Having come off an awful October there appears to be an element of exuberance, as tumbling yields prompt optimism that central banks are done after the Bank of England followed the Fed last night in holding rates at current levels.
BT Group shares are seeing solid gains after raising its guidance on full year cash flow to the upper end of its £1bn to £1.2bn guidance. H1 revenues came in at £10.4bn, while reported profit before tax rose 29% to £1.1bn. The Openreach business appears to be performing strongly with net adds of 364k in Q2 with average revenue per user rising 10% Y/Y. Consumer broadband also saw a 4% increase in ARPU. An interim dividend of 2.31p per share was in line with expectations.
Sainsbury shares are seeing strong gains, rising to 6-week highs after revising underlying full year profit guidance towards the upper end of £670m to £700m, with retail free cash flow upgraded from £500m to £600m, which has sent the shares to their highest levels in over a month which in turn has helped to offer a lift to Ocado and Tesco shares.
Shell shares also saw a decent uplift after seeing Q3 profits come in line with expectations at $6.22bn, in contrast to its peers who all fell short, citing improvements in refining margins as well as higher oil and gas prices and a better performance in its trading division. Shell also announced a $3.5bn buyback.
On the downside Hikma Pharmaceuticals shares are the worst performers despite upgrading full year guidance in 2 of its 3 businesses, in generics and branded. The outlier is its injectables business where it expects to see full year revenue growth and core operating margin to be at the lower end of the guidance range of 7% to 9% and 36% to 37% respectively.
Haleonshares are lower after reporting a lower than expected 5% increase in Q3 revenue to £2.8bn, with prices rising by 6.6%, while adjusted operating profits rose 8.8% to £689m. Volumes were slightly disappointing falling 1.6% but given that prices beat expectations perhaps that’s not surprising. Full year guidance was kept unchanged.
US markets opened strongly higher, powered by a raft of companies posting strong earnings numbers, building on the gains of yesterday, while the spillover from last night’s Fed decision has seen yields continue to fall.
Weekly jobless claims increased modestly from 210k to 217k.
Starbucks is also higher after Q4 sales came in ahead of forecasts, rising 8% with net revenues coming in at a record $9.4bn, while profits came in at $1.06c a share. The outperformance was driven by customers buying more expensive items in both the US and China markets.
Qualcomm shares have rallied further off 5-month lows after reporting better than expected Q4 revenues of $8.67bn, although it was still a decline of 24%. Profits were also sharply lower from a year ago at $2.02c a share, but were still above expectations. For Q1 Qualcomm said it expects to see revenues of between $9.1bn and $9.9bn, and profits in excess of $2.25 to $2.45 a share.
Palantir shares have performed strongly so far year to date with its AI and government business helping to deliver a strong performance over the past few months. Today’s Q3 results have seen the company report revenues of $558.2m and profits of 7c a share, while posting Q4 revenue guidance of $599m to $603.2m and full year revenue of $2.22bn, driven by demand for AI. CEO Alex Karp said the company is now eligible to join the S&P500.
Disneyshares are in focus ahead of next week’s earnings numbers after the company announced it would be acquiring the 33% stake in Hulu which it doesn’t hold from Comcast for $8.61bn, as it looks to boost its streaming business. That’s a big chunk of change for a business that isn’t currently available outside of the US and where streaming is already very low margin and saturated.
Roku shares are also a strong gainer after reporting a 20% increase in Q3 revenue to $912m, helped by a 16% increase in active customer accounts of 75.8m. For Q4 Roku says it expects to see EBITDA losses narrow to -$10m, and net revenues of $955m.
The hits keep coming for Peloton after the company reported slightly better than expected Q1 revenues of $595.5m and a loss of $15.2m. The outlook however was weak with guidance for Q2 and the rest of the year disappointing. Q2 revenues are expected to be in the region of between $715m and $750m well short of forecasts of $770m, and EBITDA losses of $70m to $90m. The shares initially opened sharply lower, however the turnaround has been sharp with the shares turning around sharply.
The pain has continued forModernaafter the company said it was taking a $3.1bn write-down on excess covid vaccines and that it expected revenue to slow to $4bn next year with sales growth resuming in 2025. Markets had been expecting $6bn in revenue so that’s a sizeable mark down. The company posted a $3.6bn loss for Q3 as a result of today’s write off.
Apple shares are also in focus ahead of their Q4 numbers which are due after the bell. Apple said it expects to see further declines in revenue with iPad and Mac revenue expected to see double digit percentage falls. Q4 revenue is expected to fall modestly to $89.29bn although profits are expected to rise to $1.39c a share. On an annual basis revenues are expected to fall to $383bn, and profits to $6.07c a share.
The better tone when it comes to risk as well as the slide in yields is prompting a slide in the US dollar to the benefit of everything else with strong gains across the board.
The pound’s gains today have been pretty lacklustre when you consider the Bank of England left rates unchanged at 5.25% but there was no indication of a dovish tilt as 3 MPC members voted to hike rates by 25bps, against 6 holds. The 3 dissenters were Catherine Mann, Megane Greene, and Jonathan Haskel.
The central bank also revised its inflation forecast for 2024 higher by 75bps to 3.25%, while nudging the forecast for 2023 down by 25bps to 4.75%. The growth forecasts were disappointing with 2023 left unchanged at 0.5%, while 2024 was downgraded to 0% from 0.5%.
Despite the bleak outlook it was made clear that interest rates were likely to remain higher for longer and that there was no consideration given to rate cuts.
Governor Bailey was keen to emphasise that policy would need to remain restrictive suggesting that the MPC believes that inflation is the bigger enemy for the moment. UK 10-year gilt yields slid to 3-week lows on the back of today’s decision with the next focus expected to be on the October inflation numbers, which are a week before the Autumn Statement. It is becoming ever clearer that the Bank of England is done when it comes to further rate hikes, and that the next move is likely to be a cut, although when that happens is anyone’s guess.
The US dollar also fell against the Japanese yen although it hasn’t come close to reversing the move we saw on Tuesday in the wake of the BOJ tweak to YCC.
The weaker US dollar along with the broader improvement in the risk mood is helping to boost oil prices, as optimism about the demand outlook improves from the pessimism at the start of the week. With the Bank of England following the Fed in keeping rates unchanged today optimism is growing that we’re done on the rate hike front, and that inflation will continue to slow.
Gold prices are flat, just above one-week lows, having retreated from 5-month highs above $2,000 an ounce last week, with the level appearing to act as a bit of a psychological threshold in the short term.
US natural gas prices were in focus on Wednesday in the wake of news that output has increased to all-time highs, with this being compounded by the fact that across North America is set to become milder in the weeks ahead. In a fairly erratic day of price action, the underlying finally closed around 3% lower, with one day vol printing 52.7% against 46.54% for the month.
Yesterday’s dovish call from the Fed in keeping interest rates unchanged served to bolster support for the Aussie Dollar. The Australian 10-year treasury yield has now overtaken the US equivalent and with expectations building that the Reserve Bank of Australia will add a further quarter point to rates in its next monetary policy decision, AUD/USD moved out to two-week highs as a result. One day vol on the pair stood at 12.29% against 10.3% for the month.
That call from the Fed was sufficient to drive some renewed interest in the US Small Cap Russell 2000 index. Gains were limited but an abortive rally in futures prices before the open added to the volatility level, which sat at 21.89% on the day and 20.27% on the month. And in earnings news, it was GSK that proved to be the stand out amongst heavyweight stocks. Annual profit forecasts were increased in the wake of strong vaccine sales although early gains proved to be unsustainable. One day vol came in at 74.83% against 31.5% for the month.
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