After starting on the front foot today, markets in Europe have seen the morning gains slowly slip away in a manner that has pretty much reflective of the wider uncertainty that has been characteristic of sentiment for most of this quarter.
We’ve seen swings in both directions as we look set to finish what has been a mixed month very much on the back foot, with the DAX set to post its worst month this year, the FTSE100 has managed to shrug off most of its losses to finish close to where it finished at the end of August and is still set to finish the quarter higher.
Whether it is as fortunate in October remains to be seen, given that the FTSE250 also suffered its worst month this year, with the FTSE100 benefitting from the outperformance of companies like Rolls Royce which is up over 20%, and decent gains from the likes of BP, Royal Dutch Shell, and British Airways owner IAG.
Despite IAG’s outperformance on the month, the shares are down today, along with the rest of the sector after the airlines promised to improve their refund procedures after numerous complaints about sharp practice with respect to reimbursement vouchers. The airlines also pledged to reimburse vouchers which were pushed on passengers in breach of EU regulations. easyJet shares are also lower, along with Wizz Air, Lufthansa, and Air France-KLM
Drinks giant Diageo appears to have got off to a good start to its new financial year, with decent sales volumes across all its regions. The company did say that cost pressures were rising, but that for the moment they were manageable, helping to push the shares to a new record high. That must be worth raising a glass to.
We’ve seen another successful London IPO today with the launch of Oxford Nanopore which surged on its debut, rising over 40% on its opening day of trading.
The company, which is a DNA sequencing company raised £350m at an offer price of 425p, while some of its existing shareholders sold some of their own holdings. The company also supplies rapid Covid-19 test to the NHS and has partnered with Oracle to explore new solutions that would use genomic sequencing which would run on its cloud infrastructure on a global scale.
It seems that not all retailers are created equal, having seen a decent update from Next yesterday, which saw the shares trade up to record highs, today it was the turn of Boohoo, and while the numbers were impressive, with a record H1 for revenues of £975.5m, sometimes expectations can be a company’s downfall.
And so, it is here, with the shares down heavily, after management lowered sales growth expectations from 25% to between 20% to 25%, with higher costs being cited as the major culprit for the lower expectations, sending the shares to eleven-month lows.
The negative reaction to today’s update has fed into a broader negative narrative for the entire sector with Next shares giving up some of yesterday’s gains. ASOS shares have also come under pressure over similar costs concerns as we look ahead to their full year numbers, which are due in a couple of weeks.
US markets appear to be getting a lift after a mixed session yesterday, and which saw the Nasdaq slip back for the third day in a row. It’s not been a good month for US stocks more generally as we look set to close the month lower, for only the second time this year.
The final US Q2 GDP numbers showed that the US economy expanded 6.7%, with the personal consumption component getting revised higher from 11.9% to 12%. Weekly jobless claims appear to be going in the wrong direction, despite the various unemployment benefits expiring on September 6th. Since hitting a low of 312k at the beginning of September, they’ve jumped by 50k to 362k. All that matters from the markets point of view however is next week’s US employment report.
Apple shares appear to be shrugging off the story about a vulnerability in its Apple Pay service, for users of Visa cards. When a device is in “Express Travel” mode the lack of authentication for contactless payments opens a vulnerability which can be exploited by hackers.
US retail stocks have also come under pressure after Bank of America downgraded Kohls due to concerns over supply chain issues, specifically higher costs and staff shortages, with the likes of Gap, Williams Sonoma, Macy’s and Nordstrom all getting clobbered.
The woes for Bed Bath and Beyond have continued today after the company missed expectations on Q2 revenues. Having raised its guidance in Q1, the company’s optimism has come back to bite it after revenues came in at $1.99bn, short of the $2.06bn expected. Profits also fell short, coming in at $0.48c a share, which has prompted management to downgrade its estimates for the rest of the year. The company blamed a rise in Delta variant cases for lower footfall, and thus the reduced revenues.
The pound has found a little bit of respite albeit near the bottom of its recent range, despite a much better than expected final Q2 GDP revision which came in at 5.5%, with the various revisions higher coming from household spending on the likes of food services, accommodation, and hospitality. The normalisation of economic activity, as well as so called staycations appears to have been the main driver here. Manufacturing, particularly used car production was a drag due to the chip shortages, along with maintenance shutdowns in the North Sea.
While the number is very much a backward-looking indicator it also means that the UK economy was much stronger than we thought when heading into Q3. It also means that the slowdown we are currently experiencing is coming from a much higher level and as such may be easier to absorb, if energy prices start to show signs of topping out, which for the moment doesn’t appear to be happening. This continued squeeze on incomes from higher energy costs, could make it that much harder for the Bank of England to tighten monetary policy, even if it wanted to, as it tries to balance the risk of higher prices against the damage any such rise might do to incomes, as well as consumer confidence.
The US dollar has hit its highest levels since last October, punching up through the 94.00 level, posting its second positive quarter this year, after a modest pull back in Q2.
Natural gas prices are continuing to squeeze to new record highs across Europe, although crude oil prices have continued to lose ground after this week’s peak above $80 a barrel and are now trading close to their lowest levels this week.
As we come to the end of September, we may be getting some end of month selling interest, and we can now look forward to the prospect of another 400k barrels a day of output being added in October.
Gold is seeing a bit of a bit of a rebound after hitting a one-month low yesterday as a slightly weaker US dollar and a stabilisation in yields has prompted a little bit of profit taking.
Copper prices are also lower, down for the second month in a row, due to reduced demand out of China, and on course to post its first negative quarter since Q1 2020.
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