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European markets end a strong January with a whimper

It’s been a disappointing end to what has been a solid start to the year for markets in Europe, with better-than-expected Eurozone Q4 GDP unable to offer much of a lift, as the caution of yesterday has continued into a second day, ahead of tomorrow’s Federal Reserve rate meeting, and Thursday’s ECB rate meeting. 


This week we’ve seen a slight resetting of what to expect from central banks over the next couple of days, which has taken the edge off some of the enthusiasm of the last couple of weeks. 

Nonetheless once this week’s central bank meetings disappear into the rear-view mirror, there is some optimism that we can continue to see further gains for European markets, as the IMF upgraded its global GDP forecasts for 2023.

In company news Johnson Matthey is amongst some of the better performers today after announcing it was partnering with Plug Power until 2030 as it looks to sharpen its focus on green hydrogen technology. The partnership would include a joint venture in investing in up to 10GW new catalyst coated membranes manufacturing facilities in the US. 

On the downside it’s been very much risk-off with the worst performers being in basic resources and energy on the back of weakness in commodity prices, specifically copper, precious metals, and crude oil.

Having seen their shares fall sharply over the past week after last week’s full year results, Diageo shares are higher today after Investec upgraded the Guinness maker to buy from hold, citing the shares as a rare bargain.  

Tesco shares are broadly unchanged after confirming it would be buying the Paperchase brand, but that the shops and staff would not be part of the deal, with the plans being to carry the IP and merchandise inside its existing store real estate.


It looked at one point as if US markets might be set for a lower open, however the latest Employment Cost Index data for Q4 saw this key economic indicator soften from 1.2% to 1%, pulling US stocks into the green and a positive open, although the gains have been modest. This is one of the key indicators the Fed monitors for signs of inflation, and it fell to its weakest quarter this year, while other US data has also shown weakness this afternoon has got the markets thinking that the Fed may lean to the dovish side tomorrow, when it meets to hike rates.

When Pfizer reported in Q3 the company upped its guidance for full year sales of its vaccine to $34bn, an increase of $2bn, while raising its earnings guidance to $6.40c to $6.50c a share. In its statement Pfizer said that while sales may fall from the levels seen in 2022, its revenues have been boosted by the much higher prices being charged per vaccine.

Today’s Q4 numbers have seen revenues come in at $24.3bn, beating expectations and profits coming in at $1 14c a share, helping the company to a record year. The revenue numbers were made up of Comirnaty revenue of $11.33bn, which crushed estimates of $7.57bn, however Paxlovid fell well short of its $4.98bn estimate at $1.83bn. For its 2023 outlook the estimates were disappointing, and this has sent the shares lower, with Pfizer estimating Paxlovid and Comirnaty revenue of about $8bn and $13.5bn respectively, well below forecasts, and full year profits also below estimates of $4.31c a share at $3.25c to $3.45c.      

Exxon Mobil today posted record full year profits of $59.1bn, beating the previous record set in 2008, even as Q4 revenues fell slightly short of forecasts at $95.43bn. Exxon said its Permian basin assets recorded record output of 560k barrels in Q4. The record profits came about despite a $1.3bn charge due to windfall taxes and impairments. For the outlook Exxon says it sees Q1 upstream volumes to of a similar rate to the last quarter, while also saying it expects to pay up to $150m of extra taxes during the quarter. Exxon is reaping the benefits of its decision to ramp up new capacity between 2017 and 2019, in the face of fierce criticism at the time. In hindsight this now looks like a wise decision despite the criticism, because if they hadn’t added this extra capacity supply would be even more pinched than it is now, and prices would be even higher  

McDonalds shares have slipped back despite reporting Q4 revenues of $5.93bn and profits of $2.59c a share, both beating expectations. Q4 saw a decent increase in global comparable sales of 12.6%, well above forecasts. The weakness appears to be resulting from concerns over short term inflationary pressure impacting on margins which are expected to come in at 45% in 2023, below forecasts of 46.5%.

Social media company Snap is due to report its Q4 numbers after the close later today. When Snap reported its Q3 numbers the shares plunged to their lowest levels since March 2020. Q3 revenues came in at $1.13bn, which was still 6% higher than a year ago, but was below expectations. This single digit rise was also its lowest figure ever since it debuted in 2017, and even though the company reported a slight profit, investors weren’t particularly forgiving given that management also declined to offer guidance for Q4, citing an uncertain revenue visibility. Given that it tends to act as a forward indicator for the wider sector, markets will be looking for clues ahead of Meta’s numbers tomorrow. 


The pound has come under pressure today after mortgage approvals and net consumer credit came in below expectations in December, while the IMF forecast that the UK economy would shrink by -0.6% in 2023 and be the worst performing economy in the G7.

While that is disappointing to hear, the IMF doesn’t have a great track record when it comes to forecasting, predicting in April last year that the UK would grow by 3.7%. That said the UK governments fiscal response won’t have been helpful with respect to this years’ expected underperformance with the tax rises and spending cuts expected to weigh on economic activity.

When looked at over a longer period however the picture doesn’t look anywhere near as bad with the IMF forecasts portraying that the UK is expected to grow at the same pace as the US when averaged over a 3-year period. Ultimately it pays not to get too caught up in the economic modelling of the likes of the IMF, World Bank and OECD as all too often their forecasts are about as much use as a chocolate teapot. 


Crude oil prices could fall for the third day in a row on the back of a slightly firmer US dollar and the uncertainty ahead of tomorrow’s Fed rate decision. Today’s upgrade of the global economy should have been good news for oil prices, along with the better-than-expected China PMI numbers, however it looks likely that oil prices will finish January close to where they finished at the end of last year.

Gold prices have had a good month and are on course for their third successive monthly gain, as a month of lower yields has helped lift the yellow metal to 9-month highs,  with today’s weakness finding support at $1,901 an ounce before rebounding. Further US dollar strength in the coming days could prompt further weakness in the gold price.   


The week got off to something of a slow start, with a lack of economic or corporate data out of the US serving to limit risk taking for many. Looking to the East however did offer some direction, with talk that the Chinese e-commerce giant Alibaba is looking to relocate its headquarters from Hong King to Singapore rattling confidence in the stock.

This left the US ADR to close more than 6% lower, a situation which was repeated with other local e-commerce plays such as Pinduoduo and  Collectively this resulted in a spike in price action for CMC’s proprietary basket of Chinese tech stocks, with the underlying sliding 2.4%, pushing one day vol to 73.16% against 55.84% for the month. Continuing with that focus on Asia, Baidu was something of a standout after the stock rallied hard in the wake of news that it was to roll out an AI product.

The initial rally however proved difficult to sustain – as has been pointed out several times, AI has the potential to erode the lucrative advertising revenues associated with search engines. The underlying added 6% at its peak with one day vol of 99.83% against a one month reading of 62.49%. With these two stories in mind, perhaps it’s no surprise to learn that the Hong Kong China shares index was the most active in the asset class on Monday.

One day vol printed 38.85% against 34.12% for the month. And rounding off with currencies, fiat was subdued but pockets of activity remained in cryptos. AVXUSD continues to give back some of those impressive gains posted at the end of last week, with one day vol coming in at 114.66% against 88.42% on the month.

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