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FTSE 100 recovers back above 7,900 as US dollar slips back

London skyline

It’s been a solid start to the week after last week’s sharp sell-off, and the worst weekly decline this year for European markets, with some resilient earnings numbers and broker upgrades helping to support early gains.

Europe

Associated British Foods edged up to just shy of the 2000p level after reporting an upgrade to its full-year outlook for its Primark business, as well as its other businesses. Adjusted operating profit and earnings are expected to be broadly in line with the previous year, despite higher costs.

Total sales in the Primark business are expected to be 16% ahead of the same period last year which was disrupted by the tail end of Omicron restrictions in the Netherlands and Austria. The operating profit margin is expected to be above 8%, compared to last year’s H1 margin of 11.7%. UK sales are expected to rise by 15%, while European and US sales growth is also expected to improve, by 18% and 12% respectively.

Rolls-Royce shares have continued to push higher after being on the end of and upgrade from BofA which the bank said was in line with an expectation that the recovery in air travel would help improve the company’s cash flow, which was already better than expected.

Bunzl shares have pushed higher after announcing the acquisition of businesses in Germany and Canada.  The company also announced an 18% increase in full-year pre-tax profits that came in ahead of expectations. £818m on the back of a 17.1% increase in revenues to just over £12bn. The company has gone on an acquisition spree in the last 12 months, spending a total of £322m in acquiring 12 businesses. The company kept its full-year 2023 outlook unchanged.

There’s been an underwhelming reaction to reports that Haleon said is to be in talks to sell its ChapStick brand, which it jointly owns with Pfizer and GSK.  

M&G saw a big move higher on Friday as speculation swirled about a possible incoming bid, however today’s price action has seen the share price slip back.

US

US markets have opened higher, on the back of the strong rebound being seen in European markets, and a technical rebound that has seen the S&P500 and Nasdaq 100 recover off their respective 200-day SMA’s on Friday.

We also saw a rather mixed set of January durable goods numbers. After a 5.1% rise in December, January saw a 4.5% decline, however, ex-transports demand looks more resilient with a 0.7% gain after a -0.4% decline in December. Pending home sales also posted a decent rebound in January, rising 8.1%, against an expectation of a 1% rise.

On the companies front Seagen shares have jumped sharply on reports that Pfizer is in talks with a view to completing a $35bn to $40bn deal. Seagen is a developer of cancer therapy drugs and appears to be an attempt by Pfizer to use all the covid proceeds to diversify its product line.

Tesla shares have edged higher on reports that its Berlin factory has hit its 4,000-car a week output target, 2 weeks ahead of schedule.

FX

After the strong gains of last week, the US dollar has slipped back across the board, with the pound being amongst the better performers, recovering back above the 1.2000 level on the back of short covering, and reports that the dispute between the EU and Northern Ireland on the trade border has been resolved.

While welcome news, unless the DUP is on board any agreement could be difficult to implement, even against all the bonhomie of today’s press conference between UK PM Sunak and the head of the European Commission Ursula Von Der Leyen.       

Commodities

With Russia set to cut its oil output by up to 500k barrels for the month of March only, crude oil prices are edging back down, after the gains of the last couple of days.

Gold has clawed back some ground after hitting its lowest level this year earlier today, rebounding from the lows on the back of a small decline in US yields, and some modest US dollar weakness.

Volatility

After spending the last three months establishing a very well-defined down trend, US Natural Gas prices appeared to find a floor last week and made some meaningful gains heading into the weekend break. There are some concerns being expressed that Europe won’t have a sustainable solution to life without Russian gas for some years yet and that appears to be offering a degree of support. One day vol on natural gas printed 103.93% against 81.91% for the month as a result.

Concerns over the health of the German economy rocked shares across Europe heading into the weekend break, but car manufacturers appeared to be hit particularly hard. CMC’s proprietary basket of EU Automobile stocks dropped close on 3% during Friday’s session in response to these concerns, driving one-day vol on the cohort to 34.32% against 30.31% for the month.

Earnings news from the industrial giant BASF sent shockwaves through the market on Friday with news of layoffs and other cost-cutting moves including a suspension of the share buyback scheme. This rattled investors with the underlying dropping almost 8% by the bell. One day volatility stood at 69.23% against 32.05% for the month.

Finally, cryptos offered some elevated price action, with the legacy bitcoin proving to be the stand-out as it continued to give back recent gains. One day vol printed 45.28% against 40.4% for the month as the underlying retreated back to levels not seen since mid-February.


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