While US markets continue to go from strength to strength, and set new records, the enthusiasm for European stocks appears to have waned a little, although any dips continue to be bought into.
Europe
The lack of upside momentum for European stocks compared to US markets over the last few days appears to be a symptom of a lack of interest ahead of the upcoming Christmas break.
The FTSE100 has managed to move above the peaks from yesterday however momentum quickly dissipated, while the DAX has drifted sideways.
Flutter Entertainment is higher today on the back of an upgrade from Peel Hunt, ahead of its US listing, which is due to go live on 29th January, with the broker citing improved momentum in its US business FanDuel, which should see the shares benefit from a much higher valuation.
Packaging company Mondi got an uplift after announcing a special dividend of €1.60 in respect of the disposal of its Russia business Syktyvkar for $889m back in October.
Burberry is lower on the back of a broker downgrade over concern that a lack of enthusiasm for its new luxury clothing brand could make it vulnerable to an earnings downgrade.
In a year that has generally seen UK retailers perform reasonably well Superdry has proved to be one of a few exceptions its shares falling to a record low today after issuing another profit warning due to weak trading during H1.
Today’s numbers saw the retail operation post a 13.1% decline in sales, while on the wholesale side sales were down 41.1% year on year, with the retailer blaming the abnormally warmer weather, although sales have picked up in the last 6 weeks as the weather got colder.
While blaming the weather is a perfectly legitimate excuse along with a difficult retail environment it’s also notable that this year, we’ve seen solid retail updates from the likes of Next, Primark, M&S and JD Sports, which would perhaps suggest that Superdry’s problems lie a little closer to home, and that customers simply don’t want to buy their products.
US
US markets have opened higher with the Nasdaq 100 setting a record high in the process as the momentum from last week, and lower yields continues to take the market higher.
Apple shares have slipped back over the past couple of days amidst concerns over its China business and a government crackdown on iPhones. Apple is also racing to avoid a ban on its Watch business by way of software workarounds after Masimo Corp argued that some of the technology infringed on its patents.
FX
The Japanese yen has lost ground after the Bank of Japan left rates unchanged and Governor Kazuo Ueda signalled that a rate hike or any other policy tightening measure was imminent. At a time when other central banks have completed their rate hiking cycles the Japanese central bank could have missed the boat when it comes to tightening policy materially and will probably have to rely on the easing cycles of its peers if it wants to avoid its currency weakening further.
The pound is leading the gainers against the US dollar with comments from Ben Broadbent, as well as Bank of England deputy governor Sarah Breeden, helping to push the currency back towards its recent peaks. She expressed concern over persistent wage pressure and said that rates would need to remain high for an extended period until unemployment starts to rise sharply, or wage growth slows more sharply than expected, echoing earlier comments from Broadbent.
Crude oil prices look set to post their 5th successive day of gains after the UK MOD said that the situation in the Red Sea was deteriorating rapidly, as HMS Diamond took up station alongside a host of other international navies.
While in the short term, any price shock is likely to be temporary, if the situation becomes a more permanent state of affairs, or escalates, we could see prices continue to move higher.
Natural gas prices on the other hand are sliding back as traders weigh up the pros and cons of recent events, and what might happen next.
Volatility
Vodafone was in the spotlight on Monday after an offer came in for the disposal of its Italian business unit for €10.45bn. Less than two years ago a similar deal was knocked back after the board said it was not in the best interests of the business, but the reception was somewhat more accommodating yesterday. The underlying added close on 10% mid-session before giving back more than half of those gains. One day vol stood at 68.13% against 34.65% for the month.
Palladium prices continued their rebound as the new week got underway. Having traded below the $950 level less than 10 days ago, the underlying broke above the $1,200 mark during Monday’s trade, the first time such levels have been seen since early October. There’s a degree of confusion in the market regarding tighter sanctions over certain metals supplies from Russia and this appears to be lending support for now. One day vol stood at 71.34% against 52.4% for the month.
In currencies, EUR/GBP proved to be the most active in a broadly becalmed market. The common currency appreciated despite worse than expected business climate data out of Berlin and the Bank of England reinforcing the line that salary growth was still too high to allow a softening of monetary policy. One day vol on Euro-Sterling printed 5.89% against 5.67% for the month.
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