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Oil price rebound helps push FTSE 100 to two-month high

oil and gas platform

The decline in oil prices, which acted as a drag on the FTSE 100 yesterday, quickly reversed overnight after Saudi Arabia denied they had plans to boost production. This prompting a rebound for markets in Europe, and the FTSE more specifically, helping to push the UK blue-chip index to its best levels in over two months.

Europe

Yesterday’s biggest fallers are leading today’s gainers with Harbour Energy, BP and Shell all showing decent advances. Basic resources are also performing well with the likes of Glencore, Antofagasta and Rio Tinto also higher.

Also having a good day is Babcock after its latest half year report showed revenues increase to £2.14bn, a modest increase from £2.12bn the year before. Operating profits were slightly lower at £72.8m, with inflationary pressures and higher costs weighing on margins. Nonetheless despite the decline in profits, the company kept full year guidance unchanged. The company’s contract backlog is slightly down on last year at £9.9bn, but it does have visibility on 90% of full year revenue for 2023.

Irish construction company CRH shares have slipped back after reporting that year to date sales for the 9-month period to September have risen 13% to $24.4bn, helped by a 36% rise in Q3 in its building products division. This helped offset a 9% decline in its European materials business through the same quarter. The company kept its full year guidance intact of full year EBITDA of approx. $5.5bn, although they did point to a challenging costs environment, particularly in its European materials business.

Vodafone shares are also under pressure after a broker downgrade from Credit Suisse, citing the risk rising costs on the company’s outlook, as well as the prospect of a dividend cut in the longer term. 

US

US markets have opened modestly higher, although the Nasdaq has lagged in what looks set to be a lowkey session ahead of the publication of tomorrow’s Fed minutes and a holiday shortened Thanksgiving week. 

Apple shares have shrugged off a report that US customers waiting for new iPhone 14’s may well not receive them before Christmas.

Zoom’s Q3 numbers saw revenues come in as expected at $1.1bn, however profits came in above expectations at $1.07c a share, pushing net income up to $48.4m. For Q4 the company said it expects to deliver similar revenues to Q3, while at the same time generating profits of $0.75c to $0.78c share. This prompted them to revise their full year guidance for revenues slightly lower to $4.37bn to $4.38bn, down from $4.39bn to $4.4bn.

EPS on the other hand was revised higher to $3.91 to $3.94c a share, up from $3.66 to $3.69, however despite the upgrade to profits the shares have slid back on the revenue downgrade. Zoom management blamed the weak revenue guidance on the more challenging economic environment, as well as the strength of the US dollar. The online business appears to be undergoing some challenges with an expectation that the slowdown in this part of the business will stabilise during Q2 of next year.

Best Buy, the electronic retailer shares have struggled in the last 3 months after downgrading its full year sales guidance in Q2 to -11%. Today’s Q3 numbers has seen the retailer upgrade that to -10%, as Q3 revenues came in at $10.59bn, and profits of $1.38c a share, well above expectations of $1.03c a share. This better-than-expected outlook has seen the shares get off to a flying start to the day.

Clothing retailer Abercrombie & Fitch has also posted a better-than-expected set of Q3 numbers as net sales beat forecasts coming in at $880.1m, while upgrading their full year sales forecasts to -2% to -3%, from around -5%. The Hollister brand was a drag on the wider business with a 12% decline in sales, however A&F outperformed with a 10% gain. Nonetheless the more optimistic outlook has seen the shares push higher.

FX

The US dollar has slipped back a touch today, which also helps explain the slightly more resilient tone in equity markets.

The weakness appears to be driven by an expectation that the Federal Reserve will, more likely than not, start slowing the pace of rate rises as more and more data shows that inflation is slowing.

The pound has been trading mostly higher despite a bleak economic assessment from the OECD, and after UK public sector borrowing rose by £13.5bn in October, well above the £4.4bn a year ago but was still much lower than the £20bn which was forecast. This was due to an extra £1.9bn being spent on subsidising energy bills, while interest payments accounted for £6.1bn. The OECD said the risks to the outlook were very much on the downside, while also criticising the UK’s energy support package for its untargeted nature, which could keep inflation higher than it should be.

The euro has also gained against the US dollar, but slipped to its lowest level against the pound since the 3rd November, on the back of an expectation that the ECB may well not be able to hike as much as it would like to in the face a deteriorating economic outlook.  

Commodities

Crude oil prices have rebounded from the lows of yesterday after Saudi Arabia as well as the UAE denied reports that OPEC+ was looking at a production increase when they next meet in December. While the denial has supported markets concerns about demand have remained with the increase in China covid infections which have risen back close to record levels.

Today’s weakness in the US dollar and decline in yields has served to pull gold prices off their lowest levels since 10th November, with tomorrow’s Fed minutes potentially opening the prospect of a further fall, towards the $1,730 area. Before Powell’s hawkish press conference, the immediate market reaction from the meeting statement was tilted towards the dovish side, and it was only Powell’s comments during the press conference that prompted the sharp market reversal.       

Volatility

Oil prices have been front and centre in recent hours after conflicting reports over a potential supply boost elevated activity right across the sector. Crude slumped briefly off the back of reports that Saudi Arabia was ready to boost output, although losses proved short lived after Riyadh dismissed the idea. This left Brent Crude seeing the highest levels of action for commodities, with one day vol coming in at 80% against 39.15% for the month.

A similar picture was seen on the WTI contract, with daily vol of 79.95% against 42.19%, whilst the news hit oil and gas producers, too. CMC’s proprietary cohort of US stocks involved in the industry – the Oil & Gas basket – saw daily vol of 78.62% against 49.87%.

An earnings miss from live streaming video site DouYu yesterday saw revenues spike but EPS plummet. That rattled sentiment in the stock, with the US ADR sliding more than 14% during yesterday’s trade. One day vol came in at 289.09% against 195.61% for the month.

And finally, activity across fiat currencies has been rather muted, whilst the picture was broadly similar for cryptos. The one exception here was Stellar Lumens, which like many other digital assets traded down to levels not seen since late 2020. One day vol against the US Dollar came in at 99.89% compared to 75.83% on the month.


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