European markets have seen a mixed session today, as concerns over Omicron continue to keep investors cautious, while another hot US PPI report is raising concern that the line of least resistance in 2022 is likely to be one of a much more aggressive monetary tightening on the part of the Federal Reserve.
Europe
Despite these concerns the FTSE100 is outperforming, although it is struggling to hold onto its gains for the day, after underperforming yesterday. The outperformance is being helped by resilience in basic resources and financials.
Banks are higher after passing the latest Bank of England stress tests yesterday evening, with firmer yields also helping, after the IMF said the Bank of England should stop procrastinating and look at an increase in interest rates. The fund said it was important to avoid an “inaction bias” in view of the costs associated with containing second round effects.
This was a similar argument to the one made by external MPC member Michael Saunders earlier this month when he said that there were risks in delaying a rate rise.
Lloyds Banking Group, NatWest and Barclays have all edged higher.
British Airways owner IAG is also higher, along with the rest of the airline sector after the UK government scrapped its red list for flights into and out of the country.
Ocado has had a year to forget share price wise, at the start of today it was the worst performer on the FTSE100, down 30% year to date, and while today’s rebound has helped to reverse some of the damage, its overall numbers for this year have been a little disappointing.
It would appear that today’s share price rebound has more to do with yesterday’s ruling from a US court that ruled in favour of the business against a case brought by AutoStore who claimed that Ocado had infringed its patents in the US.
On today’s Q4 numbers, these were disappointing, coming in at £547.8m, a fall of 3.9% a year ago, which when added to the £1.8bn generated in the previous 9 months puts total revenues for 2021 at £2.36bn, a modest increase to last years £2.3bn.
While on the face of it this performance has seen revenues increase year on year, it’s still a disappointing performance. Q4 revenues were lower by 3.9% from a year ago, and while comparatives were tough given that most of the UK was in different tiers of lockdown back then, the business has seen a decent increase in overall capacity from a year ago.
As such you’d have expected to see a much better return on the revenue front. Average orders per week were higher, however average basket size has declined falling 12% to £118.
The reason for this it would appear has been labour shortages holding back sales growth, along with higher costs, which Ocado said would add another £5m to its cost base earlier this year. In terms of the outlook for 2022, the retailer is confident about its sales growth prospects, saying it expects it to be at the upper end of 10% to 15% of its existing guidance.
On the downside, BTshares are getting pummelled despite Altice increasing its stake in the business to 18%, however chairman of the group Patrick Drahi has insisted he still doesn’t intend to make an offer for the wider business. It is this admission that appears to be weighing on the share price, as Altice are now prevented under takeover rules from making a bid for another six months.
Rentokil shares have also dropped sharply after announcing it is paying $6.7bn for US pest control firm Terminix in a move that perhaps while cementing its position in the US market, may well be a little bit on the pricey side. It’s certainly a significant premium to the previous day’s closing price.
In another M&A deal, international bus and coach operator National Express has said it has agreed a deal to buy its nearest UK rival, Stagecoach in an all-share deal, where Stagecoach shareholders will receive 0.36 new National Express shares, for each Stagecoach share. Both companies have struggled as a result of the pandemic with sharp falls in revenue due to lower footfall. The rationale behind the deal is expected to yield £45m in savings, with 25% of that in the first year.
US
Having slipped back yesterday, US markets have continued that trend opening lower after the latest November PPI numbers showed that the trend for higher prices was showing little signs of dissipating.
US PPI rose to 9.6%, another record high, up from 8.8% in October. For those on the FOMC who have been sounding the alarm on inflation in recent months, today’s readings are only likely to reinforce inflation concerns, and could herald a hawkish surprise when the Fed concludes its meeting tomorrow.
Meme stocks are also falling out of favour as investors de-risk heading into the Christmas period with AMC Entertainment and GameStop both falling to six-month lows in initial trading.
Tesla shares are also trading lower after CEO Elon Musk sells more shares.
FX
It’s been a fairly subdued session in currency markets with the Swiss franc amongst the better performers.
The pound is also holding up reasonably well after the latest unemployment numbers showed the jobless rate fell to a 15-month low of 4.2% in October, with the number of people on payrolls rising by over 257k in November, while the number of vacancies rose to 1.22m.
Commodities
Crude oil prices have slipped back after the IEA lowered its forecasts for global oil demand in Q1 by 600k barrels a day, although it went on to say it was likely to be temporary. With the demand outlook so uncertain there are concerns that any significant economic slowdown could prompt a surplus towards the middle of next year.
Gold prices slipped back sharply in the wake of this afternoon’s record US PPI print of 9.6%, which has seen US 2 year and 5-year yields pop higher, ahead of tomorrow’s Fed meeting.
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