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European markets edge higher as US markets return

London skyline

It’s gearing up to be another positive session for European markets, with a modest rebound in copper prices and other metals prices helping to lift the basic resources sector.

Europe

The gains have been rather tepid in nature and are still some ways short of reversing the losses we saw last Thursday, with the FTSE100 and DAX underperforming the CAC40, which is outperforming after falling sharply yesterday on the news that French President Macron reform program is probably dead in the water, after the result of the weekend French elections.

Nonetheless we’re seeing solid performances from the likes of Antofagasta, Rio Tinto and Glencore

Packaging company DS Smith is one of the best performers today after reporting a decent set of full year numbers. Full year revenues rose 21% to a record £7.24bn, helping to drive an increase in profits before tax of 64% to £378m. Only last week the shares hit their lowest levels since October 2020, so today’s full year numbers are a welcome tonic to a company whose share price has seen an over 30% decline in its share price since the 2021 highs of last September.   

Ocado shares have dropped sharply after raising £578m in a discounted cash raising in a move that was announced late last night after the market had closed. The company also announced that it had agreed a new £300m revolving credit facility. The money will be used to speed up its investment in innovation and build solutions at a faster pace.

Airlines are also on the slide with easyJet amongst the worst performers after announcing that its Spanish cabin crews would be looking to go out on strike for nine days starting in July. These calls have followed on from the announcement of similar industrial action by Ryanair staff based in Italy, France and Portugal.

With an eye on the future, easyJet also announced it was looking to buy 56 Airbus A320neo aircraft, as well as the conversion of 18 A320neo to 18 A321neo aircraft, as the airline looks to upgrade its fleet. This would be for delivery between 2026 and 2029, and would be under the terms of its existing contract, which was signed back in 2013.

US

US markets have returned from their long weekend, opening higher largely as a consequence of the rebound being seen in Asia markets, as well as European markets this week.

In company news Kellogg, the business that has given us cereal favourites Rice Krispies and Corn Flakes, has announced that it is splitting into three separate businesses, separating into the business areas of snacks, cereals and plant-based foods. The three companies, whose final names haven’t yet been decided, will be “Global Snacking” which will generate about $11.4bn in sales. “North American Cereal” company will focus on the US, Canada and the Caribbean and “Plant Co” will be a plant-based foods company. Sadly, there is no truth in reports that they will be called Snap, Crackle and Pop, because Snap is already taken. :) 

Exxon Mobil shares are higher after it was announced they are taking a $29bn, 6.5% stake in the Qatar gas Project joining a host of other companies in looking to secure a stake in non-Russian natural gas assets.  

Tesla shares are also higher after CEO Elon Musk said it would be cutting 10% of its salaried workforce over the next 3 months.

Coinbase shares are also enjoying a welcome recovery as bitcoin continues to edge away from its weekend lows.    

FX

The pound tried to edge higher today after Bank of England chief economist Huw Pill said that the central bank would allow growth to weaken in order to help the bank hit its 2% inflation target, which sounds hawkish until you realise that in most cases what the central bank says is rarely reflected in what it ends up doing.

Pill did caveat his remarks by saying that monetary policy couldn’t solve all problems, and that the exchange rate wasn’t a target there seemed to be little recognition that the exchange rate was causing second round effects already. With inflation expected to reach 11% by the autumn by the Bank of England’s own estimates you do have to wonder what it would take for the MPC to break the habit of their lifetime and hike by more than 25bps. If we’re not there now you have to wonder whether we ever will be, and helps explain why the pound has found it difficult to rally. Quite frankly markets have little faith in anything Bank of England policymakers have to say when it comes to forward guidance.   

The Japanese yen has continued to weaken, rising to a new 24 year low against the US dollar, and looks set to see further losses towards the 140.00 area. The market is clearly looking to test the resolve of the Bank of Japan in terms of how much they are prepared to tolerate further currency weakness. We’ve heard joint statements from the Bank of Japan and the Ministry of Finance that they are monitoring exchange rate developments, however in the absence of a shift in monetary policy there is little they will be able to do to slow the decline. With the yen down 15% year to date already there is a risk that the decline in the currency generates a momentum all of its own, and prompts a surge in inflation that is hard to control.

Commodities

Crude oil prices have continued to edge off the one month lows we saw at the end of last week, after the latest data for overall demand on flight activity as well as US road demand showed little sign of a slowdown.

After hitting a one-year low yesterday copper prices are seeing a modest rebound, with a modest weakening in the US dollar helping to prompt a bit of a pullback.

Gold prices are treading water, with a slightly weaker US dollar tempering the downside, while a continued rebound in US yields is tempering the upside.        

Volatility

A profit warning on Monday saw shares in Rank Group rattled, with the underlying price coming off almost 15% and daily vol surging to 381% as a result. That compares to 165% on the month, with the company reporting softer than expected visitor numbers to its UK venues.

Bargain hunting appears to be driving price action at least across some cryptocurrencies, with Litecoin a notable stand out here. Having traded down at around 18-month lows, the underlying is now up by more than a quarter from prices posted over the weekend, resulting in Monday’s vol figure coming in at 283% against 124% on the month.

Fiat currency markets are looking somewhat more normal after the exaggerated levels of movement we saw on some of the most established pairs last week. Across the board, daily vol is printing below the monthly readings, with Dollar – Forint showing the most exaggerated level of activity printing 18.28% on the day.

As for commodities, Copper could be seen as one to watch, with the metal having bounced off lows for the year yesterday amidst mounting recession worries. Critically, there’s also the risk of a strike by miners in Chile but this doesn’t appear to be lending much in the way of support at least for now, these fundamental drivers will likely hang over price action for some time yet however. Daily vol came in at 30.19% against 24.01% on the month.


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