After a lacklustre session yesterday it’s been a much more positive session for markets in Europe, although a poor performance from the basic resource sector is weighing on the FTSE 100.
Rio Tinto shares have slid back after the Australian miner said that iron ore shipments declined 10% in Q1, from the same period a year ago, due to various production issues, caused by covid and/or reduced production capacity. The mining giant also warned that rising inflation caused by the Russian invasion of Ukraine, and resurgence of covid cases was likely to introduce downside risks to market expectations. Glencore and Anglo American appear to be also feeling the heat on these same concerns.
Irish builder and construction company CRH is the best performer after reporting a positive start to the year, with Q1 sales, margins, and EBITDA all ahead of forecasts, with the company saying that it expects H1 to come in ahead of last year, with the building products division reporting Q1 sales 22% higher than the same period a year ago.
Less than two years after acquiring GrubHub for £5.8bn Just Eat Takeaway has said that it is looking to sell the US operation after seeing a 5% slump in orders in Q1, begging the question as to why management thought it was a good idea to buy it all. Today’s announcement has seen the shares rally from a five-year low, with management hoping that the news will call a halt to a share price decline that has seen the shares fall over 75% from the record highs set back in October 2020. While the news of a possible sale has given the shares a boost its hard to see a scenario where any sale would see any sort of positive return at a time when competition in the sector is fierce, and margins thin.
Other than today’s announcement of a possible sale, good news was in short supply, with its southern European and ANZ region seeing a 4% decline, and UK and Ireland seeing no change. On the plus side we did see Northern Europe undergo a 4% increase in orders, while total GTV saw an increase of 4%, to €7.23bn, largely driven by higher value orders.
SSE has also seen decent gains today after it expanded its renewables business by signing a €580m deal with Siemens Gamesa to acquire a pipeline of onshore wind projects in southern Europe. The capacity of the projects, which are in various different stages of completion, came to 3.9GW, with scope for another 1GW of additional capacity.
US markets have undergone a mixed open with the Nasdaq 100 falling back on the back of the sharp market reaction to Netflix’s latest Q1 numbers, which appears to be prompting a significant de-risking in the more highly valued areas of the US market.
US existing homes sales for March showed a slight improvement from the -8.6% decline in February, falling back by -2.7%.
Netflix shares have undergone another post earnings plunge after the business reported its first quarterly decline in subscribers in a decade, losing 200,000 customers, against an expectation that it would gain 2.5m, reducing total subscribers from 221.8m to 221.64m. This wasn’t helped by the company’s withdrawal from Russia which resulted in the loss of 700,000 customers. Even without that, the company saw paid net additions of 500,000 so the Q1 numbers would have fallen 2m short in any case. If that wasn’t bad enough Netflix said it expects to lose another 2m subscribers in Q2, against an expectation of +2.4m, sending the shares sharply down in afterhours trading. For revenues Netflix says it expects to grow revenues by about 10% year over year, and an operating margin of 19% to 20%.
In an attempt to deal with this slowdown, Netflix said it is looking to introduce a cheaper advertising-based version of its streaming app, as well as looking to crack down on password sharing, however one can’t help feeling this misses the wider problem. Its basic subscription is already quite low at £6.99 and runs the risk of cannibalising the income from this stream. Netflix's wider problem, along with the rest of the sector, is that consumers don’t have unlimited funds, and that one or two subscriptions is usually enough. Once you move above that something has to give in a cost-of-living crisis, and while Netflix is still the market leader, it doesn’t have the deeper pockets of Apple, Amazon or Disney, which makes it much more vulnerable to a margin squeeze.
It has been suggested that the lack of a sporting offering isn’t helping, and while that may be true to a point, it's unlikely to help either given the exorbitant cost of live sport, relative to the number of new users it might gain. Disney shares along with Roku have also come under pressure today.
While the focus has been on Netflix, attention will shift to Tesla after the bell as the electric car maker gets set to outline its Q1 results and its expectations for Q2 and beyond. We already know that Tesla delivered just over 310,000 vehicles, which was another record, but was only just above the 308,600 it delivered in Q4. Supply chain disruptions and their effects are likely to be key arbiters of how investors react to today’s announcement, although the extra production capacity from its new Berlin plant should allow to ramp up production capacity. We should also discover the impact of the Shanghai disruptions as a result of Chinese government covid restrictions.
Today has seen the US dollar slip back across the board, along with US yields with the Japanese yen being the best performer, although the recovery only came after the currency had traded at yet another 20 year low. The rebound in the yen was precipitated by comments from Japanese Finance Minister Suzuki who said that the continued weakness in the currency could well be more damaging, if allowed to continue.
The euro popped higher today after ECB governing council member Martins Kazaks, who represents Latvia said that a rate rise in July was possible, and seemed an appropriate response, and that tightening measures needn’t have to wait for evidence of wages growth. Kazaks has been one of those members who has tended to lean towards the hawkish side, although that shouldn’t really be a surprise given inflation in Latvia is currently 11.5%.
The Canadian dollar has also had a good day, after the latest headline inflation number for March showed CPI rose from 5.7% to 6.7%, while month on month prices rise by 1.4%, raising the prospect that we could well see another 50bps from the Bank of Canada at the next meeting.
Crude oil prices have clawed back some of yesterday’s big losses on reports that some businesses in Shanghai are restarting their output, after being forced to close due to various covid restrictions.
Gold prices have continued to look on the soft side after briefly trying and failing to push above the $2,000 level earlier this week. Unlike yesterday, when the strength of the US dollar and firmer US yields were holding it back, today’s weakness seems to be as a result of inertia more than anything else.
The catering specialists SSP group found its share price in focus on Tuesday in the wake of an analyst downgrade, pushing daily vol to 132% against a monthly reading of 68%. Inflation fears and concerns as to how this will impact discretionary spending are taking a toll here so even if this is a “one and done” move, the reality is that many other companies stand to be caught in the same trap in the months that lie ahead.
Cryptos appear subdued across the board with daily vol printing below the monthly figures but in terms of fiat currencies, falling commodity prices and rising treasury yields have been lending some support to the US dollar. This has been particularly evident in terms of the Dollar-Peso, which continues to battle with sustaining a move above 20. Daily vol printed 11.63% against 9.15% on the month.
In commodities, rough rice prices dropped close on 10% during yesterday’s session. A report before the long weekend suggested that India may see record harvests this year and whilst commodity prices in general remain elevated, yesterday’s reversion does add weight to the idea that the level of speculation here may have become a little overblown. Daily vol sat at 189% against 95% on the month.
Rounding off with equity indices, US stocks saw momentum accelerate after the slow start to the week and despite the global growth downgrades by the IMF. The NDAQ was something of a stand out as it recovered those losses from the end of last week, with daily vol advancing to 27.64% against 23.21% on the month.
CMC Markets erbjuder sin tjänst som ”execution only”. Detta material (antingen uttryckt eller inte) är endast för allmän information och tar inte hänsyn till dina personliga omständigheter eller mål. Ingenting i detta material är (eller bör anses vara) finansiella, investeringar eller andra råd som beroende bör läggas på. Inget yttrande i materialet utgör en rekommendation från CMC Markets eller författaren om en viss investering, säkerhet, transaktion eller investeringsstrategi. Detta innehåll har inte skapats i enlighet med de regler som finns för oberoende investeringsrådgivning. Även om vi inte uttryckligen hindras från att handla innan vi har tillhandhållit detta innehåll försöker vi inte dra nytta av det innan det sprids.