It’s been a weak start to the month for European markets as investors weigh the messaging from both the Federal Reserve and the Bank of England, which appears to be that rate cuts are coming, just not as soon as markets were hoping 24 hours ago, prompting some modest weakness across the board.
Today saw EU inflation slow by less than expected in January, while the Bank of England was split when it comes today’s monetary policy decision. What we can glean from today’s press conference with Bank of England governor Andrew Bailey is that while the tightening bias has gone, and that a rate cut is coming, the MPC isn’t too keen to signal one yet given the elevated levels of services inflation, and that we might have to wait until June.
It was a similar story from Fed chair Jay Powell just under 24 hours ago when he pretty much stomped on the idea of a March rate cut from the Fed, although like the Bank of England, the Fed did signal the end of its own tightening bias.
The FTSE100 has performed slightly better than its European peers largely due to a solid day for Shell whose shares rose to 3-week highs after announcing better than expected Q4 profits of $7.3bn, helped by a big jump in integrated gas profits of $3.96bn, pushing annual profits up to $28.25bn, a significant decline on last year’s $39.87bn.
There was also a 4% increase in the dividend and the announcement of another $3.5bn buyback mainly financed by a $3bn increase in net debt.
BT Group shares tried to move higher in early trading before sliding into the red despite reporting a better-than-expected set of Q3 numbers, which have been boosted by a 5% increase in revenues on the consumer side of the business, which rose to £2.56bn, helping to lift Q3 revenues to £5.34bn.
Adjusted EBITDA saw an increase of 1% to £2.03bn, with the telecoms giant on course to register its first annual revenue increase since 2017, helped in no small part by price hikes at the start of the year, which have helped push reported profit before tax up by 15% to £1.5bn.
Airtel Africa is also higher after reporting a Q3 pre-tax profits of $43m and announcing a share buyback program of $100m.
A profit warning from Adidas has seen weakness in the likes of JD Sports and Sports Direct owner Frasers Group. Adidas said it expects operating profits for 2024 to come in at €500m, over half of previous estimates of €1.27bn, largely due to currency effects.
After seeing its worst one-day decline since September, the S&P500 along with the rest of US markets have seen a modest rebound as last night’s Powell pushback on a March rate cut shifts the focus to the latest set of earnings numbers from the likes of AmazonApple, and Meta Platforms after the bell.
With the disappointment over Alphabet and Microsoft’s numbers very much front of mind the hope is that tonight’s numbers from the rest of the “Magnificent 7” and call a halt to 2 days of decline on the Nasdaq 100.
The US banking sector is set to be in focus after yesterday’s slide in New York Community Bancorp due to concerns over its exposure to big losses on US real estate, with the real risk its credit rating could be cut to junk.
Qualcomm shares are lower after Q1 revenues came in at $9.94bn and profits of $2.37 a share, with the chip maker extending its contract with Apple until 2027. Q2 guidance was disappointing with the company forecasting a slowdown in revenues of $8.9bn to $9.7bn.
Still not seeing much of a sign of a turnaround at Peloton after Q2 revenues come in at $744m, slightly ahead of forecasts, while losses came in at 54c a share. Q3 guidance however was weaker than expected with Peloton downgrading it to between $700m and $725m, with the shares slumping by over 20%. How long before the company is subject to takeover interest?
It’s been a poor start to the month for the US dollar after yesterday’s choppy session, with another rise in jobless claims signalling a modest slide.
If we were hoping for clues as to when to expect a rate cut from the Bank of England, then today’s vote to leave rates unchanged didn’t offer much clarity. If anything, they muddied the waters further as 2 MPC members, Mann and Haskel voted for another rate hike, however Swati Dhingra voted for a rate cut.
Despite the 2 votes for a rate hike the central bank dropped its reference to further tightening, with the MPC saying it needs to see more evidence before they can consider lowering rates.
The Bank of England also updated its inflation forecast for 2024 reducing it to 2.75% from 3.25%, while upgrading its growth forecast to 0.25%. The bank went on to say it does expect inflation to return to target in Q2 this year, before edging back up again.
Services inflation, which fell to 6.4% at the end of last year, is expected to be much stickier and is expected to rise to 6.6% in the next few months, before ending this year at 5%. This appears to be what is making the Bank of England cautious about its guidance. UK gilt yields have popped higher as expectations of an early rate cut get pushed back to June.
Crude oil prices have edged higher after OPEC+ members signalled that the current production cuts would be extended into the first quarter of 2024. This shouldn’t really have come as a surprise given concerns over demand and the fact that oil prices have struggled to move higher than they were when the cuts were first agreed.
Despite the pushback by central bankers over the timing of rate cuts the fact that both the Federal Reserve, as well as the Bank of England have dropped their tightening biases, we’ve still seen a modest drift lower in yields, albeit perhaps by not as much if central banks had signalled the imminent start of a rate cutting cycle. The weaker US dollar is also helping on the margins
Yesterday’s conclusion of the latest FOMC meeting saw the idea of a quick rate cut being dismissed, a move that served to knock sentiment for US stocks. The small cap Russell 2000 index was a standout for the asset class, selling off by as much as 3% at one point during the session. One day vol stood at 32.17% against 21.61% for the month, whilst the Nasdaq also saw elevated levels of price movement with one day vol of 18.67% and a one month reading of 13.99%.
Renewable energy stocks have been notably struggling against the backdrop of high interest rates, so perhaps it’s no surprise that this cohort also baulked the Fed’s news yesterday. CMC’s proprietary basket of renewable energy stocks slipped heading into the close, resuming the down trend which has been building since the end of last year. One day vol stood at 85.88% against 55.87% on the month.
A weaker than expected ADP Payroll print served to knock the dollar early in yesterday’s session before that FOMC news reversed some of the losses. Dollar-yen was the most active currency trade, dropping by almost two big figures before recovering around half of the losses. One day vol stood at 13.4% against 9.12% for the month.
Oil distillate prices continue to show outsized levels of price movement, with gasoline remaining the most active. Underlying prices retreated by up to 4% on Wednesday, driving one day vol to 43.63% against 34.12% for the month.
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