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Stocks slip back as markets await Powell

Fed chairman Jay Powell

European markets initially started the day modestly higher, with gains largely capped by caution ahead of this evening’s widely anticipated Federal Reserve rate decision. These initial gains have largely given way to modest weakness, on the back of a softer US open as some disappointing earnings serve to act as a drag.


The FTSE100 has slipped back, with health care and telecoms acting as a bit of a drag. 

Vodafone’s share price has been a serial underperformer over the years and ultimately resulted in the recent departure of CEO Nick Read at the end of last year, to be replaced by Margherita Della Valle. Since Read’s departure was announced in December the shares have managed to rise from their lowest levels since 1997, however the jury remains out as to whether the declines from the 2013 peaks has come to an end. Today’s Q3 numbers would appear to show that merely changing the CEO won’t resolve the underlying issues facing the business, with the shares sliding back from 3-month highs.

When the company reported in H1 we got a downgrade to the full year outlook, despite reporting a 2% rise in revenues, although this was offset by an increase in its debt levels. Today’s Q3 numbers have painted a similar picture with weakness in Italy and Spain offset by a decent performance in the UK, raising the question why management thought it a good idea to reject last year's €11bn offer by Iliad for its Italian business. New CEO Margherita Della Valle acknowledged the company needed to do better, however apart from the €1bn cost saving program announced a few months ago there is little sign that management have a plan that can stem the recent share price declines, amidst concern that the dividend could be at risk of a cut. On the plus side there was no change to the full year outlook, with adjusted EBITDA left unchanged at between €15bn and €15.2bn

Entain shares have seen a decent boost after posting a positive Q4 trading update which was driven by the football World Cup, as it upgraded its full year outlook. A record performance in Q4 online net gaming revenue which saw a rise of 12%, as well as a 14% rise in active customers. Full year EBITDA is expected to come in between £985m and £995m, a decent upgrade from £945m.

ITV shares are doing well on speculation that French TV group FL Entertainment might be interested in making a bid for its ITV Studios business. With a valuation estimated to be in the region of £3bn and a key driver of its recent recovery ITV Studios is very much the jewel in the crown when it comes to recent outperformance in the ITV share price, generating almost 50% of total revenues. That means any sort of deal, apart from a minority stake, is extremely unlikely to happen. After all, why would you sell off what is quickly becoming your most profitable business area? You just wouldn’t.

Darktrace shares have rebounded from record lows after announcing a £75m share buyback, as once again speculation swirls around the latest report on its accounting practices. Earlier this week Quintessential Capital Management expressed scepticism over the validity of its financial statements, while also taking an active short position.    

GSK’s share price underperformance has been a bone of contention for shareholders for some time, CEO Emma Walmsley now expected to deliver now that the Haleon business has been spun out so that the focus can shift to speciality medicines and the vaccines side of the business. Last year the share price dropped to 18-month lows in the aftermath of the Haleon spin off and has struggled to rally since then, apart from a brief spike in December after a US judge threw out claims related to the Zantac drug. 

Today’s full year results would appear to suggest that the business is heading in the right direction with Q4 profits beating expectations, although judging by the share price reaction it seems some need a little more convincing.

Net profits for Q4 rose to £1.5bn, over double from the same period a year ago. Full year sales rose to £29.3bn with strong growth across all its businesses, with record sales of its new Shingrix drug of £3bn, a 72% increase. Vaccines saw sales of £7.9bn, a 17% increase. On the outlook turnover is expected to increase by 6% to 8% with adjusted operating profits expected to rise between 10% and 12%.  


With a lot of earnings reports set to hit the tape this week we’ve seen a lot of movement in both directions, however with the Fed decision looming large later today US markets have opened lower. The latest ADP payrolls report has again pointed to a resilient labour market although jobs growth has slowed again, showing 106k jobs were added in January.

The latest JOLTS job openings report for December also showed that vacancies remained high with a decent uptick in leisure and hospitality suggesting that domestic demand is still strong – why hire if the economy is slowing?   

