It’s been a lacklustre start to the week, for markets in Europe, after an Asia session which was dominated by concern that Chinese authorities will have to implement further lockdowns, after the country reported its first Covid related deaths since April.
Consequently, we’ve seen sharp declines in the price of crude oil and base metals on concerns over weaker demand, which has acted as a drag on the basic resources and the energy sector. The declines in crude oil haven’t been helped by a report that Saudi Arabia might back an increase in supplies.
This has seen the likes of BP, Shell and Harbour Energy slip to the bottom of the FTSE100.
Also, under pressure Compass Group share price has fallen back despite reporting an impressive set of full year results. Revenues rose to £25.8bn a rise of 37.5%, boosting operating profits on an underlying basis by 87.5% to £1.59bn. Operating margins were also higher, while the company upgraded its outlook for 2023 for organic revenue growth to 15%, above expectations of 12%. Despite this outperformance the shares have fallen back after the company added another £250m to its buyback program. This was below expectations of a much higher number. There is just no pleasing some people!
On the plus side Endeavour Mining is higher after reporting a major gold discovery in the Ivory Coast. The finding has the potential to be the biggest find over the last ten years, with a low discovery cost of less than $10 for every ounce of gold discovered with a recovery rate of at least 95%.
We’ve also seen the more defensive parts of the market do well, with the likes of GSK and AstraZeneca, helping to underpin the FTSE100
US markets opened lower in what is set to be a short week due to the upcoming Thanksgiving break on Thursday, while surging covid rates in China have weighed on the broader economic outlook.
Disney shares are in focus after previous CEO Bob Iger was reappointed as CEO, replacing Bob Chapek, whose tenure has seen the share price decline sharply over the last 12 months as it struggles to turn a profit on its streaming business. The timing is curious given that in June the board voted to extend Chapek’s contract for three years.
It would appear that the recent Q3 earnings numbers prompted a reassessment by members of the board, disappointed by the continued losses from the streaming part of the business. The decision seems a little harsh given the challenges that have faced the business from Covid shutdowns, as well as the rising cost of living which is squeezing margins.
It’s been a strong start to the week for the US dollar, as the follow through from last week’s comments from St. Louis Fed President James Bullard continue to filter through, and ahead of the release of this week’s Fed minutes. Most of today’s strength appears to be more to do with the slightly risk off sentiment being seen today as a result of concerns over the Chinese government reimposing stringent lockdowns in response to rising covid infections and the first Covid deaths since the beginning of Q2 when Shanghai was coming out of lockdown. This is no better borne out by the fact that the biggest gains are against the likes of the Japanese yen, which has rallied through the highs of last week.
Crude oil prices have slipped back sharply on the back of concerns over weakening Chinese demand, as well as reports that Saudi Arabia supports the idea of a production increase, sending Brent prices to their lowest levels since January, and well below the levels they were before the Russian invasion of Ukraine. From a consumer point of view its welcome news in the leadup to Christmas as its likely to lead to lower prices at the petrol pumps.
Copper prices have also continued to slip back after hitting four-month highs last week, as concerns over Chinese demand weigh in the outlook. The rebound in the US dollar is also weighing on prices.
Sugar prices saw volatile trade last week amidst supply concerns and Friday was no exception, with the US contract trading in around a 4% range. One day volatility advanced to 39.69% against 30.11% on the month.
Keeping with commodities crude oil also slipped on Friday, testing levels not seen since late September as a result. Again, it was a case of weakening demand out of China that was driving sentiment here, resulting in prices selling off by as much as 10% over the course of the week. The potential for a response from OPEC can’t be overlooked here so that could keep the asset active in the days ahead. One day vol on WTI Crude was at 41.97% against 40.18% on the month.
CMC’s proprietary basket of Chinese Tech stocks also struggled ahead of the weekend break, with the rally of the last few weeks finally running out of steam. A slowing of consumer spending in China was seen as a key driver here and resulted in Alibaba receiving price target cuts off the back of earnings news. One day vol on the basket advanced to 88.13% against 82.13% on the month.
Price action amongst cryptos continues to tail off sharply, with a one-day print on Bitcoin of just 29.98% against 65.55% for the month, with this pattern being repeated across other digital assets, too.