In what has been a pretty directionless week so far, European markets are on the back foot as a slide in automakers, and lower oil prices weigh on the wider market.
Europe
The negative reaction to last night’s Tesla numbers, along with a pledge to cut prices further has weighed on the European auto sector, with losses for BMW, Renault, Stellantis, and Volkswagen over concerns that already thin margins will get even thinner, as prices get cut further.
The fact that demand is falling for electric cars isn’t helping either given that the economic case for owning one has declined along with falling petrol prices.
With oil prices on course to post their biggest weekly decline in a month the likes of BP and Shell are also lower.
Staying with the auto theme Melrose Industries is higher after spinning off its automotive business which supplies drivetrain technology and metal parts to the automotive sector. The new company, named Dowlais Group has seen its shares plunge on its first day of trade, down over 20%, even as Melrose shares are the best performers on the FTSE100.
Earlier this week easyJet announced that H1 losses were less than expected while saying it expects to exceed FY23 market expectations. A 35% rise in passengers in Q2, and a 43% rise in revenue per seat was followed by a reiteration of its H2 guidance of 56m seats, a rise of 9%.
An upgrade to easyJet holidays guidance to 60% year on year was also welcome, although someone forgot to tell the share price.
Today’s numbers from Jet2 appear to have reinforced this positive outlook as the chartered package holiday provider upgraded its full-year profit outlook to between £387m and £392m, with seat capacity 7.2% higher than last year.
US
After a weak finish yesterday US markets have opened lower as concerns over a slowing US economy weigh on sentiment. Last night’s Fed Beige Book referenced several mentions to declining loan demand and tighter credit conditions, while weekly jobless claims and continuing claims rose last week to 245k and 1865k, with continuing claims hitting a 52-week high.
A negative reaction to Tesla’s Q1 numbers after the electric car company saw a bigger-than-expected drop in operating margins in its latest trading update isn’t helping. The announcement that further price cuts could follow, has also weighed on the shares, as concerns that the current margins could deteriorate even further. Ordinarily, this sort of statement wouldn’t be a problem for a business that has a cheap valuation, however, Tesla isn’t cheap, and the fact that even with the largest margins in the sector there could be a further decline is likely to make uncomfortable reading for a lot of Tesla shareholders.
Taiwan Semiconductor shares have pushed higher despite pointing to a weaker outlook as the chip company downgraded its revenue forecast against a backdrop of weaker demand for microchips. For Q2 the company said it expects to see revenue of $15.2bn to $16bn, below the consensus of $16.1bn.
FX
The largely risk-averse tone for equity markets today has contributed to some strength in the Swiss franc and Japanese yen as US bond yields come under pressure, with US 2-year yields pulling back from their highest levels in over a month.
The pound is broadly unchanged despite speculation that the Bank of England may well have to raise rates by more than the 25bps now expected at next month's rate meeting.
The decline being seen in crude oil prices appears to be being driven by concerns over weaker demand after yesterday’s Fed Beige Book pointed to the challenges being faced by US businesses over the past few weeks since the turmoil in the banking sector in March.
Volatility.
Crypto assets were thrust back into the spotlight on Wednesday with some notable selling being seen across the board. Price action was somewhat more pronounced for the altcoins and there appeared to be no single fundamental driver behind the slump, but higher-than-expected UK inflation, a strengthening US Dollar, and signs of large sell orders passing through some exchanges were all mooted. Bitcoin-USD one-day vol printed 39.6%, below the one-month reading of 43% but it was the likes of Solana where the real action was seen, with one-day vol of 104.06% against 74.48% on the month after the underlying fell around 10% in a matter of minutes.
That surprise UK inflation print paves the way for more rate hikes at the Bank of England and resulted in cable rattling around in three-quarters of a cent channel on Wednesday. Gains over the 24-hour period were ultimately limited but one day vol here came in at 8.43% against 8.33% for the month.
Palladium was once again the stand out in terms of commodities with that Dollar strength serving to undermine some of the recent gains. The underlying traded in a range of around 3% during the session, resulting in one day volatility of 57.3% against 44.82% for the month.
And sugar prices are back in focus, with the underlying having made a brief foray above the psychologically significant 25 cents level on Wednesday. Lower harvest forecasts are continuing to set the pace here although as we saw last week, profit takers still seem keen to move in at these levels. One day vol stood at 42.73% against 38% on the month.
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