richemont, which has given the entire sector a boost.    

US

US markets are trading mixed in what looks set to be the first negative week since late September, as US investors mull over what a 31 year high for US CPI might mean for future central bank monetary policy. Today’s latest economic data showed that US job openings in September ticked up to 10.44m, however Michigan consumer confidence fell to a 10-year low, as rising food and energy costs darkened the outlook for discretionary spending in the lead-up to Christmas.

AMC Entertainment shares are modestly higher after it said it would accept crypto payments in exchange for its services.

Johnson & Johnson shares are modestly higher despite its announcement that it plans to split into two separate companies, one for its consumer products which includes the sale of toothpastes, and other household products, and the other which would focus on the development of drugs and medical devices.

Rivian shares are continuing to push higher after the company said it was looking to build an EV battery plant from the funds of its IPO. The company also said it was looking to target production of electric vehicles in Europe by Q4 2023.

Another electric vehicle start-up Lordstown Motors has seen its share price drop after reporting yet another quarter with no revenue, saying it plans to deliver its new truck in Q3 of 2022.

FX

It’s been a big week for the US dollar after this week’s surprise jump in US CPI to a 31 year high of 6.2%. Having heard for several months from central banks that the current increase in prices is transitory, it is becoming increasingly obvious that this so-called transitory period is anything but, and certainly doesn’t feel like that to the ordinary consumer.

With the US dollar index hitting a 15-month high, the line of least resistance appears to be for further US dollar gains, as bets that the Federal Reserve will have to raise rates next year and taper faster increase.

The worst performers have been the Scandi currencies and the Australian dollar, although we’ve seen a bit of a rebound today, while the pound has given up all of its gains this year against the US dollar, over uncertainty about the Bank of England’s own reaction function when it comes to interest rates, and ahead of UK CPI next week, which could see prices rise by as much as 4% year on year.  

Commodities

Despite a sharp rise in bond yields, gold prices have surged this week, along with silver breaking a number of key technical levels in the process. While yields have risen sharply, along with the US dollar, due to this week’s big US CPI print, the rally in gold appears to be predicated on the belief that the reaction of the Federal Reserve in looking to address this inflationary surge will probably be quite modest on the rate front.

Gold also appears to be attracting a bit of a haven bid as investors broaden out their asset allocation exposure and away from stocks, which are still near record highs. Next key resistance for gold sits at the $1,890 level.

Crude oil prices have seen two successive weekly declines, and could well make it three, as we continue to struggle to push above the recent highs. We hear a lot about the prospect of $100 oil, however the rebound in the US dollar this week could be helping to cap the upside. There has been increasing speculation this week that President Biden might consider a release from the US Strategic Petroleum Reserve in an attempt to keep a lid on prices, and that may be helping to keep a lid on prices. US rig counts have continued to increase as well which is also helping.     


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