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As US stocks struggle, European stocks edge back up

trader looking at screen

European markets have enjoyed a much better session today, although the bias has been much more defensive in nature with health care stocks outperforming, and today’s resilience continuing to contrast with how stocks are performing in the US, where the air looks a little bit thinner.

Europe

Dechra Pharmaceuticals has stood out near the top of the FTSE100, after announcing it had acquired the global rights to Verdinexor, a drug that is used in the treatment of canine lymphoma.

Today’s move higher in Dechra shares also helps to reverse 5 days of sharp declines which had seen the shares fall over 15% in the space of a week.

Consumer discretionary are also doing well today, led by Next and JD Sports Fashion, whose shares appear to have been boosted by today’s BRC retail sales numbers for December which showed a decent increase in sales of clothing online.

Flutter Entertainment is also higher after announcing the completion of its Tombola acquisition, while also being on the receiving end of a broker upgrade from Citigroup and Jefferies.

After being dumped rather unceremoniously out of the FTSE100 last month, having fallen over 50% from its September peaks, Darktrace shares rebounded strongly today after the company upgraded its full year guidance for revenues and margins.

First half revenue is expected to come in at $190m with year-on-year revenue growth expected to rise between 42% and 45%, up from a previous forecast of 37% to 39%.

US

Despite yesterday’s late Nasdaq rally US markets opened lower as US short term yields continued to push higher. The challenge for dip buyers remains as to whether we have further to go on the downside, and whether yields have finished their recent moves higher, with volatility levels set to remain high.  

There continues to be widespread caution amongst some investors that this New Year washout still has room to run, as investors wait to hear from Fed chair Jay Powell as he gets set to speak to US lawmakers at his renomination hearing for 4 more years in charge of the US central bank.

Illumina shares, which saw a big fall yesterday have rebounded strongly today, pushing up to two-month highs, after the genome sequencing company upgraded its 2022 revenue outlook.

FX

The pound edged above 1.3600 against the US dollar after the latest BRC retail sales numbers for December showed that consumers shrugged off the tightening of restrictions last month to spend money on items like jewellery and clothing. It wasn’t all good news, with the spending on hospitality seeing a big drop, however this merely diverted spending to other areas like food sales and supermarket spending.

The latest survey of credit card spending from Barclaycard showed a similar trend as spending rose 12.2% compared to 2019 levels, although restaurant spending dropped sharply as diners stayed away to ensure they were able to spend Christmas with their friends and family, lest they catch the virus and have to isolate themselves.

The Canadian dollar and Norwegian krone have been the best performers against the US dollar, helped by the rebound in oil prices, and today’s weakness in the greenback.  

Commodities

We’re still seeing quite a bit of chop in oil prices after yesterday’s pullback from the recent highs, with the weaker US dollar today helping to support prices. Better news on falling infection rates of the Omicron variant is also helping and raising the hope that further restrictions won’t be needed and that governments will implement a higher bar for travel curbs as we head into 2022.

The weaker US dollar is also helping to support gold prices which are back above $1,800 an ounce again with the recent range highs at $1,830 the next key resistance level.


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