Having got off to an initially positive start, with the FTSE100 getting to within touching distance of 7,500, it’s been a fairly lacklustre session as investors weigh up the release of tonight’s FOMC minutes against a backdrop of a weakening economic outlook, after PMIs all pointed to further economic weakness in Q4. It also tees up the possibility that this might lead central banks to hold back from hiking as aggressively as previously thought.
Europe
With the World Cup well under way we’re seeing a second day of gains for the likes of Flutter Entertainment and Entain. The scope for shock results like the Argentina, Saudi Arabia game potentially has the scope to drive an increase in betting patterns as the tournament progresses.
Halfords shares have taken a tumble despite reporting a 10.2% rise in total H1 revenues to £765.7m, however profits fell sharply from £64.3m a year ago to £29.3m, which while better than pre-pandemic levels, was on revenues that were quite a bit lower.
On guidance Halfords was quite downbeat warning that full year underlying pre-tax profits would be at the lower end of its previous guidance of £65m to £75m. This appears to be primarily down to underperformance in its retail shops, which has seen H1 revenues soften when compared to last year, while expecting to see its autocentres remain resilient. Revenues here have surged by over £109.1m since the same period last year, helped by the acquisition of Lodge Tyre.
The long hot summer has been a boon for the likes of Britvic as the drink’s maker posted a 15.5% increase in revenues to £1.62bn, which in turn helped to increase profits after tax by 45.3% to £140.2m. With no lockdown restrictions to contend with and the return of hospitality the business appears to have benefited from the double boost of a pandemic bounce back and one of the UK’s hottest summers on record.
Boohoo shares have slumped sharply after reports emerged that workers its Burnley warehouses are facing gruelling working conditions. Following on from a 2020 scandal that saw some of the company’s suppliers paying less than the minimum wage, there is a concern that despite an overhaul of its oversight procedures some mindsets are more difficult to shift.
US
US markets opened slightly higher after weekly jobless claims and appear to be treading water ahead of the release of tonight’s FOMC minutes and after weekly jobless claims unexpectedly rose more than expected to 240k from 223k. The latest November PMIs have added to the positive tone, after unexpectedly falling into contraction territory for both manufacturing and services as well.
The poor numbers are also weighing on the US dollar as well as yields, adding to a narrative that the rate hikes are working, and the Fed may not have to go full terminal rate of 5%.
Manchester United shares are up sharply again on reports that the Glazers are open to a full sale of their stake in the club. The shares rose sharply yesterday on the hope that a sale process might be imminent, with the club confirming in a statement that a process was ongoing.
HP shares have risen after the company said it would cut 6,000 jobs over the next 3 years, as the PC market struggled with weakening demand for PCs. In Q3 revenues came in well below expectations due to weaker demand for PCs and its Q4 numbers have also disappointed, revenues coming in at $14.8bn, although profits did beat slightly at $0.85c a share. For the new fiscal year 2023 the company offered an uncertain outlook with Q1 profits expected to come in at $0.70c a share, and full year adj. EPS between $3.20 and $3.60c a share.
At the end of Q3, Deere and Co downgraded its expectations for full year profits to between $7bn to $7.2bn, from $7bn to $7.4bn. due to downward pressure on operating margins. This morning’s Q4 numbers appear to suggest that caution was unnecessary, as Q4 revenues came in at $15.54bn and profits of $7.44c a share, well above expectations of $7.10c a share. Annual profits came in at $7.13bn, while revenues for the year rose to $52.58bn, a rise of 19%, as the company managed to pass on price increases to its clients. The agricultural equipment maker also upped its forecast for 2023 profits to between $8bn and $8.5bn, on the back of strong demand for tractors, from farmers who are getting higher prices for their crops.
FX
The US dollar was already on the back foot even before the latest services and manufacturing PMIs unexpectedly slipped into contraction territory in November. The latest University of Michigan 1 year inflation expectations also surprisingly fell back from 5.1% to 4.9%.
The New Zealand dollar is amongst one of the better performers against the US dollar after the RBNZ raised rates by 75bps, as well as raising its projection for where interest rates are likely to peak.
The pound also looks set for another strong day today pushing above the 1.2000 area and to three-month highs against the US dollar, as well as rising to its highest levels against the euro in almost 3 weeks.
The move higher appears to have coincided with the news that the UK Supreme Court had ruled that the Scottish Government did not have the right to hold a unilateral referendum without consent from the UK government. While somewhat of a relief, the ruling will do little to alter the independence narrative that is an ongoing staple of the Scottish government.
Reports that the EU is considering a price cap on Russian crude oil is serving to act as a drag on the wider oil complex, although the pessimistic projections for the economic outlook for next year from the OECD aren’t exactly helping either. With China also grappling with record numbers of covid cases the macro-outlook has continued to deteriorate for oil this week, with prices on course to decline for the third week in a row.
Volatility
Oil prices remained very much in focus on Tuesday with OPEC hinting that it may be looking to cut output in something of a turn-around from the position a few days ago. Crude ticked slightly higher as a result but continues to trade close to two-month lows. One day vol on West Texas intermediate printed 62.65% against 41.96% on the month.
Again, this fed into the price of oil and gas producing stocks, with CMC’s proprietary basket covering the sector finding support as a result. All ten constituents made meaningful gains as a result, with one day vol coming in at 59.2% against 49.16% for the month.
The DouYu ADR managed to find some support following the rout at the start of the week because of those disappointing earnings. The underlying ticked up less than 2% but that was still sufficient to drive daily volatility in the video streaming provider to 221.9% against 195.22% on the month.
Elsewhere, activity was rather more limited, with fiat currency pairs all printing daily volatility levels lower than the one-month equivalents, whilst cryptos remain somewhat subdued, too.
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