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European markets set for third successive daily gain, Next slides

European markets have continued to stabilize as confidence continues to return after the upheaval of the last two weeks, with the DAX pushing up to its best levels in 2-weeks, led by a continued recovery in financials while real estate is starting to see some buying interest creep back in.

Europe

While pessimism around the real estate sector has increased with JPMorgan issuing a fresh warning, on concerns over rising yields, today we’ve seen a decent rebound across the board with Vonovia in Germany enjoying a strong bounce, helping to lift the likes of British Land and Land Securities. The rise in yields is also helping to lift European and UK banks and other financials.

A rebound in UK mortgage approvals in February is helping to lift UK house builders with Persimmon, Taylor Wimpey, and Barratt Developments edging higher.

On the downside, Next shares are the worst performers despite reporting better-than-expected full-year profit before tax of £870m, and an increase of total trading sales of 8.4% to £5.15bn.

It appears that markets are concerned about the full-year outlook, however, management flagged this back in January when they issued guidance for 2024 of a -1.5% decline in full-year sales as well as a decline of -7.6% in full-year profits to £795m.

On the plus side, Next was more optimistic about cost price inflation which was originally expected to peak at 8% in the summer but is now expected to be lower at 7%, while in H2 inflation costs have been revised lower from 6% to 3%. Apparently, this little morsel wasn’t enough to satisfy investors, despite the likelihood it might provide better margins over the reporting period. I guess there’s just no pleasing some people.

Today’s declines in the Next share price have also elicited similar underperformance in the likes of Primark owner Associated British Foods, JD Sports, Marks & Spencer, and B&M European retail.

US

US markets have followed the buoyant tone in European markets, opening higher, with the Nasdaq 100 leading the way, led by the chip sector. 

This appears to be largely down to a better-than-expected update from Micron, whose shares are higher after the US chip provider provided a slightly more upbeat outlook for Q3 than many had been expecting, promoting optimism that the worst might be behind it when it comes to the chip sector. Q3 sales are expected to rise to $3.9bn, although the company is still expected to see losses of $1.58c a share. The company also announced further job losses. Q2 revenues came in at $3.69bn while losses came in at $1.91c a share, as restructuring costs continue to act as a drag.

Fellow chipmakers, Intel, Qualcomm and TSMC have also edged higher.

US retailer Lululemon has also seen its share rise sharply after it posted Q4 revenues of $2.77bn, comfortably beating expectations, along with better-than-expected profits. The company also outlined a much more positive outlook, projecting annual revenues for 2024 of between $9.3bn and $9.41bn, and a mid-point profit target of $11.61c a share.

AMC Entertainment shares saw a pop higher yesterday on reports that Amazon might be looking at an acquisition as it looks to boost its presence in the motion picture and entertainment business.

This comes across as a bit of a stretch given AMC’s valuation relative to its bankrupt peer Cineworld. At a time when Amazon is making cost savings in other areas of its business, surely it would make more sense to pick up bits of Cineworld if it is in fact looking to acquire a chain of movie theatres. Cineworld’s Regal assets would be available at a fraction of the price it would take to acquire than AMC which is way more overvalued.  

FX

It's been very much a case of watching paint dry for currencies today, with the US dollar edging higher particularly against the Japanese yen, where the currency has seen some big declines this month.

The Australian dollar has also slipped back after the latest CPI numbers saw headline inflation fall back more than expected in February, falling from 7.4% to 6.8%. The lower-than-expected rise has raised the prospect that the RBA might be minded to keep rates unchanged when it next meets next week. 

The pound is little changed, however, there was some positive news with the prospect that the UK could be on the cusp of signing up for a new trade agreement with the CPTPP, the 11-country Asia-Pacific trade area.     

Commodities

Crude oil prices have risen to their highest levels in over 2 weeks over concerns about tighter supplies after API inventories showed a bigger-than-expected fall of 6.11m barrels last week. The more positive mood around risk is also helping with the added buoyancy in stock markets helping to buoy prices.

Gold prices are on the back foot today on the back of the slightly firmer US dollar and the slightly softer tone in bond markets, which is putting upward pressure on yields.

Volatility

Markets were somewhat becalmed on Tuesday across the majority of asset classes. One standout however was Alibaba, the Chinese e-commerce goliath whose valuation soared after plans to break the company up into six constituent parts were announced. The underlying US listing had added around 15% by one point during the session before settling a little off the day’s highs. One day vol printed 106.45% against 52.44% for the month.

That news helped provide some momentum for CMC’s proprietary China Tech basket. This covers the US listings of 10 key firms in the sector, with Alibaba having the heaviest weighting. One day vol came in at 58.31% compared to 49.21% for the month.

Even crypto assets were in for a quiet session, with Stellar Lumens the only outlier here, printing daily volatility of 60.66% against 57.03%. The remainder of the asset class saw one day activity coming in below the longer horizon readings.

As for commodities, Wheat was the only instrument to show any excessive price action on Tuesday but even this was limited. One day volatility printed 35.4%, only a fraction ahead of the one month print of 34.93%.


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