Snap shares have plunged after projecting its first ever quarterly decline in revenue, in its Q1 guidance. The social media company cited concerns over future advertising revenues. In Q4 revenues came in at $1.3bn, as well as slipping to a net loss of $288.5m. This was despite an increase in daily users, which rose to 375m.  This weakness has translated into a slide in the likes of Pinterest as well as Meta, who are due to release their latest numbers after the bell.

The last few months has seen Microsoft warn that games and console sales have been slowing, as customers cut back at the same time prices for premium games have gone up sharply. Yesterday’s numbers from Electronic Arts appear to confirm that trend after Q3 revenues slumped by 2.8% to $1.88bn. Its outlook for Q4 was even worse, the shares falling sharply after downgrading expectations to $1.75bn, from $2.2bn and announcing that the new Star Wars game Jedi Survivor was being pushed into the next fiscal year. It also said it was halting development on the mobile versions Battlefield and Apex Legends. It certainly doesn’t bode well for next week’s Activision numbers.

Peloton shares have pushed up to 8-month highs after Q2 revenues came in much better than expected at $792.7m, well above its revised guidance from Q1, which was cut sharply to between $700m to $725m, although losses came in higher than expected at $122.4m.

For Q3 the company says it expects to see revenues to come in between $693m to $715m, and losses to narrow further to between $35m and $50m. Paid digital subscribers fell short of forecasts of 940k in Q2, coming in at 852k. It is encouraging that cashflow has improved but there is little evidence that the company has anything like a sustainable business model with Q3 revenues expected to slow from the outperformance seen in Q2. Hardware sales have been its weak spot for some time and there is little sign of equipment sales picking up given how costly the bikes and treadmills are.  

Given the horror show that was Intel’s numbers last week, chipmaker Advanced Micro Devices surprised with an upbeat Q4 earnings report. Q4 revenues came in at $5.6bn, a rise of 16% on profits of $0.69c share. The data centre business and sales of high-end servers appears to be doing the heavy lifting here. Its Q1 forecasts were also upbeat, predicting that revenues would hold up well at Q4 levels of $5.6bn.


The euro has outperformed today despite a bigger than expected fall in headline inflation to 8.5%. This was overshadowed by core inflation which remained at a record high of 5.2%. It is this resilience that is likely to worry ECB policymakers when they meet tomorrow and means that we could well see a continued hawkish message when, as expected, rates are raised by 50bps. The US dollar is also slipping back in the wake of this afternoon’s weaker US economic data, however the resilience of the US labour market continues to be an outlier. The Japanese yen is also seeing decent gains in anticipation that we won’t get a hawkish message from Powell later today.


Gold prices are treading water ahead of today’s Fed meeting, but could be vulnerable to a sharp move lower in the event we get a hawkish message from Chair Powell at the press conference. A lot of recent US dollar weakness appears to be predicated on the assumption we might get a pause in the rate hiking cycle. This comes across as a big ask.

Crude oil prices have remained under pressure after OPEC+ kept production output unchanged and some doubts crept in about the demand outlook in China as the economy continues its reopening process.    


Shares in UniCredit had been making steady gains since last August, but yesterday’s earnings news, along with the promise of a 40% uptick in capital distribution, was sufficient to leave the stock to advance by more than 12% on the day. Performance has long lagged its peers but this uptick was sufficient to leave one day volatility at 67.17% against 36.6% on the month.

More broadly, European banking stocks were bolstered amidst mounting speculation that the ECB still has some way to go with its policy tightening schedule. This means banks getting better margins on loans written, translating into improved profitability, so that provided support for CMC’s proprietary basket of stocks covering the sector. One day vol here sat at 29.73% against 25.5% for the month.

That solid performance from UniCredit supported other Italian banks, who collectively have a significant influence over the FTSE-MIB. As a result, the index was one of the strongest performers in Europe, driving daily vol to 19.25% against 16.7% for the month.

And finally rounding off with fiat currencies, despite talk that the SNB would be less active going forward than the ECB, the Swiss Franc saw its biggest day of gains since November against the Euro yesterday. That was sufficient to drive daily vol to 7.83% against a monthly print of 6.93% and given the central bank outlooks, this could remain an active trade.


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