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FTSE 100 outperforms as markets take a pause

After the big gains of last week European markets have spent the day taking a bit of a pause for reflection, with the FTSE 100 edging higher, while the FTSE 250, DAX and CAC 40 have all struggled.  

Europe

Melrose Industries is the best performer after announcing that its GKN Aerospace division has signed a new agreement with GE Aerospace that expands its participation in the GEnx high-thrust engine programme, which could be worth up to $5bn over the full 30+ year lifespan of the engine. This outperformance from Melrose has also helped to give Rolls-Royce shares a lift. 

Ryanair H1 results have seen the airline report H1 revenues of €8.58bn, an increase of 30% from the same period last year. Average revenue per passenger rose 17%, with the airline seeing an 11% rise in passengers to 105.4m. While revenues were higher so were operating costs, which rose 24% to €6.16bn, however the company was still able to increase profits after tax by 59% to €2.18bn. For Q3 the airline projected revenues of €2.18bn while saying that it expected to start paying a dividend for the first time, setting aside €400m through an interim and final dividend of €200m each, payable in Fed 2024, and then September 2024, respectively.

Full-year profits are expected to slow to between €1.85bn to €2.05bn, assuming modest losses in the second half of the year, where Q4 is traditionally its weakest quarter, and assumes no deterioration in the situation in Ukraine and the Middle East. There has been criticism in some quarters about the extent to which air fares have shot up, however the fact that customers are still prepared to pay these fares means that demand is sufficiently strong for now. Ryanair is also spending a lot of money in acquiring newer and more fuel-efficient aircraft. It needs to pay for them somehow, especially now that borrowing is much more expensive given that interest rates are now normalising.

Nonetheless despite these concerns over the outlook, travel and leisure stocks have seen modest gains, with easyJet and Jet2 also pushing higher. BAE Systemsshares have edged lower despite announcing a $211m contract with the US Navy, adding to what is already a sizeable order book. Prudential shares are slightly higher after announcing a 37% increase in Q3 new business profit of $2.1bn, on sales of $4.42bn, an increase of 40%.  

After a strong rebound last week, the real estate sector is the worst performer after it was announced early this morning that WeWork shares would be suspended pending an announcement when US markets re-opened later today with an expectation that the company could file for bankruptcy protection later this week. 

US

After the strong gains of last week US markets have opened modestly higher even though we’ve seen a modest rebound in yields after the dump we saw at the end of last week.

Tesla shares are in focus after it raised wages for workers in its Brandenburg factory and announced that it plans a new model that will cost €25k that will be produced in Germany, although no starting date was given.

Lucid Motors shares have slid sharply after announcing price cuts on its EV sedans as it looks to try and compete in an increasingly competitive space.

There's been little if any reaction to reports that Citigroup is mulling job cuts to 10% of its workforce across several business units.

FX

It’s been a broadly mixed day for the US dollar, slightly higher against the Japanese yen and the Australian dollar, with the Aussie slipping back ahead of tomorrow’s RBA rate decision where we could see the Australian central bank raise rates one more time according to market pricing. A policy hold could see the Australian dollar slip back sharply, given that a hike might be construed as a the slightly riskier policy option.

A firmer oil price is helping to lift the Norwegian Kroner, while the upward momentum in the pound which we saw at the end of last week has seen the UK currency push up to its 200-day SMA at 1.2430 for the first time since mid-September. 

The euro has also displayed remarkable resilience despite another set of poor services PMI numbers from the likes of France, Germany, and Italy, with the only bright spot being Spain which saw an improvement into expansion territory.

Commodities

Crude oil prices are rebounding from the lows of last week, after both Saudi Arabia and Russia said they would stick to their current output levels heading into 2024, as they look to shore up prices after 2 successive weekly declines.

Gold prices are treading water just above the $1,980 area with attention on various Fed speakers later this week in order to get an idea of how much of a consensus there was on last weeks decision to hold rates. 


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