It’s been another disappointing day for the FTSE100, with a slide in energy prices weighing on the likes of BP and Shell, with both crude oil and natural gas prices sliding for the second day in succession.
Europe
Up until the end of last week the FTSE 100 had been on course for a positive month, however the last 3 days, and the hawkish tone from Powell’s Jackson Hole speech, has seen the rug pulled out from underneath the positive mood.
We’re also seeing declines in the likes of National Grid, SSE and Centrica as concerns about a windfall tax on some of their profits resurfaces. Due to the way that electricity prices are linked to the gas price, some companies are reaping huge profits given their electricity is being generated by renewables, which has a lower cost of generation. This is giving these companies a nice windfall, which governments are starting to cast an envious eye over.
With the economic outlook looking increasingly bleak it’s not been a great month for the likes of the UK house builders, which have seen further falls in August, with Persimmon, Taylor Wimpey and Barratt Developments all down over 14%, with Next and JD Sports also down over 10%.
US
US markets opened modestly higher today after the latest ADP jobs report came back with an unexpectedly low 128k jobs added in August, although the gains have proved to be rather laboured as we come to the end of what has been a negative month for US markets.
Snapshares jumped higher on the open after confirming it was looking to cut 20% of its workforce as well as embarking on a series of measures to restructure the business.
Bed, Bath & Beyond shares have seen another turbulent session after the company said it may well look to sell and issue new shares from time to time in order to help it to pay down its debt levels, as well as for other general corporate purposes. The company also announced that it sees a Q2 sales decline of 26%, while announcing the closure of 150 stores and significant job losses, including senior management positions, including the COO and chief store officer.
In the lead-up to yesterday’s Q3 numbers from HP there was some concern about the effects of slowing PC demand on its outlook over the rest of the year. These fears proved well-founded as the company downgraded its profit forecast, on the back of a slowdown in notebook sales, which were down 32%. Q3 revenue came in at $14.66bn, almost $1bn below expectations, primarily due to lower PC sales. On the profits front, these were better, coming in as expected at $1.04c a share, however Q4 guidance downgrades has prompted the share price to drop sharply. For Q4 profits guidance was disappointing, with downgrades to Q4 and the full fiscal year. Q4 profits are expected to come in at $0.84c a share, down from $1.07c a share, while the full year outlook has been downgraded to $4.07 mid-point from $4.30.
FX
The euro has continued to gain against the pound as markets start to price in the prospect of a 75bps rate hike next week.
The rebound in the euro is a little surprising given that the latest inflation numbers for August posted another record high of 9.1%, and while inflation appears to be showing some signs of softening in France and Germany, in Italy it remains on fire. The latest August numbers saw headline CPI rise to 9% from 8.4%, however in July PPI rose to an annualised 45.9%, up from 41.9%, which suggests further upward pressure is coming, which will cause all manner of problems for the ECB.
The pound is slowly catching the Japanese yen as being the worst performer this year after another poor month, as it looks to post its worst performance against the US dollar since October 2016, briefly dipping below the 1.1600 level.
Sentiment around the pound has become supremely negative despite an increasing expectation that the Bank of England will have to raise rates sharply over the next few months to tame a late year surge in inflationary pressure.
The worst performer today has been the Norwegian krone on the back of the slide in energy prices.
Commodities
UK natural gas prices for October have seen a sharp drop from the 714p peaks of last week, falling for the second day in succession, dropping below 450p today, despite Russia closing down the Nord Stream 1 pipeline for “maintenance” purposes.
Crude oil prices have also come under pressure, after another set of Chinese economic numbers that pointed to a weak economy, alongside reports of further restrictions being imposed in places like Shenzen and Dalian in response to fresh covid outbreaks. Prices took another leg lower on reports that the EU was hopeful of an Iran nuclear deal “within days”
Gold prices have continued to look soft, although they did pull off their lows of the day in the wake of today’s weaker than expected ADP payrolls report.
Volatility
Oil prices fell sharply yesterday amidst concern of the impact of slowing global demand, whilst Iraq also confirmed that its exports were unaffected by domestic unrest. However, Saudi Arabia has mooted that it may look to cut production at next week’s OPEC plus meeting, so downside here may not be sustained in the medium term. This did however result in a close on 5% slide at one point for CMC’s proprietary basket of Oil and Gas stocks, driving daily vol to 62.7% against 49.96% on the month.
In terms of soft commodities, rough rice saw elevated levels of price action on Tuesday. The asset is already trading close to the 14-year highs which were posted in May but news is also emerging of Vietnam and Thailand taking coordinated action to push up the price of the crop. As the two countries account for more than a quarter of global exports, this story could deliver further price action. Daily vol sat at 77.89% against 47.53% on the month.
The Hungarian Forint was back in focus after the central bank agreed to a 100bps rate hike. This was widely expected, but was still sufficient to bolster the currency which has had a poor run of late, testing all-time lows against the greenback as recently as last week. Daily vol on Dollar/Forint printed 21.73% against 18.56% on the month.
After a turbulent session, crypto coin Tron managed to finish the day meaningfully ahead and close to levels last seen around a week ago. Activity is picking up again across many crypto assets, but Tron USD was the stand out, with daily vol of 50.01% against 38.04% on the month.
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