After an initially negative start European markets managed to claw their way back into positive territory, on a report that the EU is mulling the idea of issuing joint bonds in respect of energy and defence spending, as it looks to reduce its dependence on Russian energy, as well as lessen its reliance on the NATO when it comes to safeguarding its security.
Europe
The prospect of a new stimulus plan in the wake of all this volatility is a welcome development, but as with anything EU related the devil will be in the detail, and this report has been played down by the EU Commission’s vice President and European Green New deal head Frans Timmermans.
In any case the rebound off the lows has been tempered by the decision by the US and UK to ban Russian oil imports, in a move that could prompt retaliation from Russia, after deputy Prime Minister Novak threatened that such a move would see Russia shut off supplies to Nord Stream 1.
Crude oil prices have continued to move higher, pushing above $130 a barrel, with BP and Shell once again leading the way, and helping to underpin the FTSE100.
Mexican gold and silver Fresnillo also posted strong full year numbers, which perhaps isn’t too surprising given the move higher in precious metals prices over the last few months. That said the business has faced challenges due to Covid disruption. Despite the various disruptions, total revenues rose 11.2% to $2.7bn despite a modest fall in annual gold production of 2.4%.
Full year profits after tax rose by 16.8% to $438.5m.
Financials are also getting a little bit of a reprieve on the back of a decent performance from M&G which reported full year adjusted operating profits of £721m, above expectations of £704m, while assets under management rising to £370bn. This has helped underpin the likes of Legal and General, Aviva and Phoenix Group.
Since posting record highs in December, Greggs share price has been on the slide over concerns that higher costs might impact its margins. As a baker the business is very susceptible to surging energy prices, and today’s preliminary full year results would appear to bear that out, sending the shares sharply lower. On the numbers themselves pre-tax profits came in at £145.6m, however it appears that concern over guidance and profits growth is behind today’s share price weakness. While Greggs does have the flexibility to raise prices there is some doubt these will be enough to offset the higher costs of energy, taxes and general business costs over the next 12 months.
On the other hand, Domino’s Pizza has seen its shares rise sharply from one-year lows after reporting full year revenues of £560.8m, a rise of 11%, while statutory profit after tax rose 97% to £78.3m. The company announced a final dividend of 6.8p per share as well as announcing a £46m share buyback program. Current trading is in line with expectations.
Industrial equipment company Ashtead today reported Q3 revenue that came in ahead of expectations. Rental revenues rose 25% to $1.8bn, pushing total revenue up to $2bn. Profits before tax rose 38% to $393m prompting the business to upgrade their guidance forecasts for the full year.
Year to date profit is also higher by 38% at $1.28bn with management saying that they expect full year results to come in ahead of previous guidance, with decent performance in its US operations driving the improvement.
US
After a weak finish yesterday, US markets have opened lower in what looks set to be a choppy session, after it was announced that the US was going to ban Russian oil, gas, and coal imports.
This has created further upward pressure on commodity prices across the board, with the result we are seeing broad based weakness across the board.
The S&P500 has slipped back towards its January lows, as has the Nasdaq 100, although on the plus side we are seeing some decent gains from the energy sector, both renewables and fossil fuels. The best performers today have been the likes of Enphase Energy, SolarEdge Technologies, Halliburton, Baker Hughes, and Chevron.
US yields have moved to the upside on concerns over more persistent inflation risk, with little sign that the rise being seen in commodity prices is slowing. While energy costs are rising, so have food prices with wheat prices up over $12 a bushel.
FX
The Norwegian Krone is amongst the best performers as crude oil and natural gas prices continue to rise. The euro also got a lift from this morning’s European joint bond story, however, has since slipped away from its highs after EU Commission VP Frans Timmerman played down the story.
Somewhat surprisingly the Australian dollar is the worst performer, despite the resilience in commodity prices that we’ve seen today, although the suspension of the Nickel market has prompted some weakness in other related markets.
Commodities
Crude oil prices have continued their upward track on reports that Russia might cut off the supply of gas through its Nord Stream 1 pipeline in retaliation for the sanctions imposed on its economy. With the US mulling an embargo of its own on Russian oil and gas, and Germany opposed to such a ban the politics remains fluid. If Russia were to cut off the flows its not immediately obvious who they would then sell the excess supply to.
Gold prices have surged beyond $2,000 an ounce for the first time since August 2020, as they look to close in on the record highs of $2,075, which were achieved in the same month of that year.
The commodity story of the day was Nickel prices rising over 100%, and above $100k a ton on the back of a sharp short squeeze, prompting margin calls in a tight market. Russia produces about 17% of global nickel supply, with supply already tight leading into the invasion of Ukraine. With demand for Nickel likely to rise due to its use in EV batteries upward pressure on prices was already high.
Volatility
Starting with equities, Italian bank UniCredit has been under some significant selling pressure in recent days owing to its reported exposure to Russian investments. The underlying price has fallen by close on 50% over the last month, but noticeably more erratic movements yesterday served to push the stock onto our radar, with one day vol hitting 230%, up from 91% on the month.
The longer the Russian offensive into Ukraine lasts, the more damaging this will be for the European economy and in turn the region’s banks. They have been under broad selling pressure as a result and this has driven activity in both our proprietary UK and EU bank share baskets. EU daily vol hit 134% against 65% on the month, whilst the UK figures sat at 108% and 51% yesterday.
Crop prices have been in focus of late but a sharp decline in the citrus market yesterday drove OJ futures to the top of the board. The underlying came off by almost 7%, reversing the gains seen since the start of the month and driving daily vol out to 262%, up from 90% on the month.
That risk off mindset pushed smaller indices to the fore yesterday, too, with the German Tech seeing daily vol of 83% against a monthly print of 50% whilst the German mid cap advanced to 98% against a monthly reading of 49%.
To round off, there have been no meaningful advances in fiat currencies, with the dollar rouble printing daily vol in excess of 500% whilst the Turkish Lira was again notable, advancing to 35% against a daily print of 20% with the Ukrainian risk taking a toll..
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