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FTSE 100 down as pound hits nine-month high against the dollar

European markets have struggled to make significant gains today, despite the DAX briefly pushing up to a 13-month high, as EU PPI numbers for February came in slightly below expectations, slowing from 15.1% to 13.2%.

Europe

The initial tone had been set before the open with a positive Asia session, in the wake of the Reserve Bank of Australia taking the decision to leave rates on hold at 3.6%, to allow time for the full effects of the last few rate rises to trickle down.

Markets took this to mean that the RBA may well be done on hiking rates and given that the Australian central bank was one of the first central banks to slow the pace of its rate rises back in October, there is a feeling that other central banks could follow a similar path in the coming weeks.

The prospect of a pause, in light of the recent market turmoil, is inviting a certain amount of projection that other central banks may well follow suit, helping to underpin today’s initially cautiously positive tone.

The FTSE 100 also got off to a good start, pushing briefly above the 7,700 level and to a three-week high before retreating after the pound pushed above 1.2500 against the US dollar, and to its highest levels since June last year.

Optimism over the UK economy has been improving in recent weeks, helping to drive the recent gains in sterling, however today’s resilience in the pound does appear to be acting as a bit of a drag on the wider UK market, which has slipped into negative territory, with basic resources, energy and industrials acting as the main drags, giving back some of yesterday’s gains. 

Saga shares are lower after the insurance and travel business reported a 54% rise in full year revenues to £581.1m, while underlying profits came in at £21.5m. The increase in revenues is encouraging, coming in above expectations, however profits came in at the lower end of the company’s revised profit guidance range that it set out in January.

Despite this the company still posted a full year loss of £254.2m due to a £269m impairment of insurance goodwill which was taken in the first half of the financial year. The cruise business managed to return to a £6.2m profit in H2, however it wasn’t quite enough to offset a £6.9m loss in H1. This was based on a load factor of 75% over the 12-month period with 84% in H2. The insurance business reported a modest rise in underlying profit before tax to £67.7m, despite a modest fall in policies.

On the outlook Saga says it expects to achieve a load factor of 80% in its cruise business, targeting a figure of £40m EBITDA per ship. As of March, bookings were running at 72%, while the company said it still hadn’t ruled out a potential sale of its underwriting business.   

US

US markets opened broadly flat today with little in the way of direction ahead of some key unemployment numbers later this week.

Today’s JOLTS numbers showed that vacancies in the US economy slipped back in February, dropping below 10m to 9.9m from 10.56m in January, the first time we’ve been below 10m vacancies since May 2021. This slowdown has seen US 2-year yields slip back below 4% and on course for their 3rd successive daily decline, as the market continues to price in the prospect of rate cuts, and the prospect of a soft landing for the US economy.

This narrative could be reinforced further if we see slowdowns in tomorrow’s ADP and Friday’s non-farm payrolls report for March, with markets struggling for gains in light trading.

Virgin Orbit shares have plunged again after the company said it was filing for Chapter 11 bankruptcy in the US. 

Tesla shares have tried and failed to push back above $200 after announcing that it had seen EV sales in China rise 35% in March from a year ago.    

FX

The Australian dollar has slipped back after the RBA kept rates unchanged at 3.6% at its meeting earlier today, calling a halt to 10 months of rate rises.

With inflation recently falling back to 6.8% in February the RBA said that the full effect of recent rate rises would probably take time to be felt, and as such a pause would allow additional time to see how the effects of these moves impact on the wider economy. This raises the inevitable question as to whether rates have peaked, with yields slipping back, however given the uncertainty over the lag effects of higher prices any pause may last a few months before we get a further move on rates, whether it be up or down.

The pound has hit its highest levels against the US dollar since June last year, above 1.2500, despite some dovish commentary from external Bank of England MPC member Silvana Tenreyro who said that rate cuts were likely to come quite quickly in case inflation undershoots in the coming months. Tenreyro’s comments have been largely put to one side given that inflation is still above 10%, and she is a minority voice on the MPC, and is due to leave in the summer.

Commodities

Brent crude oil prices initially continued to move higher, but have struggled to move above their March peaks, and while US prices are getting slightly better traction, they are also struggling to move beyond their highs for this year. Concerns over a weaker economic outlook may be tempering gains here.

While the weaker US dollar has helped to drive some of this week’s move higher, concerns over softer US data has created concerns that OPEC+ is cutting into an economic slowdown, which in turn serves to create further uncertainty for prices going forward.

Gold prices have pushed higher after today’s JOLTs data and the slide in US treasury yields, rising to a new 52-week high above $2,010 an ounce as it looks to close in on the highs of $2,070 we saw back in March last year. Silver prices have also pushed higher to their highest levels in 11 months.

Volatility

Cannabis stocks found themselves starting the week on a turbulent note after the prospect of rising oil prices hit growing costs. CMC’s proprietary basket of medical marijuana growers continued its slide lower and although rallying off late session lows, still closed down around 2% on the day. One day vol stood at 61.81% against 57.96% for the month.

Solid gains for Bitcoin Cash which added well over 6% at one point during Monday’s trade served to leave the crypto as something of an outlier when it came to price action for the sector. One day vol advanced to 70.72% against 61.25% for the month, with the asset outperforming the legacy BTC contract which ended little changed on the day.

Natural Gas gapped noticeably lower as the week’s trading got underway before recovering most of those losses across the day. That was at least in part a response to the jump in crude oil prices, although gas continues to underperform, emphasising the current extent of surpluses as we move into the Northern hemisphere summer. Daily vol sat at 78.85% against 76.41% on the month

An upward momentum for the Euro appears to have stalled in the face of those rising oil prices after that surprise OPEC cut. That in turn has served to leave the Euro as – at least comparatively – the most active of currencies, although overall it was a somewhat quiet session. EUR/CAD saw the highest levels of vol, coming in at 7.83% on the day, exactly in line with the one month reading.


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