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US dollar rebounds, and stocks slip back ahead of US CPI tomorrow

European markets have had an altogether more bearish tone today, with the US dollar bouncing back after three days of decline.

On the plus side we have pulled off the lows of the day on reports that Russia has ordered the withdrawal of troops from the Ukrainian city of Kherson.

Europe

It’s been a disappointing day for Marks & Spencer shares after profits fell to £205.5m with the Ocado side of the business recording a £0.7m loss, compared to a profit of £28.1m a year ago. Ocado revenues also saw a decline of 4.2%. M&S has also been battling rising costs, which have risen sharply in the last 12 months, by 8.4%, resulting in a 70bps reduction in margins.

Markets have also switched off ITV today, its shares sharply lower after a disappointing set of Q3 numbers, particularly around advertising. The Q3 numbers were expected to be disappointing, and were in respect of total advertising revenue, falling 2% for the year to date at £1.56bn, with July down 9%, August down 21% and September down 14%, compared to the same period in 2021.

For the rest of the year TAR is expected to improve to between 1% and 1.5% over the full year, although with October down 9%, November and December will have to do some heavy lifting. ITV expects to see November up by 3%, while December is expected to be 5% to 10% higher with the World Cup in Qatar expected to offer a decent pick me up. Market reaction suggests that these forecasts may be on the optimistic side.

Aviva shares are lower after a negative market response to their latest Q3 numbers. The general insurance business saw a 10.7% rise in gross written premiums from a year ago, turning over £7.2bn. The UK and Ireland life business also saw a 46% rise in new business to £466m, however the wealth division saw assets under management slip back from £7.3bn a year ago to £7bn. Aviva’s dividend guidance of 31p for this year and 32.5p for next year was left unchanged.

Flutter Entertainment shares are also lower, despite raising its guidance on its US business in its latest trading update from $2.85bn - $3.1bn to $2.95bn - $3.2bn. Total revenue in Q3 rose by 22%, with gaming revenue seeing a decent lift to £748m, while average monthly players rose 23% to 9,596. Today’s pullback may also have more to do with the fact that the shares have seen a decent lift over the past few days on the back of the news on Monday that saw a US judge rule Fox Corp would have to pay a much higher price to acquire an 18.6% stake in FanDuel.

Pub chain JD Wetherspoon has also seen a big fall after reporting a sharp rise in the costs of energy, labour, and food, despite trading in line with expectations. Like for like sales rose 9.6% in the first 14 weeks of the financial year.

The company has sold 5 pubs in the last few weeks and has seen a cash inflow of £1.9m, with the intention to sell another 32 pubs, and add another 7 pubs to that list later in the month. The decision to sell the pubs suggest that cash is becoming tight and that the focus now is to become leaner and reduce its debt levels as interest costs rise.

US

US markets have slipped back in early trade, giving up some of the gains seen so far this week, and ahead of tomorrow’s CPI report.

After falling sharply yesterday, Tesla shares have slipped back after it was confirmed that CEO Elon Musk sold $3.95bn of shares only days after completing his takeover of Twitter.

After days of speculation, it was confirmed that Meta Platforms would be cutting more than 11,000 jobs in the coming months, as well as extending a hiring freeze into Q1 of next year. With the shares already down massively year to date the pressure was growing on CEO Mark Zuckerberg to do something to stop the bleeding. Today’s confirmation of the cuts has seen the shares edge higher. In a rare mea culpa Zuckerberg admitted that he’d failed to anticipate the increased competition and revenue downturn.

On the downside, Disney shares have fallen sharply after missing on Q4 revenues and profits, as well as some disappointing guidance. Last night’s Q4 numbers saw revenues come in short of expectations at $20.15bn, while profits came in at $0.30c a share, short of the $0.53c expected. The revenue number was well below Q3’s $21.5bn which perhaps shouldn’t be too surprising given that Q4 tends to see a drop-off anyway. The parks business in Q4 generated $7.43bn, a 36% increase on last year but below estimates of $7.59bn, with some of that shortfall probably due to the impact of Hurricane Ian which saw the parks take a $65m hit.  As far as streaming is concerned Disney is delivering decent subscriber growth, but that may be yesterday’s story. It is clear from these numbers, especially in India that Disney is placing its focus on subscriber numbers over profitability. That model may not be fit for purpose anymore and is a model Netflix is moving away from. At its most recent earnings update Netflix said it would no longer be publishing guidance of its subscriber numbers, saying it wants investors and shareholders to focus less on subscriber numbers and concentrate more on the key metrics of revenue, operating income, margin and net income. How long before Disney is forced to do the same?

Yesterday we saw Take-Two Interactive, makers of GTA and who took over Zynga earlier this year, slide back sharply after Q2 revenues came in shy of expectations at $1.5bn. For the rest of the year the company said they expected losses to come in between $631m and $674m, well above previous estimates. Today Roblox has seen similar sharp falls after reporting Q3 sales of $517.7m as users spend less on the platform in response to higher inflation and a slowing economy.  

FX

The US dollar has rebounded strongly today ahead of tomorrow’s US CPI report for October, after three days of declines.

The pound has slipped back sharply today with no real single catalyst for today’s weakness, although part of the reason may be down to speculation that next week’s budget is likely to be extremely from a taxation point of view.

Reports that the Chancellor is looking at lowering the threshold for the top rate of tax may play well from a political point of view but its hugely damaging from an economic point of view, as are the other measures he is expected to implement. If you want to send a message that the UK is closed for business you couldn’t wish to send a better signal to the global investment community.

While the previous UK chancellor was heavily criticised for his free and easy attitude to tax cuts, it would appear that his replacement is tacking as hard as he can in the opposite direction, in a move that could lead to a prolonged recession. While some have made the point that the adults are now back in charge, that doesn’t help if they then proceed to tip the economy into a prolonged slowdown.     

Commodities

Crude oil prices have continued to slip back down for the second day in a row after failing to gain a foothold above $100 a barrel earlier this week. An unexpectedly large rise in API inventories of 5.6m barrels is weighing on the price along with the reality that China’s economy isn’t going to be reopening fully any time soon. Today’s EIA inventories also came in ahead of expectations, rising to their highest level since July 2021.

Bitcoin has remained under pressure as markets continue to mull the so-called deal between Binance and FTX. Binance has offered a letter of intent which is some way short of a done deal, and could still fail if due diligence shows up any problems.

Volatility

A return to elevated levels of price action for crypto has been flagged a couple of times in recent weeks but matters stepped up a gear during Tuesday’s trade with that near collapse of the FTX exchange. Solana was the stand out, with the token selling off heavily and more that reversing recent gains off the back of news that Google would become a validator. One day vol on Solana/US Dollar printed 277.46% against 104% on the month.

That activity was spread right across the asset class, with even Bitcoin, which is now typically more stable, printing 98.24% on the day versus 44.76% on the month.

Gold prices are traditionally seen as ticking higher in the wake of US mid-term election results and this year appears to be no exception. The underlying rose above $1700 for the first time in a month, buoying sentiment amongst those stocks with exposure to the industry. CMC’s proprietary basket which covers some of the largest producers in the world had a solid session, driving one day volatility to 74.43% against 62.92% on the month.

And in single stocks, Aussie oil exploration play Santos was something of a stand out. Earnings news released on Tuesday showed that production for the full year is expected to be between 5% and 15% lower than the comparative. That rattled the company’s stock and elevated one day vol to 66.23%, up from 42.71% on the month.


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