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Banks slip back on windfall tax speculation

Canary Wharf with HSBC and Barclays buildings

European markets have struggled for gains today, although the downside has been limited, with progress constrained by a sharp rise in US yields, as well as the US dollar, after Minneapolis Fed President Neel Kashkari said that the Federal Reserve would be in no position to pause on rate rises if inflation was still rising, even with the Fed Funds rate at 4.5%.

Europe

UK banking shares have struggled the most today on fears that they could be hit by a new windfall tax on top of the 8% banking surcharge they pay on top of the corporation tax rate. With that due to rise to 25% next year it seems there is no length that politicians will stoop to try and fill various holes in the public finances.

Never mind that they risk crushing investment in the process.

Amongst the biggest fallers are Lloyds and NatWest given that most of their profits come from their UK operations.

As far as oil companies are concerned, they’ve shrugged off similar speculation that the current windfall tax could be increased further on them, which is a little surprising, but when you’re taxed at a 65% tax rate there’s a limit to how much higher it can go.

Furthermore, the government would have to be monumentally stupid to do so at a time when they want these companies to tender for new licences in the North Sea for oil and gas exploration. If you’re then going to hammer the same companies on any profits they make, why on earth would they put in the investment to extract that resource?

Just Eat shares have edged higher after reporting an 11% year on year decline in Q3 orders to 235.3m. The biggest fall came in its US operation which fell 13.7%, while UK and Ireland fell 15%. Gross Transaction Value (GTV) came in at €6.92bn, below expectations of €6.97bn.

On the plus side adjusted EBITDA improved largely due to operational improvements with the company confirming its improved guidance for the year.

Today’s update from Just Eat and the disappointing UK numbers appear to have knocked the stuffing out of Deliveroo which has seen its shares drop sharply ahead of its Q3 numbers later this week.

ASOS shares have pulled away from their recent record lows despite reporting a bigger then expected full year loss before tax of £31.9m. That may well have more to do with the fact that the shares are already down over 75% year to date tan any confidence that the worst is behind it.

Full year revenues saw a modest increase to £3.94bn, with the fast fashion retailer warning that H1 was likely to see the company remain loss making as it wrote down the value of inventory to the tune of £130m, as it looks to right size the business against a backdrop of weaker consumer demand.

US

US markets initially looked as if they were going to open higher, however a sharp surge in yields and a stronger US dollar has taken the edge off, and has seen US stocks open slightly lower, despite a positive market reaction to Netflix, who surprised the markets with a better-than-expected set of Q3 numbers, reversing two successive quarters of negative subscriber growth.

Netflix shares had pushed higher after reporting a big jump in subscriber growth in Q3 and forecasting an even bigger number in Q4. Profits and revenues also beat expectations, however the guidance for Q4 was slightly more troubling. Revenues were adjusted lower along with profits, which while not surprising as Q4 tends to be its weakest quarter, but also comes across as counterintuitive given the lower revenue forecast. Netflix said the stronger US dollar was the main reason for the lower forecast without explaining why the strength of the US dollar this year hasn’t had a similar drag effect.

United Airlines is also higher after joining Delta Airlines in upgrading its outlook for Q4 as well as reporting a solid set of Q3 numbers, with international travel seeing a decent rebound.

Trading continues to be choppy in early trade with attention now shifting towards tonight’s Q3 numbers from Tesla who are due to report after the bell.

Q3 deliveries are expected to be confirmed at 343k, slightly below expectations. Rising costs have prompted Musk to announce redundancies in some areas of its business. There have also been regional problems with its Shanghai factory losing most of its July production due to plant upgrades, although since then production has picked up. Operating margins are likely to be closely watched given recent problems. They fell from 32.9% in Q1 to 27.9% in Q2. Profits are expected to come in at $1.04c a share. With Tesla shares sitting just above the lows this year any disappointment on tonight’s numbers could well see the shares fall quite sharply after-hours 

FX

The US dollar has reasserted itself today, with the pound sinking back, although it is by no means the worst performer, with the euro also seeing losses.  

We saw another grim UK inflation number today as headline CPI pushed back above 10% in September, and core prices rose by more than expected to 6.5%, with food prices once again driving most of the move higher, rising 14.6%.

On a more positive note, and this is grasping at straws a little, PPI does appear to be showing signs of slowing but it’s still at eye wateringly high levels, with input prices falling to 20% from 20.9% in August.

The US dollar is also closing on the 150.00 level against the Japanese yen as it continues to make new 32-year highs.

Commodities

Another surge in yields and a stronger US dollar have called time on the early rebound in the gold price from earlier this week. The line of least resistance appears to be for further declines with support at the September lows at $1,615.

Crude oil prices slipped back sharply yesterday on the back of reports that the White House was looking at doing another SPR release to offset the OPEC+ production cuts as the tug of war between the US and Saudi Arabia continues. We’ve seen a modest rebound today as the tug of war between concerns over supply and fears over demand continue the back and forth in the price action that has been a feature of the past few weeks.

Volatility

Earnings news from Bank of America yesterday suggested US consumer demand remained on good form, driving the underlying share price up by 3.75% on the day and taking gains since the early part of last week to almost 20%. That’s certainly impressive for a company of its size and the recent interest has elevated one day volatility to 79.92% against 60.07% on the month.

CMC’s proprietary basket of US listed Chinese tech stocks saw heightened levels of price action yesterday. Early gains were seen across the cohort as buoyant sentiment from Wall Street left a positive impression, but the upside proved difficult to sustain on the majority of constituents. One outlier was ecommerce play Pinduoduo which added more than 5% on Tuesday, with one day vol on the basket coming in at 67.21% against 59.3% on the month.

Finally, US Natural Gas prices took another step lower on Tuesday, leaving the asset as the most volatile of commodities on the day. There are still challenges ahead over the winter for the market, but prices continue to eye the lows seen early in the summer. One day vol printed 70.62% against 67.67% for the month as a result.


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