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European markets tread water in the absence of US markets

London skyline with St. Pauls

It’s been a quiet and relatively subdued session for European markets today, in the absence of US markets for the Martin Luther King Day holiday.

Europe

UK markets have once again looked resilient, with the FTSE 100 once again looking to push higher towards its previous record high at 7,903. The FTSE 250 has also had a positive day, pushing above the 20,000 level for the first time since mid-August.

Further declines in European natural gas prices to 16-month lows, on the forward one month, are helping the more buoyant mood, while crude oil prices are also slipping back after failing to completely reverse their first week losses.   

The travel and leisure sector has been a strong performer since the start of the year, and once again it's out in front leading the gainers  on the mid-cap index today, with easyJet and Carnival helping to lead the way.  

Asos is also continuing its recent relief rally after last week’s trading statement showed evidence that things weren’t getting any worse at the beleaguered online retailer.

J Sainsbury shares are also higher after announcing a deal with Just Eat that would allow customers at certain branches to order a limited range of products for delivery within 30 minutes. Just Eat shares have slipped back from eight-month highs after being cut to neutral by Exane.

Housebuilders Taylor Wimpey and Barratt Developments are also getting a bid after Rightmove annual house prices for January showed a monthly rise of 0.9%, pushing the year-on-year rate up to 6.3%, and off December’s 17-month low of 5.6%.

Having posted a resilient set of numbers last week, Marks & Spencer shares have continued to push higher after the retailer announced it was planning to open 20 new shops this year and refurbish a lot of their existing stores. Twelve of these new shops will be food halls with wider aisles and are expected to open next year. This is particularly welcome given that a lot of the older stores have looked a little tired for a while, with the £500m investment expected to create over 3,000 new roles   

US

US markets are closed. 

FX

It’s been a subdued start to the week for the US dollar, although the Japanese yen has started to come under a little bit of pressure ahead of Wednesday’s Bank of Japan rate decision. Earlier today the yen hit its highest level since May last year in anticipation of a possible policy shift from Japanese policymakers, after last month's tweak to their yield curve control (YCC) policy settings.

The central bank has been insistent that they aren’t in any rush to make major adjustments to the policy for now, but the sharp rise in the Japanese yen in the past few days, to six-month highs, suggests markets want to test this resolve, as we look to see whether the Japanese central banks resets market expectations later this week.

The Bank of Japan has always tended to be conservative when it comes to managing its currency. They tend to be less worried about general appreciation and depreciation than they are about the speed of said move. With that in mind, they will be comfortable with a higher yen, however they may not be so happy with the speed of the move. That is something yen traders need to be aware of.  

Commodities

European natural gas prices for one month forward have continued to slide back today, despite the sharp change in the weather over the last day or so. This is because storage levels have remained at high levels, and demand for new inventory has remained low.

Crude oil prices have also pulled back from last week’s peaks with little sign, as we approach Chinese New Year, of a significant pick-up in demand. 

Gold prices still look set to retest the $2,000 an ounce level in the coming weeks, despite retreating from a fresh nine-month high.   

Volatility

Q4 earnings season kicked off in the US on Friday, with a number of banks leading the way. This proved to be something of a mixed bag, with the $4bn being set aside as loss provision from the economic downturn certainly weighing on sentiment, but Bank of America with daily vol of 93.34% versus 41.25% for the month, Citigroup at 81.07% on the day against 41.4% on the month, and Wells Fargo which printed 78.58% for the day compared with 41.72% over the month, all stood out in terms of price action ahead of the weekend break. 

This also spilt over to CMC’s proprietary US Banks share basket, with the underlying price falling more than 3% in early trade, before staging a comprehensive recovery as the session unfolded. One day vol sat at 39.55% versus 33.44% for the month.

The continuation of warmer than expected weather is leading to natural gas being stockpiled, especially in the US. Friday’s closing price was down to a level not seen since summer 2021 and analysts are now discussing the idea that demand for the month could hit record lows. One day vol on the contract came in at 95.99%, ahead of the one month reading of 92.54%.

And rounding out with cryptos, last week’s US inflation data offered the sector something of a shot in the arm, including bitcoin breaking back about the $20,000 mark for the first time in more than two months. One day vol on XBT/USD printed 32.97% against 26.77% for the month. 


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