Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.

NatWest weighs on the FTSE 100, despite strong profit numbers

European markets have ended another positive month very much on the back foot today, with sentiment by and large still upbeat after a week of company announcements that has seen markets struggle for direction.

Europe

Despite this uncertainty, the company updates have been more positive than not, with the FTSE 100 and DAX clawing their way back into positive territory, as we head into the close.

What we are probably seeing today is some month-end profit-taking, ahead of what is likely to be yet another important week, with key interest rate decisions from the US Federal Reserve and European Central Bank.

With inflation still high and earnings growth likely to become more difficult there appears to be a growing concern that we are seeing a move into stagflationary territory over the coming months. 

Earnings have come in better than expected, but the bar was set quite low at the end of last year, and looking more closely at this week’s announcements there were some pockets of weakness.

Today’s notable moves have been in the banking sector with NatWest Group shares falling sharply despite reporting better-than-expected Q1 results, with revenues and profits both coming in ahead of expectations. It would appear that a reluctance to raise its guidance by cautious management has disappointed the market, sending the shares to one-month lows, and dragging on the wider sector. Despite the initial sharp declines, the shares were down over 7% at one point, NatWest has managed to pare the worst of the losses as some bargain hunters swoop in.

We’ve seen some modest weakness in Barclays share price, although their shares are still higher on the week after similarly positive numbers a couple of days ago, while Lloyds Banking Group has slipped back ahead of their Q1 numbers next week.

On the plus side, Prudential shares are performing well after reporting a strong new business update for Q1, helped by a rebound in its China market as the reopening there offered some respite. Profit from new business was up by 30% to $743m while sales in the region were up 35% to $1.56bn.

Pearson shares are doing well after delivering a positive Q1 trading update and announcing a share buyback of £300m. Despite weakness in virtual learning and higher education, the company saw a 66% rise in English language learning which helped to boost underlying sales growth by 6%. Management said they were on track to deliver £120m worth of additional cost efficiencies in 2023 and remain on track to deliver on their full-year guidance.

Packaging company Smurfit Kappa shares are also higher, despite a modest fall in Q1 revenues to just below €3bn. Profits before tax, on the other hand, rose by 7% to €339m on the back of stronger margins. The company went on to say that despite the challenges to demand in Q1 the outlook for the rest of the year remained in line with company expectations, and is expected to improve.

US

US markets initially slipped back after their strong gains of yesterday with Amazon shares slipping back after hours in the wake of a downbeat earnings call which warned that cloud growth might start to slow.

Amazon shares initially surged after hours after blowing through forecasts which saw net sales come in at $127.4bn, a 9% rise from the same quarter a year ago. North America saw sales rise by 11% to $76.9bn no doubt helped by the strong rebound in US retail sales we saw in January. Operating expenses saw a big fall in Q1, from levels of over $60bn in Q4, falling to $54.79bn, as headcount declined, although they are still higher from a year ago. Q4 does tend to be the highest quarter for spending given temporary hiring in the lead-up to Thanksgiving and the Christmas period.  

We also saw a strong performance from AWS as cloud services saw revenues rise by 16% to $21.4bn. Profits came in above expectations at $3.2bn or $0.31c a share, despite another small write-down from its Rivian stake of $500m. On Q2 guidance the picture was equally upbeat with net sales forecast to come in between $127bn and $133bn, a rise of between 5% and 10%, however, the warning about future crowd growth, appears to have popped some of the initial enthusiasm.  

Snap shares which saw some solid gains yesterday on the back of Meta’s numbers have come unstuck horribly today after reporting Q1 revenue of $988.6m, a fall of 7% and also disappointed on Q2 guidance with an expectation of $1.04bn, significantly below forecasts. The company blamed demand disruptions for the slowdown in advertising. Pinterest shares which rallied yesterday have slipped back in sympathy.

We’ve also seen some decent Q1 numbers from US oil giants Exxon Mobil and Chevron which tees us up for next week’s Q1 numbers from BP and Shell. Despite lower gas and oil prices, the numbers were still solid, with refining margins a particular strength, with Chevron posting total adjusted earnings of $6.7bn.

