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News

European stocks shrug off US inflation surge, M&S sparkles

ITV logo

It’s been a somewhat mixed day for markets in Europe today, this time the FTSE100 has been the outperformer, helped by some decent numbers from ITV, a decent read across in the retail sector after some spectacular numbers from Marks and Spencer, and a surge in the gold price, boosting miners.

Europe

If ITV’s H1 numbers in July were underwhelming, the decision not to pay an interim dividend didn’t help, sending the shares tumbling, to 9-month lows in October.

Despite that disappointment, today’s Q3 trading update has managed to reverse a lot of the damage, with the shares rising to the top of the FTSE100, despite concerns leading up to today’s numbers over declines in advertising revenue.

The business appears to have put a lot of its previous woes behind it, with ITV Studios posting a 32% increase in revenue, to £1.19bn, up from 26% in H1.

Media and Entertainment has also remained steady, with total advertising revenues up 30%, and on course to be the highest in ITV’s history, with an expectation that over the year it would rise by 24%. Profit to cash conversion is expected to be around 60% in 2021, up from the previous guidance of 30%.

With ITV top of the FTSE100, the FTSE250 has been led by a sparkling performance from Marks and Spencer shares which have hit their highest levels since December 2019, after the retailer upgraded its profit guidance for the second time this year, helping to push the likes of Next and Primark owner Associated British Foods higher as well.

At the end of Q1 M&S management upgraded guidance to between £300m and £350m, helped by a solid performance from its food business. In Q2 it would appear that its general merchandise business finally decided to join the party with a 17.3% rise in full price sales, which in turn has prompted another profits upgrade to £500m.

For several years now M&S management have struggled to turn the business around, however it would now appear that CEO Steve Rowe may have discovered the secret sauce, which could propel it back into the FTSE100 in due course. This isn’t just any recovery; it looks like an M&S recovery.

On the downside JD Wetherspoon’s latest trading update has given the share price a bit of a hangover, after like for like sales for the first 15 weeks of the new year saw a drop of 8.9%, from the same period last year, with big drops in bar sales, food sales and fruit and slot machine revenues. On the plus side there has been a pickup in cocktails, vodka and rum sales, mainly from a younger cohort of customers.    

US

US markets have fallen back on the open after US CPI for October came in at 6.2% and a 31 year high, prompting yields to spike higher, with the short end rising faster than the longer end. On the plus side weekly jobless claims continued to improve, falling back to 267k, from 271k the week before.

Electric car maker Rivian is set to surge out of the blocks today after raising $11.9bn in an enlarged share offering, selling 153m shares at $78 a piece in this year’s largest IPO. With early indications that it could price at $120 a share, and a $106bn valuation, it would appear that some investors have been drinking way too much Kool Aid.

This type of valuation would put it well north of Ford and GM and would be an extraordinary outcome for a company that has generated little to no revenue so far to date, and with currently no way of measuring key metrics like how much it costs to make a vehicle in terms of parts, labour, and other costs, to establish a margin, and in turn establishing a baseline for profitability.

In its latest Q3 numbers, the company said it expected to see a loss of up to $1.28bn and said it doesn’t expect to be profitable soon, which makes today’s IPO somewhat of a leap of faith for both the wary, and unwary.

When Robinhood Markets reported a slide in revenues in its most recent quarter, there was always a worry that we’d see a similar slump in revenues in Coinbase Q3 numbers, and that’s exactly how it’s played out with the shares sliding back in early trade. When Coinbase reported back in Q2 management were somewhat circumspect about Q3 guidance despite a strong performance in Q2, which was largely driven by Ethereum trading.

Revenues in Q2 rose to over $2bn, which makes the slide to $1.31bn in Q3, missing expectations of $1.57bn, much more notable. Monthly users also fell back in Q3 to 7.4m, down from the 8.8m in Q2, while trading volumes declined to $327bn, from $462bn. 

It’s been a slow downward track for Vroom’s share price over the last few months, after the projected higher losses of $0.75c a share for Q3, despite higher revenues of between $858m and $891m. yesterday’s Q3 numbers were better than expected with losses coming in at $98.1m of $0.70c a share, and revenues also beat expectations at $896m. For Q4 losses are expected to stay at current levels while revenues are expected to remain steady between $865m and $900m

FX

The US dollar took a leg to the upside after CPI in October hit its highest level in 31 years, rising by 6.2%, with the biggest component risers being in food and energy prices. For central bankers who continue to insist that the current increases in prices are transitory, today’s report is likely to make for very uncomfortable reading, with core prices also rising sharply to 4.6%, from 4% in September.

The Canadian dollar has been the only currency to hold back the advance of the greenback.     

Commodities

The sharp rise in US CPI to 31-year highs, has seen gold prices break out to the upside, and to its highest levels since mid-June, as doubts creep in as to whether the transitory narrative so beloved of central bankers may be about to get holed below the water line.

While the biggest components of the rise were food and energy with no sign that inflationary pressures are subsiding, there is a concern we could well be heading even higher, especially as the weather hasn’t even started to get cold yet. Bitcoin prices have also hit fresh record highs, for the same reason as the prospect of central banks remaining behind the curve pushes money into these inflation hedges. Silver prices have also followed suit, breaking above $25 for the first time since August.

Crude oil prices have been a little bit of a sideshow today, with all the moves in precious metals and cryptocurrencies


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