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European markets stabilise after 3 days of losses

We’ve seen a modest stabilisation in European markets after the losses of yesterday, with the FTSE 100 lagging the rest of Europe with weakness in utilities and consumer staples acting as a drag on the UK blue-chip index.

US weekly jobless claims, which fell to their lowest levels since September 2022 served to temper any gains with stock markets retreating from their intraday highs.

Europe

The CAC 40 is outperforming after Swiss luxury retailer Richemont reported better-than-expected Q3 sales of 8%, driven by outperformance in Japan, MEA and the US markets, helping to give a lift to Hermes and LVMH. The strong performance contrasted with Rolex retailer Watches of Switzerland, which is the worst performer after warning of a difficult second half of the year and downgrading its full-year guidance for 2024, sending the shares to their lowest levels since November 2020. It now expects to see revenues of £1.53bn-£1.55bn, down from £1.65bn and £1.7bn, while EBIT margin was revised lower to between 8.7% and 8.9%.   

On the upside, Paddy Power owner Flutter Entertainment is the best performer after reporting Q4 revenues of £2.67bn an increase of 11%, helping to push full year revenues up by 24% to £9.5bn, with the growth evenly spread between sports and gaming revenues which rose by 23% and 29% respectively. The US market provided the momentum, with the FanDuel business showing quarterly growth of 53% sportsbook and 49% gaming Today’s outperformance has helped lift sector peer Entain

Boohoo's share price are little changed after reporting that Frasers Group had upped its stake in the business to 21.49 from 17.2%. Defence contractor BAE Systems is a little bit softer on the back of a broker downgrade, from Exane Paribas, who also downgraded fellow defence contractors Leonardo and Thales. 

Currys' share price has had a solid day after the electrical retailer upgraded its full-year adjusted pre-tax profit to £105-115m, after a better-than-expected performance in its most recent quarter. The Greek business disposal is expected to complete by the end of the year, with the £156m proceeds being used to reduce net debt.

US

US markets opened higher, although the Dow has lagged, after weekly jobless claims fell to their lowest level since September 2022, and building permits and housing starts came in better than expected for December.

The positive tone is being helped by a strong rebound in the Nasdaq 100 after Taiwan Semiconductor reported Q4 results that were above expectations and said that it expected 2024 revenues to increase by more than 20% as more companies invest in AI solutions. This has helped to give a lift to Nvidia and Advanced Micro Devices whose shares opened higher as they look to make new record highs.  

Apple shares have shrugged off the news that a US court banned the company from selling two of its smartwatch models after losing a patent dispute over the blood oxygen feature which Masimo and Cercacor argued that the iPhone maker had infringed their IP in incorporating the technology in the watches. Apple can still sell the affected watches, but the feature must be disabled.

The shares are getting a lift from an upgrade from Bank of America based on optimism over sales of its new Vision Pro virtual reality headset, shrugging off the setback which saw Netflix opting not to launch an app to include the device within its own subscription service. This perhaps shouldn’t be surprising given that Apple is a competitor in the streaming space.  

FX

The US dollar has continued to look well supported, ticking to fresh 5-week highs in the wake of the latest weekly jobless claims’ numbers. Comments from Atlanta Fed President Raphael Bostic indicated that he wanted to see more evidence that inflation is on its way back to target and said there was no rush to cut rates quickly.

With the odds of an early Fed rate cut receding, the US dollar could well make further gains, especially against the yen ahead of next week’s Bank of Japan policy decision where the central bank is unlikely to be in any rush to signal an imminent change to its ultra loose monetary policy.

Despite the strength of the US dollar the pound is holding up well as traders continue to reprice the timing of Bank of England rate cuts, with sterling edging up to new one month highs against the euro, Swiss franc and six week highs against the Japanese yen.   

Commodities

Oil prices initially ticked higher in early trading as tension in the Middle East ratcheted up further after Pakistan carried out military strikes inside Iran in retaliation for similar incursions by Iran over the weekend. With the US carrying out further strikes against Houthi targets in Yemen, concerns are growing that the unrest in the region could spread further, as isolated pockets of conflict spring up all over the region.

Despite this the early gains have dissipated somewhat over concerns about the demand outlook with supply still plentiful despite the tensions.

Gold prices are edging back up after sinking to one-month lows yesterday as the modest retreat in short term yields and increased tension in the Middle East has brought some buyers back into the market.  

Volatility

UK banks' stocks saw renewed selling on Wednesday, adding to losses posted earlier in the week.  Concern over possible fines relating to car finance sales along with the fact the Bank of England may now be forced into keeping rates higher for longer is clouding the outlook for the sector and CMC’s proprietary basket of UK banks traded down to lows not seen in almost three months. One day vol stood at 30.89% against 23.81% for the month.

That inflation data – along with the prospect of borrowing costs staying higher for longer – also served to boost sterling, with the Aussie dollar trade being amongst the most active on the day. The cross advanced to levels not seen since September, with one day vol coming in at 8.1% against 7.28% for the month.

The Nikkei index tested new multi-decade highs on Wednesday as the policy outlook from the BoJ remained dovish, but downbeat economic data from elsewhere in Asia ultimately took a toll, leaving the index to trade in an 800-point range. One day vol however advanced to 23.64% against 15.76% on the month.

Natural gas started the day by continuing that unwinding from the recent test of 12-month highs. This remains an active market with prices reacting to multiple factors including climate, inventories, and geopolitical risk. With cooler weather forecast to be on the way for the US, this could limit further moves lower and during Wednesday’s trade bargain hunters seemed to be posturing. One day vol printed 81.22% against 72.95% for the month.


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