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Bank of England’s bleak outlook weighs on the pound

Lonon and St. Pauls skyline from the South Bank

It’s been another resilient day for European markets with the DAX coming within touching distance of two-month highs, before slipping back.


Despite the dire outlook painted by the Bank of England, which had a lot of us looking to see what was left in the drink’s cabinet, the FTSE100 has managed to hold up reasonably well, although weakness in the oil price which is back below $100 a barrel is holding it back. The FTSE250 is also having a positive day despite increasing concern about the economic outlook.

It’s been a mixed day for company earnings with some good and some bad.

As consumers in the UK continue to struggle with rising living costs, one of the UK’s biggest clothing retailers Next appears to be holding up well as far as sales are concerned, with the shares initially trading up to 5-month highs, before getting rebuffed by the 200-day MA, as the company raised its profits guidance.

Today’s Q2 trading statement showed that full price sales were up 5% and £50m ahead of previous guidance, with the retailer saying that the unusually warm temperatures during June and July prompting a jump in spending on summer clothing. Sales in retail stores have recovered, while online sales have reverted towards their longer-term average.

The company retained its full price sales guidance for the year; however, it has raised its full year profit guidance by £10m to £860m.

This has prompted similar resilience in the likes of JD Sports and Marks and Spencer share price, while Ocado shares have also got a decent bid. 

In Europe, Zalando has seen a similar boost, after returning to profit at a time when general retail sales in Germany, and the broader EU looking ugly.

Glencore shares have also edged higher, after posting a 43% rise in H1 revenue to $134.44bn, and a 119% rise in adjusted EBITDA to $18.9bn.

It’s been another disappointing update from Rolls-Royce, with the company sliding to a H1 loss of £111m. Total revenues came in at £5.3bn a modest increase on last year, however the company slipped to a bigger than expected underlying loss before tax of £111m, as higher costs impacted on margins. Gross margins fell from 21% last year to 17.7%, while financing costs rose to £236m from £174m. All in all, today’s H1 numbers are disappointing, progress is being made in civil aerospace and power systems, but the deterioration in margins is concerning and something that new CEO Tufan Erginbilgic will need to get to grips with when he replaces Warren East at the end of the year.

Hikma Pharmaceuticals shares have also seen a big slump after the company cut its full year generics forecast and saw a sharp fall in pre-tax profits to $215m, a decline of $104m from a year ago. Revenues were flat at $1.2bn with the company downgrading its expectations for revenue growth in generics to between $650m to $750m, while reducing operating margins further.

Mondi shares have also got clobbered despite the packaging company reporting a solid set of numbers for H1. Group revenues rose to €4.5bn, up from €3.28bn, while profits rose to €933m from €354m. Margins also improved, with all the metrics unambiguously positive, which suggests that expectations may have been higher, given the recent Smurfit Kappa numbers. 


US markets opened mixed after weekly jobless claims rose modestly to 260k and a 7-month high. With US payrolls for July out tomorrow many people will be looking for further evidence of a slowdown in the US labour market.

Alibaba shares have seen their shares open higher after reporting Q1 earnings which were better than expected. Revenues were flat on the year at $30.7bn, despite several factors that could have impacted on its growth. The resurgence of covid in China meant that turnover was well down on the previous year, however a pickup in June, bodes well for a strong rebound in Q2.

The latest entrant to the streaming war, Paramount Global has seen its shares get clobbered early on despite beating on Q2 revenues, coming in at $7.78bn, a rise of 3.4%, while profits also beat expectations at $0.64c a share. The disappointment appears to be over subscriptions, which fell short of consensus forecasts of 65k, at 63.7k, with Paramount+ subs coming in at 43k.

At a time when consumers are increasingly feeling the pinch from higher prices these sorts of consumer discretionary spending items are going to come under increasing pressure with all eyes now on Disney next week.

AMC Entertainment is due to report Q2 numbers after the bell with the hope that Fantastic Beasts, The Secrets of Dumbledore, Dr. Strange and Top Gun: Maverick we could see a further improvement as the summer blockbuster season helps to boost traffic as well as sales of refreshments. In the most recent earnings call AMC CEO Adam Arons expressed the hope that Q4 box office could exceed pre-pandemic levels, as well as saying that AMC is looking to acquire more theatres and move into other industries. While this may come across as exuding confidence in the outlook it can’t hide the fact that the business still has huge debts of over $5.5bn, and perhaps it might be more prudent to stabilise the balance sheet before embarking on further diversity or expansion plans. Losses are expected to come in at $0.21c a share. 

Coinbase shares have received a welcome respite after announcing that it was partnering with BlackRock to target institutional clients in the crypto space.


The pound has come under pressure after the Bank of England raised rates by 50bps for the first time since the MPC was formed, putting the base rate at 1.75%.

That was about as good as it got because the subsequent economic projections painted a bleak picture for the UK economy. The bank went on to forecast that inflation would peak at 13.3% in October and average 13.1% during Q4, while going on to say that it expected inflation to remain high through 2023. For Q3 next year the Bank of England is forecasting that CPI will only fall to 9.5%, only marginally above the level it is now. The bank said it also expects core prices to pick up, although not by as much, expecting it to peak at 6.5%, which means that food and energy will make up over half of headline CPI over the next 6 months.

The bank also downgraded its GDP forecasts for this year, 2023 and 2024, in essence laying out the expectation that we will see a long and painful recession throughout 2023. The slide in the pound and fall in gilt yields appears to paint a picture of a market that believes a sharp economic slowdown is coming and that all this talk of further sharp rises in rates is unlikely to play out. Despite the dire nature of the Bank of England’s forecasts it’s unlikely these predictions will come to pass, given that we will see an emergency budget to address the challenges of the next few months.


Yesterday’ surprise build in US gasoline and crude oil inventories has seen brent prices fall back below $100 a barrel in a sign that persistently higher prices are now starting to lead to demand destruction. These surprise builds negated the surprise decision by OPEC+ to raise output in September by a very small 100k barrels a day.

If yesterday’s hawkish jibber-jabber from Fed officials was designed to push US yields sharply higher, it only partially succeeded given that 10-year yields closed lower on the day and have slipped further today. Today’s uniformly pessimistic outlook from the Bank of England has also weighed on yields, helping to keep a floor under gold prices which look set to push back towards the $1,800 area.  


After an uncertain start to the week, Chinese tech stocks put in another good performance on Wednesday, with broad based gains being realised. The standout was Autohome where upbeat earnings saw the stock advance by more than 10%, a move that helped contribute to lift price action in CMC’s proprietary Chinese tech basket. Daily vol came in at 75% against 60% on the month.

Ethereum Classic has pared its losses from earlier in the week and whilst the cryptocurrency continues to trade below recent highs, interest remains elevated. Daily vol here sat at 151% against 127% on the month, noticeably higher than other constituents in the asset class.

That dollar yen trade continues to stand out in terms of price action. A pivot by the Federal Reserve which is again adopting a more hawkish tone continues to prop up the greenback and whilst the underlying continues to sit meaningfully below recent highs, volatility remains elevated with a daily reading of 14 76% coming in against 10.33% on the month.

And in commodities, US Natural Gas prices jumped around 10% yesterday after news broke that the damaged terminal in Texas would return to maximum capacity sooner than had been expected. The Nat Gas cash contract saw daily vol advance to 97% against 87% on the month as a result.

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