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Housebuilders set the foundations for positive FTSE session

Cladding on a block of flats

European markets have undergone a cautiously positive start to the week, as investors mull the prospect of a fresh round of sanctions against Russia as evidence comes to light of widespread atrocities against civilians, as well as other war crimes in the regions surrounding Kyiv.  

Europe

UK housebuilders are helping lead the gains on the FTSE 100 following a report that the UK government has dropped its demand for the various companies to contribute to a cladding remediation fund, with the best performers led by Barratt Developments, Persimmon and Berkeley Group.

Ted Baker shares are higher after the company announced it was launching a formal sale process, having turned down two previous bids from Sycamore Partners Management last month, the most recent of which was said to value the business at £254m, compared to its valuation back in 2018 when the business was worth £1.3bn. Its most recent Q4 numbers showed that group sales rose 35%, compared with a year ago, and were up from the 18% rise in Q3. Margins were also better, rising 350bps across all channels. Inventory levels also improved, while sales in stores and retail were showing signs of recovery, as volumes start to head back to pre-Covid levels.

Airlines are under pressure on reports of delays and cancellations being caused by a spike in covid cases among staff, which in turn is causing major disruption at airports across the UK. Ryanair shares are also lower despite saying that it expects to see a net loss of between €350m and €400m for the year to 31 March 2022. It also said that it flew 11.2m people last month compared to 10.9m people in March 2019, with full-year numbers of 97m passengers, still well below the pre-pandemic number of 149m.

Also lower, Airbus has seen its shares slide after it announced it was looking to slow down the production of its A350 aircraft.  

US

US markets have opened mixed as investors mull the prospect of new sanctions against Russia and a rebound in oil prices after last week's sharp falls.  

Twitter shares jumped over 25% on the open after it was confirmed that Tesla CEO Elon Musk had bought a 9.2% passive stake in underperforming social media platform Twitter, in what has to be one of the most oxymoronic and ironic announcements ever. Say what you like about Elon Musk, but passive is not an adjective that could be applied to the Tesla CEO. With a stake now worth over $2.8bn, we can probably expect to hear this so-called passive stake become a lot more audible as he brings pressure to bear on Twitter management to be less censorious. Tesla also announced that it had delivered over 310,000 vehicles during its Q1, below expectations but still a record high.  

Starbucks shares have also slipped back after new CEO Howard Scholz cancelled the remaining buyback programme, with a view to refocusing the funds more towards the underlying business and its staff.

Chinese-listed stocks have also taken another leg higher after Chinese authorities said that they might look at relaxing some of the confidentiality rules regarding audit oversight, thus making it less likely they could be delisted from US exchanges. The likes of Alibaba, Tencent Music and JD.com have pushed higher.

FX

The euro has slipped below the 1.1000 level against the US dollar as the prospect of further sanctions on Russian energy weighs on the single currency, due to concerns over the damage further measures might inflict on Europe’s economy.

The Norwegian krone is one of the better performers on the back of the rebound in energy prices, while we’re also seeing modest gains for the Australian dollar on the back of higher commodity prices. The Australian dollar is also getting a bid ahead of tomorrow's RBA rate decision, where we could see a sharply hawkish pivot, given recent sharp rises in inflationary pressure.   

Commodities

Oil prices have rebounded after last week’s big falls with US prices recovering back above $100 a barrel, in the wake of renewed calls for further sanctions against Russian oil and gas imports. This appears to be outweighing concerns over Chinese demand after the whole of Shanghai, a city of 25m people, was put into a covid lockdown.

Gold prices continue to find a level of support above the 50-day MA, despite the resilience in US yields, however the upside is finding resistance at the $1,970 level ahead of the release of the latest Fed minutes on Wednesday.  

Volatility

A key theme over the last week has been the build up to a vote by US lawmakers around a vote to legalise marijuana at a federal level. This was passed by a small majority on Friday, justifying the added interest both in specific stocks and CMC Markets’ proprietary Cannabis basket of shares over the last few days. Canadian-listed Canopy Growth – with the apt ticker of WEED – printed daily vol in excess of 300% on Monday against a weekly equivalent of 162%, while vol in CMC’s Cannabis basket topped out at 279% early in the week. Arguably there’s the potential for interest to remain elevated here in the coming days.

In terms of fiat currencies, USD/JPY has been in focus, after the pair tested a six-year high then began a retreat. The key points to watch here are the diverging fundamentals, with the Bank of Japan maintaining that dovish stance over policy, buying up bonds and the yen still having some safe-haven allure, while the greenback promises a far better yield. Activity was again weighted towards the start of the week, with volatility running around 15%, but still topped the asset class on Friday, printing 9.85% against 8.7% on the month.

Soft commodities have also seen active trade, although there’s a general air that the market has become over-extended. Key among this cohort was the Lean Hogs price, where traders were eyeing the release of data from the US Department of Agriculture over the current herd size on Thursday. Contraction was expected but the print indicated a rather more dramatic drop, leading the underlying to post a brief spike higher, before reverting. By Friday, daily vol sat at 96.1% against 71.26% on the month.

Leaving aside bitcoin, cryptos also saw some action this week, seemingly triggered by the end of the tax year in many countries on Thursday. This resulted in some increased selling, which notably drove daily vol in ripple up to 156% in the latter part of the week. Over the weekend there has been something of a recovery, suggesting investors simply needed to crystalise gains ahead of the new quarter and vol could therefore remain elevated into the start of the new week.

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