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BP lifts the FTSE 100, as markets await Powell comments

BP service station

It’s been a mixed session for markets in Europe, with the FTSE 100 outperforming due to a strong performance from the oil and gas sector, after BP announced a record set of full-year numbers which has seen the shares rise to their highest levels since January 2020.

Europe

In Q4, BP saw underlying replacement cost profits of $4.8bn, a step down from Q3’s $8.15bn, due to underperformance in its oil and gas trading division but has still pushed total profits for the year to $27.65bn, a big jump from the $12.8bn in 2021. While this number will be the one that grabs the headlines on a full year basis, the profit attributable to shareholders saw the company slide to a $2.48bn loss, when the Rosneft write down costs are taken into account.

Capital expenditure rose to $16.33bn, a significant rise from $12.85bn in 2021. Over the last 12 months BP has also reduced its net debt levels from $30.6bn to $21.4bn. BP raised the Q4 dividend to 6.61p taking the total dividend for the year to 24.08p, as well as adding another share buyback for Q1 of $2.75bn.

What was also notable was that BP slowed its plans to cut oil and gas production to a 25% drop by 2030, down from 40%. While this is likely to be criticised by climate campaigners, it is a welcome move given that a push too fast towards renewables won’ t get the support it needs, if it ends up pushing people into fuel poverty. Shell shares are also seeing decent gains on the back of these numbers, as well as a rebound in oil prices. 

The weakness we saw in real-estate as well as technology shares yesterday has continued today, with weakness in the likes of Segro, British Land, and Scottish Mortgage Investment Trust

US

US markets have continued their softer tone as Minneapolis Fed president, Neel Kashkari, followed up his remarks from earlier this year by reiterating those comments of a terminal rate of 5.4%, and saying he wasn’t as confident as the markets about the prospect of falling inflation. Kashkari’s comments are significant given he is a voting member on the FOMC this year, as attention shifts to this afternoon’s remarks by Fed chair Jay Powell and whether he reinforces this hawkish tilt, and more importantly whether markets draw the correct conclusions from them. 

Pinterest shares have fallen sharply after Q4 revenues came up short of expectations, while guiding lower on its Q1 forecasts. Q4 revenues came in at $877m, pushing full-year revenues up to $2.8bn, a 9% increase. Profits were better than expected at $0.29 a share. For Q1, Pinterest said it expected to increase its revenues by low single digits, which was below a consensus of around 7%. The company says it is looking to cut costs against the backdrop of a more challenging advertising backdrop   

Call of Duty maker Activision Blizzard's shares are higher after reporting Q4 profits of $1.87 a share on revenues of $3.57bn, with the Modern Warfare release helping to boost revenue numbers. On the Microsoft acquisition, management said that despite the regulatory scrutiny they expected the deal to complete in June. This compared favourably with Take Two Interactive’s numbers, and Electronics Arts, both of whom fell short of expectations in recent days. 

Baidu, the Chinese listed search engine, has seen its shares surge after it announced its own version of ChatGPT style AI service.     

FX

The Australian dollar initially pushed higher after the RBA raised rates by 25bps to 3.35%, as expected, with the central bank saying that rates were likely to need to rise further in the coming months in order to push headline inflation lower. The gains proved to be short lived as the US dollar once again reasserted its dominance.

The pound has slipped back below the $1.20 level today for the first time in over a month, as it wilts along with the euro against the US dollar, however against the Japanese yen the greenback has lost some ground, slipping back after failing to move above the 50-day SMA which appears to be limiting its gains.   

Commodities

Crude oil prices have continued to edge higher, rebounding from three-week lows, as concerns over output stoppages due to the earthquake in Turkey point to the prospect of potential pinch points in supply. Saudi Arabia also raising prices to its Asia customers from March has also acted as an uplift.

Gold prices appear to have stabilised in the short term in the wake of the sharp two day decline we saw at the end of last week. With Fed chair Jay Powell due to speak later today traders appear to be stepping back as we look to see if he comes across as more hawkish in the wake of Friday’s blow out payrolls report.

Volatility

A strong run of late for UK banks' stocks saw some broker downgrades across the sector at the start of the week in news that ultimately took a toll on CMC’s proprietary basket of industry shares. There’s also the prospect of UK bank CEOs today having to explain to politicians why savings rates are lagging as base rates and borrowing costs tear ahead, so this could maintain interest in the cohort. One day volatility posted 23.92% against 20.4% for the month.

Oil prices were in for a turbulent session on Monday after crude touched multi-week lows. There are concerns over rising demand, price hikes out of Saudi Arabia and also worries as to how badly supply may be disrupted following the earthquakes in Turkey. Although this saw crude trading in an extended range, it has been distillates – most notably low sulphur gas oil - that have seen the higher levels of price action. One day volatility printed 58.24% against 44.06% on the month.

One stock that seems to make it onto the most actively traded list with a degree of frequency is Canoo, the US EV maker. Yesterday the company undertook a discounted placing, something that knocked the share price by more than 16%, although a recovery did follow. One day vol sat at 264.09% against 181.66% for the month.

And finally, cryptocurrencies started the week somewhat subdued although in fiat, sustained downside pressure on the euro by the Swiss franc saw the cross trading back below parity, with one day vol of 8.31% against 6.87% on the month.


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