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New record highs for the DAX and CAC 40 but momentum stalls

European markets started the day positively with marginal new record highs for the DAX and CAC 40, while the FTSE100 briefly poked its head above 7,600 before retreating, with today’s US inflation numbers unable to provide any further upside impetus ahead of tomorrow’s Fed meeting. 

Europe

Pharmaceutical giantAstraZeneca is performing well after announcing that is set to acquire US based Icosavax a biopharmaceutical company that specialises in the development of vaccines for severe respiratory infections for the sum of $15 a share, valuing the business at around $1bn.

Also doing well is Rolls-Royce, pushing above 300p for the first time since July 2019 after ratings agency Fitch upgraded its credit rating to BB+, taking it to within one notch of investment grade. In February Rolls-Royce said that a return to investment grade status would allow it to consider a return to resuming shareholder payouts so today’s move by Fitch is likely to be well received and could create anticipation of a return to a dividend in 2024. 

Royal Mail owner International Distribution Services shares have jumped sharply after a broker upgrade from Bank of America, helping to lift the shares to 2-month highs.

On the downside the FCA appears to have set the cat amongst the pigeons after penning a letter to investment platforms and money managers raising concerns over earned interest on client accounts, sending the likes of Abrdn, Hargreaves Lansdown and AJ Bell shares lower on the day. Today’s move appears to be kneejerk in nature as none of the companies indulge in the behaviour that the FCA is most concerned about, that of “double-dipping”. This is where platforms charge a platform fee as well as retaining some interest income from the cash it holds on client’s behalf.

Vodafone and BT Group are also lower on the back of reports that Ofcom is proposing to ban the practice of hiking fees aggressively midway through customers fixed term contracts. This is a welcome move from a customer point of view given how often these companies look to penalise customers who want to change providers early in response to this dubious practice.

US

US markets opened almost where they left off last night in the wake of today’s CPI report, which came in line with forecasts, not too hot and not too cold, however there was enough in it to suggest that the Fed may not need to be as aggressive when it comes to possible rate cuts than the market is currently pricing. 

Icosavax sharesare up sharply after confirming it is being acquired by UK drugs giant AstraZeneca.

Toy maker Hasbro shares are under pressure after announcing that it is set to cut 1,100 jobs over the next 18 months due to lower sales volumes. The company had already issued a profit warning in October so the fact that they are announcing further job losses suggests that US consumer demand is softening. 

Electric car maker Lucid Group is also lower, down for the second day in a row, this time down on reports that CFO Sherry House is leaving the business just over 2 years after joining the business in 2021.

Alphabet shares are lower after Epic Games won its lawsuit against Google on the practice of anti-competitive behaviour on its Play Store.

FX

The US dollar had been under pressure in the lead-up to today’s November CPI print with many expecting a further slowdown in inflationary pressure, in line with recent falls in energy, and specifically gasoline prices. 

Headline CPI came in as expected at 3.1% as did core prices, however the initial US dollar weakness we saw in the aftermath of the release soon reversed after the shelter component came in higher than expected. With core prices still at 4% prices here have barely moved in the last 3-months, despite lower energy prices. The view here appears to be that this stickiness is likely to keep the Fed on hold for longer, thus prompting this afternoon’s US dollar rebound, and an uptick in yields.

The pound has underperformed relative to its peers after the latest UK wages and unemployment data showed that wage growth slowed in October, while unemployment remained steady at 4.2%. Average weekly earnings slowed from 7.8% in September to 7.3%, slightly more than forecast with the pound dipping slightly on the numbers, however anyone who thinks that this sort of number is likely to prompt an earlier pivot from the Bank of England when it comes to rate policy is kidding themselves.

The numbers are still very high historically and are still well north of the 2% inflation target, while overall vacancies remain at elevated levels.

We should also remember that at the last meeting 3 members voted for a 25bps rate hike due to concerns over high wage and services inflation. They are unlikely to have shifted materially on that position based on today’s numbers, even if the reaction of bond markets suggests otherwise with a sharp fall in yields across the curve.

Commodities

Crude oil prices slipped to 5-month lows in the aftermath of today’s US CPI numbers, as the US dollar rebounded off its lows of the day, and yields edged higher.

Gold prices slipped to their lowest levels in 2 weeks yesterday and have struggled to rebound today in the face of this afternoon’s rebound in the US dollar, which is helping to keep a lid on any intraday gains.

Volatility

Bitcoin saw some very heavy selling early in Monday’s trade, driving price action right across the crypto asset class as a result. Profit taking was seen as a key motive here following some meaningful gains with one day vol on Bitcoin advancing to 69.67% against 39.69% for the month. Action elsewhere was even more pronounced with a dramatic fall for Dogecoin seeing the alt print vol of 172.02% on the day and 86.83% on the month.

Ongoing speculation over the direction the Bank of Japan will take at next week’s rate setting meeting is keeping the Yen volatile. USD/JPY started the week with gains, but these proved unsustainable with softer than expected US consumer inflation data likely weighing here, too. One day vol on USD/JPY printed 11.6% against 9.92% for the month.

AMD’s share price continues to find support off the back of last week’s announcement over new AI hardware, tacking on another 4% in Monday’s trade. One day vol printed 80.85% against 56.52% for the month.

In commodities, sugar prices remain active, heading down below 22 cents per pound and towards levels not seen in nine months during Monday’s trade. One day vol on the contract stood at 60.24% against 46.63% for the month.

 


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