European markets have pulled back some of their recent losses today on Russian claims that they are in the process of returning some of their troops to their bases, after the completion of military exercises.
Europe
While this is an encouraging development, talk tends to be cheap and so far there has been little evidence of that happening on the ground, which perhaps helps explain why today’s rebound has been cautious, relative to recent losses.
Today’s rebound has nonetheless been more pronounced in Europe with the DAX and CAC40 outperforming, however we still remain below the levels we closed at on Friday, although the DAX is coming close.
The rebound in the FTSE100 has been much less pronounced, largely due to sharp falls in oil prices, as well as precious metals prices, which is dragging on the likes of BP, Shell, Anglo American and Rio Tinto.
On the plus side we’re seeing a better tone for travel and leisure which is enjoying a bit of a relief rally for the same reason, with IAG, easyJet and Wizz Air also seeing decent gains.
AstraZenecashares are higher after a positive update on trials for its Lynparza drug, which showed a 34% reduced risk of disease progression by 34% in treatment of prostate cancer.
With metals prices close to record highs its perhaps not surprising that we’ve seen two decent trading updates from Glencore and BHP today.
Australian miner BHP posted attributable H1 profits of $9.4bn, and underlying attributable profit of $10.77bn, a rise of 77% over last year, on revenues of $30.5bn. The company said it would also pay a record interim dividend of $1.50c a share. BHP also achieved a 49% reduction in net debt to just over $6bn.
Glencore has announced a record set of results for 2021, with a 43% increase in revenues to $203.7bn. This improvement helped the business return to profit after a $1.9bn loss in 2020, posting net income attributable to shareholders of $4.97bn.
Net debt was also reduced to $6bn a reduction of 62%, with the company opting to return $4bn to shareholders, by way of a $500bn share buyback and a dividend of $0.26c a share.
US
US markets have bounded out of the gates after this morning’s reports of a Russian military pullback, has helped arrest the recent downside momentum.
The January PPI report showed little sign that US inflation was slowing, keeping yields well support, however the more positive tone is outweighing concerns about rising US rates, with the Nasdaq 100 and Russell 2000 helping to drive today’s gains.
As in Europe, travel and leisure is seeing some decent momentum, with decent gains for American Airlines, United Airlines, as well as hotels, with Marriott and Hyatt also seeing strong gains.
After the bell Airbnb gets set to post its Q4 numbers, against a backdrop of Omicron which may well have impacted demand over the holiday period. In Q3 Airbnb saw its highest ever revenues of $2.24bn and profits of $1.22c a share. For Q4 Airbnb said it expects Q4 revenues to come in between $1.39bn and $1.48bn, and for the outlook to improve further in 2022. Despite this the company still isn’t expected to generate an annual profit, although we could see a modest quarterly profit of around $0.10c a share. Annual losses are expected to come in at $0.65c a share.
FX
The US dollar has slipped back today, showing little in the way of a reaction to today’s hotter than expected US PPI report for January which came in much stronger than expected. Rather than seeing a slowdown from the 9.7% seen in December, prices remained constant at 9.7%, while core PPI, excluding food, energy and trade also remained unchanged at 6.9%, against an expectation of a sharp fall to 6.3%.
For those of us who were hoping that US inflationary pressure might well be easing, today’s numbers aren’t good news, and feed into the narrative that the Fed might go for a 50bps move in March. US yields didn’t show too much of a reaction given that they were already close to their intraday peaks.
As you would expect with the dialling back of tension in Europe the euro has rebounded, and is outperforming across the board, with only the Swedish krona performing better.
Commodities
Brent crude oil prices have slipped back on today’s reports that some Russian troops are returning to barracks after completing their drills.
Gold has fallen sharply from an 8 month high, on the better risk sentiment arising out of today’s reports of a possible de-escalation on the Ukraine, Russia border. We’ve also seen steep falls across the board with silver, platinum and palladium down sharply. The biggest falls have been in palladium prices given that Russia is one of the biggest global producers of this key industrial and precious metal.
Volatility.
Political tensions are keeping a number of fiat currencies in focus. The headline here is Dollar Rouble, although that appears to be found, at least for now, technical resistance blocking further greenback gains. One day vol hit 34.6%, up from a one month reading of 20.7%. Another pair seeing heightened price action was Dollar-Czech, which is being pulled in two directions right now both as a result of those geopolitical tensions and news that domestic inflation hit 9.9%, the highest level in almost 25 years.
After the torrid start to the week for most indices, there’s not a great deal to separate them, although Europe definitely appears to be faring worse amidst the idea that Russian retaliation for sanctions could see the continent’s gas supplies being hit hard. The Spanish 35 saw one-day vol advance to 37.3%, up from a monthly average of 24.3% whilst Frankfurt’s mid-cap index also saw activity spike with a daily reading of 61.6% against a monthly 29.3%.
One notable trend in terms of commodities has been Palladium, with prices firming against that backdrop of what may soon be playing out in Eastern Europe. On top of the precious metal being a safe haven, Russia is also the biggest global producer. One day vol hit 68%, up from a monthly print of 50%.
