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Markets get off to a slow start, as investors mull economic outlook

A FTSE 100 chart on a mobile device

European markets have got off to a slow start to the week, with modest gains for the FTSE 100 driven by outperformance in the sectors of tech and consumer retail, and upward pressure on oil and gas prices, as Chinese New Year gets under way and economic activity there picks up. 

European markets

Ocado is higher, rebounding from a 10-day low, after posting its biggest one-week decline since November last year. 

The FTSE 250 is also modestly higher, led by the likes of Harbour Energy, as it continues to build momentum after last week’s announcements of job cuts and higher production numbers. 

We’re seeing a mixed bag in retail, with outperformance in JD Sports and Associated British Foods, with the Primark owner seeing some modest strength ahead of its Q1 numbers tomorrow, while the likes of Marks & Spencer and Asos are seeing a little bit of weakness, with M&S lower after being cut to “hold” by Numis.  

US markets

US markets have started the week in the same way they ended last week, with the Dow lagging behind the S&P 500, while the Nasdaq 100 has moved to one-month highs, after yet another tech company announces a series of cost saving measures, and job cuts.

Music streaming company Spotify this morning announced that it is cutting headcount, saying it plans to spend up to €45m in severance charges as it looks to lay off 600 employees. Among the headcount reduction the head of content and advertising, Dawn Ostroff, will leave the business. 

Salesforce shares are higher after activist investor Elliott Management announced it had taken a major stake in the Slack owner. 

Wayfair shares have continued to gain after last week's news that it is cutting 1,750 jobs, and 10% of its workforce as it gears up for a weaker economy in 2023. 

In the electric vehicle space, Nikola shares have also moved higher after GP Joule announced that it was looking to place an order of 100 class-8 heavy duty hydrogen fuel cell electric vehicles, with deliveries expected to complete in 2024 and 2025.  

FX

The US dollar briefly sank to a new eight-month low after Fed governor Christopher Waller, who last year tended to lean to the hawkish side, said he was comfortable with the idea of another step down in the pace of rate hikes to 25bps when the Fed meets next week. With a number of ECB officials also becoming increasingly more vocal about the need for more aggressive rate hikes the tailwinds for a higher euro are gaining traction, however.

The pound started the week very much on the front foot in early trading, however the failure to move above the 1.2450 area against the US dollar has seen the currency slip back to be one of the worst performers today, along with the yen, as doubts grow about the Bank of England hiking rates by 50bps next week. With the Federal Reserve, ECB and Bank of England all expected to raise rates next week the calculation appears to be that out of all of them the Bank of England is more likely to raise rates by 25bps and temper that with a dovish outlook given its recent post meeting track record.  

Commodities

As Chinese New Year gets underway and the whole country starts travelling around for the annual holiday, oil prices have continued to push higher with Brent prices back up at $88 a barrel. The resumption in travel has fuelled an expectation of higher demand as the economy rebounds from its Covid-19 lockdowns, and the G7 looks to implement a price cap on Russian oil. Of course this presumes that Russia won’t be able to sell its oil to China by way of secondary intermediaries which should take the edge off any supply pinch.

Gold prices are still looking well supported despite the pullback from last week’s peaks. Currently has support at last week’s low at $1,896 and could well gain further momentum once next week’s central bank meetings are out of the way. Further comments at the end of last week from Fed governor Christopher Waller that he supported another step down to 25bps has added to the supportive narrative for gold and a weaker US dollar.

Silver continues to range trade between the highs this month just below $24.50 and the lows this month just above $23. This trend is expected to continue.

Volatility

Netflix saw notable levels of price action ahead of the weekend break following the release of its Q4 earnings data on Thursday night. Numbers here impressed, especially in terms of subscriber growth, and the market reacted accordingly. The underlying added well over 8%, with one day volatility printing 85.62% against 63.87% for the month.

Procter & Gamble was also in focus. As a traditional blue-chip stock, exaggerated levels of volatility aren’t typical here, but disappointing earnings saw sentiment knocked, although admittedly this proved to be a short-lived issue. Revenue and profit metrics both fell, leading the stock lower in early trade before a recovery followed. One day vol came in at 40.68%, but that was a significant uplift on the month’s print of 26.57%.

Continued gains from the upside of China’s reopening is still lending support to the underlying Copper price, which now stands around levels not seen since the first half of last year.  One day volatility on the metal came in at 29% against a one month reading of 23.81%. Fiat currencies were rather subdued going into the weekend break, but cryptos once again saw increased levels of movement. Renewed optimism saw the legacy coin rally more than 8% on Friday, seemingly dismissing those concerns over the Genesis bankruptcy filing. One day vol on Bitcoin/USD printed 41.91% against 30.79% for the month.


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