Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.

European stocks give mixed reaction to IMF downgrades

Person walking past IMF headquarters in New York

European markets have got off to a lacklustre start to the week, pulling off their lows of the day, despite the IMF following the World Bank yesterday, in downgrading its outlook for the global economy.

Europe

The IMF reduced its global GDP outlook to 3.6%, from 4.4%, while upgrading its inflation outlook to 5.7% in advanced economies.

The war in Ukraine is expected to impact the eurozone quite heavily, the IMF reducing the 2022 outlook here to 2.8%, from 3.9%, with Germany taking the biggest hit.  The outlook for the US is much more positive, with its GDP estimate getting cut by 0.3% to 3.7%, while the UK has been cut from 4.7% to 3.7%.

This morning’s initial weakness has given way to a slightly more resilient tone, as today’s sharp decline in oil prices offsets concerns that the start of a renewed Russian offensive on the Donbass region could increase the pressure on the EU to look at a complete embargo on Russian oil and gas.

The FTSE100 has been helped by the resilience of the energy sector despite a sharp fall in oil prices, with brent crude down over 4%. The uplift has been helped by a solid performance from BP and Shell, largely down to JPMorgan who upgraded its price targets for both.

We’ve seen a little bit of softness in airlines with Wizz Air leading the fallers after being downgraded by HSBC on the back of its decision to not hedge its fuel costs, unlike its peers easyJet and Ryanair. This downgrade appears to have greater weight than the more positive picture painted by Peel Hunt who raised the airline to “buy”

US

US markets opened modestly higher, after the IMF painted a picture of a US economy that is only likely to see a modest softening in 2022 GDP, cutting its outlook to 3.7%, from 4%. This slightly more upbeat take helped push US 30 year yields up to 3%, while also pushing the 2-year yield to its highest level in three years.

US housing starts for March also came in better than expected, rising to their best levels since 2006 at 1.79m. 

Bank of America shares saw a decent rebound yesterday after their latest Q1 numbers came in better than expected. Q1 revenues came in at $23.33bn, while profits came in at $0.80c a share. The bank posted a lower than expected $30m provision for credit losses, as well as releasing $362m in reserves. Their lending numbers painted a more encouraging outlook for the US consumer than their peers, although investment banking revenue was similarly lacklustre compared to a year ago. CEO Brian Moynihan came across as fairly bullish on the outlook, saying that US consumers were still sitting on sizeable amounts of cash, although that doesn’t square with what we saw in February when US consumer credit surged to $41bn, with credit card transactions accounting for $18bn of that. 

Twitter shares saw a decent rebound yesterday after the board launched a defence against Elon Musk’s bid to gain control of the company. The “poison pill” appears to be a bid by the company to issue new stock at a discounted price to all shareholders with the exception of Musk. It also imposes a significant penalty on any person who would seek to take a more than 15% stake in the business, without board approval. Musk’s interest appears to have generated other possible bidders, with private equity firm Apollo Global Management said to be interested in backing the Musk bid or other potential suitors.

Netflix’s latest Q1 earnings numbers are going to be of particular interest after the bell, after this morning’s news that UK consumers were cancelling streaming subscriptions in record numbers, according to Kantar. This would appear to tie into a UK economy that is starting to feel the squeeze from the rising cost of living. The intense competition in this sector is already tempering expectations over subscriber growth with Netflix expecting a mere 2.5m new adds this quarter. For Netflix, its international markets are likely to be key drivers for its growth numbers, as they were in 2021, when 90% of its subscriber adds coming from outside the US and Canada. On revenues, the streaming company said it expects to see $7.9bn, and profits of $2.86c a share.

FX

It’s been all about the yen today. The Japanese yen has slipped to a new 20 year low against the US dollar after St. Louis Fed President James Bullard said he wouldn’t rule out pushing for a 75bps rate hike at next month’s May meeting, although he caveated that by saying it wasn’t his base case.

We did hear from Japan’s Chief Cabinet Secretary Matsuno that they were monitoring the exchange rate, as well as saying that stability in the market was important, however this jars against the reality that the yen is down over 10% year to date already against the US dollar, and could fall further towards 130.00.

Unless the Bank of Japan gives any indication that it is prepared to shift from its currently loose monetary policy then the line of least resistance will be for further yen declines, with the next significant level being the 2002 peaks of 135.00.      

Commodities

Copper prices saw a bit of a spike yesterday on the back disruption in Peru, which has seen two mines shutdown due to protests about pay and conditions amongst the workforce, at one of the country’s biggest mines.

Gold prices came within touching distance of $2,000 an ounce yesterday, as a combination of higher US yields and a strong US dollar, combined with some profit taking has seen prices slip back. 

After seeing a decent rebound yesterday, oil prices have slipped back, as growth downgrades by the World Bank and IMF weigh on demand expectations, against a backdrop of higher inflation expectations.

Volatility

Shares in Bank of New York Mellon were in focus yesterday after the company released Q4 earnings news. Despite these narrowly beating expectations, the bank took an $88m hit from its Russian exit and stands to lose an equivalent amount each year going forward. Over the course of the session, those early losses on the underlying were roughly halved, but volatility was exaggerated, sitting at 121% on the day versus 55% on the month.

In commodities, Oats proved to be something of a standout after prices jumped markedly early in yesterday’s session. This is one of many crops that demands a high input of nitrogen-based fertilizer to maximise yields and with prices increasing there, concerns are high that shortages may be evident post-harvest this summer. Prices had been reversing away from last week’s highs, but this suggests that opportunistic profit taking rather than any change in the fundamentals may be in play here. Daily vol printed 91% against 67% on the month.

Despite making little progress over the day as a whole, US indices stood out in terms of price action as a result of their see-sawing stance on Monday. The SPX500 recorded daily vol of 18.2% against 15.5% on the month, whilst the NDAQ100 sat at 27.2% against 22.9%.

Rounding off with cryptos and EOS was on the radar. Prices rallied off technical support into the weekend but this wasn’t sustained yesterday, which saw the underlying fall 10% from those recent highs before start another attempt to recover. Daily vol sat at 157% against 95% on the month.


Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.