European markets have been a sea of red today, after a weak lead from Asia which was prompted by sharp falls in Chinese markets as the Covid situation in Shanghai continued to deteriorate, with deaths rising to a record level. Notwithstanding that, covid cases are now starting to manifest themselves in Beijing, raising concerns over a strict lockdown there.
This, in turn, has prompted concerns that China’s zero covid policy will hobble the ability of the Chinese government in meeting its GDP target for this year. The 5.5% target had already started to look difficult to achieve after Q1 GDP came in at 4.8%, and with little sign of an economic reopening this target is already being revised lower by various banks.
The re-election of Emmanuel Macron as French president has almost become an irrelevance to the wider overall concerns around the global economy, offering little in the way of a lift to French markets or the euro. The FTSE 100 has borne the brunt of today’s sell-off largely due to its heavy commodity bias, although the big consumer staple overseas earners of Unilever, Reckitt Benckiser and Diageo are outperforming on the back of the weaker pound.
Basic resource stocks have been absolutely rinsed on the back of these slowdown concerns, as fears of lockdowns across China, and further supply chain disruptions impact on the prospect of any sort of recovery story. The likes of Anglo American, Glencore and Rio Tinto are all down heavily on the back of weaker copper, iron ore and other metals prices, while BP and Shell have also come under pressure as oil prices slide on demand destruction concerns.
US markets, having finished sharply lower on Friday, have picked up where they left off on Friday, opening lower, in a week that is set to be a key test for sentiment as well as earnings, with the likes of Apple, Amazon, Microsoft and Alphabet set to update the markets.
After opening close to its lowest levels since the 15 March, the Nasdaq 100 does appear to be attempting a comeback, edging back into positive territory, while the Dow and S&P 500 are off the lows of the day.
On the earnings front, Coca-Cola's latest Q1 earnings saw revenues and profits come in ahead of expectations. Revenue came in at $10.5bn, a 16% increase, while profits came in at $0.64 a share. Despite suspending its Russia business, Coca-Cola reiterated its full-year revenue growth target of 7% to 8%.
Twitter shares have moved above $50 on reports that the company is on track to reach a deal with Elon Musk as soon as today, however they still remain below the offer price of $54.20.
It’s been another strong day for the US dollar today, pushing up to a two-year high, with the Australian dollar feeling the brunt of the pain on the back of concerns over China’s economy and the outlook for growth. The Chinese offshore yuan has also come under further pressure today, hitting an 18-month low against the US dollar before rebounding off its lows, after the Chinese central bank cut its Forex triple R rate by 1%. while the offshore yuan has also come under pressure having slid another 1% today and more than 3% over the past week.
The pound has also continued to slide falling to its lowest levels since September 2020, after slipping below 1.2800 with the potential for further declines towards the 1.2500 level in the coming weeks. The outlook for the UK economy has deteriorated sharply in the last few weeks. This morning manufacturers reported raising their prices at the fastest rate since 1979, to deal with sharp increases in energy and raw material prices. All the more concerning was a fall in optimism which in turn was deterring investment. This in turn is likely to lead to higher prices at the sharp end for consumers, who are already feeling the pinch of the current cost-of-living squeeze, a squeeze that is likely to get worse as the new tax year starts and the government's NI tax rises kick in.
The Japanese yen appears to have rediscovered its status as a safe haven and is outperforming the US dollar, more or less confirming today’s price moves are very much haven driven.
US crude oil prices have slid back below $100 a barrel for the first time since 12 April as concerns about global demand and a strong US dollar weigh on prices, while brent crude prices are also sliding
Gold prices have slid to a four-week low below $1,900 an ounce as the strength of the US dollar weighs on demand for the yellow metal. Palladium prices have fallen even more sharply, down over 10%, sliding back to their lowest levels since 29 March.
We’re also seeing weakness in iron ore and copper prices, with copper sliding back to two-month lows and the 200-day MA, on China demand slowdown fears.
The big story of last week was arguably the earnings release from Netflix, which saw subscriber numbers contracting for the first time in a decade. Not only did that hammer stock in the company, but the weighting it has in two of CMC’s proprietary share baskets – Streaming and Remote Lifestyle – saw price action exaggerated here, too.
Daily vol on Netflix exceeded 800% on both Wednesday and Thursday, against monthly averages of around 250%, while in the latter part of the week, Streaming vol exceeded 150% on the day versus 65% on the month, whilst Remote Lifestyle exceeded 100% on the day, while printing in the high 60s for the month.
Keeping with stocks, and Tesla’s impressive earnings also thrust the next-gen car maker into the spotlight. More than anything this underlines that with earnings season underway, at least some reporting companies here have the potential to deliver further price action but on Friday, Tesla’s vol reached 232% against 114% on the month.
Select fiat currencies have also been in for an active week, with flooding and power cuts in South Africa being seen as driving the rand lower, along with the prospect of further US rate hikes and a more risk-averse mindset, in general, emerging from investors. By Friday, daily vol on dollar/rand had breached 20% against a monthly reading of 13.22%.
The yen has also been in the spotlight after fresh bond-buying intervention at the Bank of Japan, most notably on Wednesday, as daily vol was recorded at 12.86% against a monthly reading of 9.7%.
Conversely, cryptos saw some very subdued levels of action at times last week, with the bitcoin/USD trade recording daily vol of just 30.69% on the day on Tuesday.