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FTSE 100 stands apart, as European and US stocks slide in January

FTSE100

We look set to see a positive end to the month for European stock markets in what has been a rollercoaster although the FTSE 100 has lagged behind today. The UK benchmark has managed to set itself apart on the month with a decent performance, while markets elsewhere in Europe have struggled.

Europe

While the DAX has led today’s gains, over the month the index has lost around 2.5% in contrast to the FTSE 100, which looks set to finish January over 1% higher.

Today’s gainers have been led by the telecoms sector with Airtel Africa enjoying its debut on the FTSE 100 with some strong gains, having replaced BHP, as the Australian mining giant abandoned its primary London listing.

Vodafone is also having a decent day as it gears up for its Q3 results later this week, the company is centre of attention on weekend reports that activist investor Cevian Capital has built up a stake in the business. Vodafone shares have struggled since the business offloaded its Verizon stake back in 2014, briefly falling below 100p back in March 2020. The telecoms giant has struggled in a number of markets this past few years, taking huge writedowns on its Indian business, as it exited the market, while its operations in Italy and Spain have consistently struggled for profitability, while in the German market management were criticised for overpaying for the acquisition of Liberty Global assets. Having listed its Vantage Towers network last year, Vodafone could be encouraged to consolidate its network with other providers, especially given last week's reports that Deutsche Telekom is weighing a merger of its tower assets in an attempt to reduce costs and cut its debt levels, as they look to finance investment in 5G.

After both from easyJet and Wizz Air reported Q3 losses last week, Ryanair followed suit this morning, with the increase of restrictions in December prompting a bigger than expected loss of €96m. Despite the increase in restrictions, the numbers were still much better than the same period in 2020, when the Alpha variant was running rampant, and most of the UK and Ireland were told to stay at home. Revenues came in at €1.47bn, a 331% increase, while operating costs increased from €670m to €1.59bn, as the airline brought more capacity online, with Q3 traffic increasing to 31.1m from 8.1m. As far as the outlook is concerned Ryanair is cautious, while setting out a plan to expand its capacity later in the year, with 15 new bases and 720 new routes with a view to boosting capacity to 114% of 2019 levels.  

Shell shares have dropped back as they finish their first day trading as a single listed stock, and ahead of this week’s Q4 and full year results.

US

Irrespective of today’s more resilient tone, US markets are still on course for their worst monthly performance since March 2020, with the S&P 500 and Nasdaq 100 seeing a much more resilient end to the month than perhaps was the case through most of last week.

There is still a great deal of uncertainty about the Federal Reserve rate path this year, as investors look to upgrade their expectations for the number of US rate hikes we might get to see this year. The consensus now appears to be for 5 although some forecasts have come in as high as 7, as we get the equivalent of rate hike bingo to see who can outdo each other when it comes to forecasts.

In any event bond markets aren’t taking any chances, with yields edging higher, with the US 10-year yield back above 1.8% and the 2-year yield inching back towards 1.2%. We’re also getting increasing chatter that the Fed might move by 50bps in March, although it still remains very much an outlier for now, though that could change if US CPI for January moves up from current levels of 7%, when the numbers are published next week.

On the data front the latest Chicago PMI for January saw an improvement to 65.2 from 64.3.  

Spotify shares have rebounded from their lowest levels since May 2020 after podcast broadcaster Joe Rogan pledged to adopt a more balanced approach in his broadcasts, when it comes to controversial topics, and apologised if anyone was angry at him. The reaction came after music artists Neil Young and Joni Mitchell pulled their music in protest at some of the content of Rogan’s podcast.

Netflix shares are also higher after being upgraded to buy by Citigroup, on the basis that the streaming company’s offering does have significant pricing power. Netflix CEO Reed Hastings also took the opportunity last week to buy $20m worth of his company’s shares.  

Tesla shares have also moved higher after Credit Suisse upgraded the shares to a buy, saying that it checks all the boxes.   

FX

The Australian dollar is higher ahead of tomorrow’s RBA rate decision, as traders test the central bank's messaging on rate hikes this year.

At the last meeting Governor Philip Lowe insisted that rate hikes this year aren’t on the table, however given the improvement in the jobs market, and current high levels of inflation this isn’t a stance that is likely to hold, and we could see the RBA shift on this tomorrow morning. With the Australian dollar hitting 18-month lows at the end of last week, a shift of thinking on this appears somewhat under-priced, which raises the prospect of a hawkish surprise, and a sharp repricing in the currency.

The US dollar is set to finish a strong month on the back foot, having hit its highest level since July 2020 last week, as traders weigh the prospect of up to 5 rate increases this year, from the Federal Reserve. We’ve also seen bets that the Bank of England will be forced to raise rates by a similar number of times increase today, ahead of an expectation that the central bank will raise rates again this week, marking the first time it has raised rates at consecutive meetings since 2004. The pound hasn’t really reacted to this change in expectations, perhaps waiting to hear from Governor Bailey later this week, and what he has to say about the central bank's intentions.  

Commodities

Brent crude prices have continued to rise, pushing above $91 a barrel again, as we come to the end of the month, and this week’s OPEC+ meeting, where members are expected to rubber stamp another 400,000 barrels a day output increase. While on the face of it this comes across as a measure which should help keep a lid on prices, the inability of a number of oil producers to meet their existing targets renders it meaningless. With inventories already on the low side and many producers already at capacity on their ability to supply, this week’s OPEC announcement is likely to be about as much use as an unrealistic sales target.  

It’s not been a good month for gold prices either, hurt by the share rise in yields we’ve seen over the past few weeks, although we have seen prices rebound from a six-week low today.  


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