Exxon Mobil was even more impressive posting profits of over $10bn for the fourth quarter in a row, which is likely to be political catnip to politicians in DC, and in particular the White House. On the other hand, Q1 revenues were lower for the third quarter in succession, coming in at $86.56bn.

The future of First Republic Bank remains in the balance as it looks to secure a rescue package over the weekend, with the shares treading water having lost 95% of its value in the last couple of months.   

FX

The US dollar has rebounded strongly on the last day of the month, though for the most part today’s rebound is less about US dollar strength than currency weakness elsewhere, even as the latest US core PCE deflator inflation numbers remained sticky at 4.6%, while the headline number came in slightly higher at 4 2%.

Nowhere is this more apparent than in the Japanese yen which has tanked after the Bank of Japan left rates unchanged and indicated that they were in no rush to tweak their current monetary policy of yield curve control. The complete ambivalence of the BoJ to sticky inflation has prompted a shake-out as expectations of an imminent tweak on YCC and sent the yen sharply lower and towards its 200-day SMA.

The euro is also lower having failed to breach the 1.1100 area earlier this week, as doubts remain about the ability of the ECB to follow through on its pledge to hike rates aggressively after Q1 GDP numbers came in weaker than expected at 0.1%, while the economy was revised lower in Q4 to a -0.1% contraction. While we still expect to see the ECB hike rates next week, the bigger question revolves around whether they move by 25bps or 50bps at a time when the wider economy is stagnating.  

Commodities

Crude oil prices have fallen for the second week in a row, and could well finish April below the levels we saw at the end of March, reversing all of the gains seen in the aftermath of the OPEC+ production cut announcement. Year to date, oil prices are down over $6 a barrel, great news for consumers, but not so much for oil producers.

Gold prices have shown little sign this week of being able to revisit their recent highs earlier this month as a strong US dollar and firmer yields serve to keep prices below $2,000 an ounce. While it is widely expected the Fed will pull the trigger on another 25bps rate hike, its highly uncertain as to what sort of tone Powell will adopt with respect to the prospect of further hikes, or whether he will signal a pause, or “wait and see” approach for any future rate moves.

Volatility.

Better-than-expected corporate news boosted price action at the stock specific level with eBay coming into focus on Wednesday. The e-commerce play updated the market after Tuesday’s close, impressing with performance for the quarter and setting some bullish guidance targets, too. One day vol on the stock landed at 78.02% versus 35.95% for the month.

Renewed hopes that licensed cannabis growers may soon get access to mainstream, US banking facilities boosted the stock of both Tilray and Cronos, two heavyweight constituents in CMC’s proprietary basket of Cannabis stocks. There was wider read across too, but the underlying advanced 4% on Thursday, delivering one-day volatility of 88.38% against 55.84% on the month.

Bitcoin price action remains very much in play with the legacy cryptocurrency surging back towards the $30,000 level on Thursday. That’s been spurring interest in the wider asset class too, pushing CMC’s Cryptomajor basket towards the top of the table, with one-day volatility printing 66.54% against 43.31% for the month.

Sugar prices continue to see heightened levels of action with the underlying raw sugar contract briefly testing 27.5 cents per pound before profit-taking kicked in. There are some hopes that weaker oil prices and the prospect of improved output from Brazil may cut the market some slack here, but the commodity has the potential to see pressure from both sides of the market. One day vol sat at 61.85%, up from 43.28% on the month.

And in fiat currencies, the Euro saw slightly elevated levels of movement in the wake of some softer-than-forecast economic releases yesterday, combined perhaps with some positioning ahead of today’s Q1 flash GDP releases from both the Eurozone as a whole and select member states. One day vol on Euro/US Dollar printed 8.02% against 7.19% on the month.


Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

Before you go…

Try a demo of our Spread Betting or CFD trading accounts on our innovative platform. Free of charge and risk-free with virtual capital starting from €10,000.

cmc-mobile-trading-app