Having opened lower this morning, European markets have recovered as we head into the weekend, however we can’t ignore the fact that this week has seen a bit of a shift in sentiment when it comes to optimism about the overall recovery story.
Some sectors have taken a bit more punishment than most this week, notably luxury stocks, as well as basic resources over concerns that the combined headwinds of rising delta infections, supply chain constraints and a self-induced slowdown in China means that we’ve probably seen the peak of the recovery, just over a week since we were posting record highs. The FTSE 100 is having a slightly better end to the week, but is still set to post its first week loss in over a month.
UK retail sales may well have declined -2.4% in July; however, it appears someone forgot to tell the retail sector which is outperforming amongst the blue-chips today. JD Sports is leading the gainers, probably as a result of a decent read across after US sector peer Foot Locker posted a strong Q2 update that beat estimates across the board. We’re also seeing gains from the likes of Next, B&M European Retail and Kingfisher.
Morrisons share price is leading the rest of the food retail sector higher after the supermarket accepted a 285p offer from US private equity firm Clayton Dubilier and Rice, which has ex-Tesco boss Terry Leahy as a key partner. The £7bn bid has raised concerns that the private equity firm will load the business up with debt, and monetise its assets given it owns most of its stores. The bid is likely to come under the scrutiny of the Competition and Markets Authority (CMA) due to CDR’s ownership of Motor Fuel Group, which is a leading petrol station operator, and with Morrison’s own petrol stations would have a combined 1,200 sites. Given that the CMA rejected the Asda-Sainsbury's tie-up on competition grounds, it will be interesting to see what they have to say about this potential combination, given that most petrol stations also have a store component.
It’s been good news for Marks & Spencer shareholders today with the business enjoying a strong start to its trading year with food stores leading the way in terms of revenue growth. The food division saw a rise of 10.8% on last year and 9.6% on 2019. General merchandise has continued to be the laggard, but even here there are signs of optimism, with sales down 2.6% on 2019 levels, with a 92.2% improvement revenue wise from 2020, with clothing and home online sales up 61.8% on pre-pandemic levels. For the outlook management expects to see profits before tax to come in at the upper end of guidance of £300-£350m, helping to push the shares up over 10% on the day.
US markets, having undergone a rather mixed finish yesterday, opened mixed, before rebounding on comments from Dallas Fed President Robert Kaplan who suggested any Delta setbacks would mean he might adjust his views on a taper. These comments have helped pull US 10 year yields off their lows and prompt a fall back in the US dollar.
Among the stocks in focus Moderna shares are a little higher despite reports that health officials are investigating higher myocarditis side effects in younger people, than was originally thought with its vaccine.
Foot Locker is higher after Q2 profits came in well above expectations, alongside a big beat on revenues which came in at $2.28bn, with margins and sales also beating expectations.
Agricultural machinery company Deere and Co is also seeing modest gains, after reporting an upgrade to its full year outlook as farmers order newer equipment, on the back of higher purchasing power due to higher crop prices.
Commodity currencies have remained under pressure with the Canadian dollar hitting its lowest levels this year, and the Australian dollar also hitting a nine-month low.
The pound has continued to struggle despite some mixed economic data out this morning. The public finances improved as borrowing in July more than halved to £ 10.4bn, from £21.5bn in June. VAT revenue bounced back strongly as the various reopening restrictions were dropped, while furlough payments also came in lower. Retail sales on the other hand were disappointing, sliding -2.5%, with food sales falling back, at the same time as restaurants and other hospitality venues reopened.
The US dollar has continued to look resilient, however it has come off its weekly and intraday highs on the back of those comments from Dallas Fed President Robert Kaplan, about the possibility that a taper might have to be put back.
The pound has had a disappointing week, largely due to a resurgent US dollar, but it has also suffered against the euro, despite better than expected economic data. The reason for the decline would appear to be a concern that a slowdown globally would prevent the Bank of England from acting in a manner that would prompt it to tighten policy. In essence, the pound needs a continuation of the global recovery story to prosper.
Crude oil prices have remained under pressure today, as concerns over the demand outlook and delays to a return to some form of normality in September, forces a reappraisal of the economic outlook as we look towards the autumn months. With markets in Asia looking increasingly fragile there is rising pessimism about the direction of travel when it comes to economic activity across the region.
Copper prices have also rebounded at the end of a week that saw them hit a four-month low. Palladium prices have also struggled as car production output gets reduced and the demand for the metal has fallen as well, with the metal posting one of its worst weekly declines this year.
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