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Mixed session for Europe, as markets eye US midterms and US CPI

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European markets have seen a choppy start to the week, as the end of week hopium around a China reopening gives way to a semblance of reality that any reopening plan is unlikely to happen quickly.

Europe

Sentiment has also been cautious ahead of tomorrow’s US midterm elections and the latest CPI report later this week.

The FTSE 100 has underperformed primarily due to a slide in the health care sector after GSK reported disappointing results on its Blenrep blood cancer drug trial which failed to meet its primary endpoint. This was the second disappointment in the space of a month after the failure of its rheumatoid arthritis drug Otilimab at the end of last month, and has seen the shares drop sharply.  

Frasers Group shares are higher after the retailer began a £70m share buyback programme.

Ocado shares are continuing to build on the gains seen last week in the wake of the deal with South Korea’s Lotte to build 6 customer fulfillment centres. Since the deal was announced the shares have rallied over 40%, however despite this surge over the past week or so, the shares are still down over 60% year to date.  

Flutter Entertainment shares are near to the top of the FTSE100 after a US judge ruled that Fox Corp would have to pay a much higher price to acquire an 18.6% stake in FanDuel. The price was $3.7bn, which was well over the original $2.3bn.

Airlines are seeing a bit of an uplift after Ryanair reported pre-tax profits of €1.37bn for H1, and that they expect to see full year profits come in slightly less than that, while remaining positive about the outlook for next summer. Ryanair said it flew 95m passengers during the period on revenues of €6.6bn, an increase of 207%, with a load factor 94%. Operating costs rose by 126% to €4.98bn.  

The decent numbers, along with the positive outlook, have seen the likes of easyJet, Wizz Air and Jet2 enjoy some decent gains.

US

After a positive finish at the end of last week, US markets have continued to edge higher, carrying over the positive vibe from Friday’s post payrolls rebound. The weaker US dollar also appears to be helping even if yields are going in the other direction and pushing higher.

Meta Platforms shares have edged higher after it was reported over the weekend that the Facebook owner was looking at cutting thousands of jobs later this week. The shares have been haemorrhaging so far year to date, down over 70% year to date, with losses in its Reality Labs division overshadowing the rest of the business.  

Apple shares are in the red after the company cut its outlook for iPhone production due to the effect China lockdowns are having on demand.  

BioNTech said it is raising its minimum threshold of its full year guidance for vaccine doses, in the wake of last week’s announcement that the Chinese government was allowing the importing of vaccines for its expat population. The guidance range is now between €16bn and €17bn.   

FX

After Friday’s big sell-off the US dollar has continued to come under pressure with the euro edging higher after a better-than-expected German industrial production number for September.

Some hawkish comments from French central bank governor Francois Villeroy de Galhau who said the ECB should continue to raise rates until inflation has shown signs of peaking. Recent inflation data has shown little sign of doing that which suggests that outside of the southern European nations there is little appetite for a slowdown in the pace of rate hikes currently.

The pound has also outperformed after what was an awful performance last week as it looks to recoup some ground ahead of this week’s Q3 GDP numbers and next week's fiscal statement.            

Commodities

Last week saw oil prices jump sharply on the back of unconfirmed reports that China was looking at putting together a reopening strategy. This morning’s China trade numbers while disappointing, did see a pickup in China crude oil imports but apart from that the numbers were awful with declines in both overall imports and exports. This has seen crude oil prices retreat from the $100 a barrel level while copper prices also slid back sharply.

After Friday’s sharp US dollar slide, which saw gold prices push above their 50-day SMA, and a three week high, prices have consolidated and look set to tread water ahead of this week’s US CPI report.  

Volatility

Last week’s earnings news from BT Group rattled the company’s stock and the effects were still being felt on the run into the weekend break. The share price lost a further 2% on Friday, testing lows not seen for around two years. One day volatility came in at 110.42% against 56.04% on the month.

The Hang Seng index continues its rebound from that test of multi-year lows at the end of October. The underlying has added around 15% over the last week with hopes of China further easing Covid-19 restrictions lending support here. One day vol on the equity index printed 53.56% against 43.89% on the month.

Natural Gas prices advanced into the weekend break because of colder weather being forecast on both sides of the Atlantic. The underlying US Nat Gas cash contract advanced to two-week highs on Friday, with further gains being reported as the new week’s trade gets underway. One day vol was 80.36% against 71.69% for the month.

And a turbulent finish to the week saw elevated levels of price action for CMC’s proprietary basket of streaming media stocks. Earnings news took a heavy toll on Warner Brothers Discovery, with the share price sliding more than 12% on the day, whilst the basket traded in a range of more than 5%. One day vol was recorded at 73.81% against 61.39% for the month.


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