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FTSE 100 and commodities slip back on low China GDP target

It’s been a positive start to the week for markets in Europe, with the notable exception of the FTSE 100, which is being dragged lower by basic resources after China set a 5% GDP growth for this year, down from last year’s 5.5% target, which it missed by a large margin. 

Europe

This lower-than-expected target has hit metals prices with declines in the price of copper and iron ore, which is weighing on the likes of Anglo American, Glencore, and Rio Tinto.

Ocado is also lower after Morgan Stanley cut its price target on the business over concerns about the deliverability of customer fulfilment centres, after its US partner Kroger said it would not be rolling out any more centres in 2023.

On the plus side, Aston Martin has continued its recent gains after last week’s positive reaction to its latest results, with the third-place finish in yesterday’s Formula One race in Bahrain adding to the good news around the wider business.

Flutter Entertainment has also continued to push higher, hitting its highest levels in over a year, as it looks to claw back its losses from last week, as optimism over future US profitability helps to drive gains, along with the prospect of a US listing.

Speculation that the UK chancellor of the exchequer could extend energy support for business at next week’s Budget, along with keeping the consumer energy price cap where it is at £2,500, is helping to see some gains for consumer discretionary businesses like airlines, retailers, and pubs, helping to lift the likes of Wizz Air, easyJet, JD Wetherspoon, and Mitchells & Butlers. Wagamama’s owner Restaurant Group is higher on weekend reports that one of its shareholders, Oasis Management, called for it to sell its pubs and airport concessions business. 

US

US markets opened higher as bond yields continued to tread water below last week’s recent peaks, with uncertainty about the pace of future rate US rate rises keeping markets range bound.

With support at the 200-day SMA for both the S&P 500 and Nasdaq the short-term bias might be towards a retest of the February peaks, however in the absence of a step down in rates in the near future it’s hard to make a case for significant strong gains in the longer term.

Apple shares have edged higher after Goldman Sachs initiated coverage with a “buy” rating and a $199 price target. Tesla shares have slipped back after the company announced further price cuts to its US model S and model X cars, their most expensive electric vehicles.

FX

The euro is outperforming despite a retail sales report for January that was disappointing, rising by a modest 0.3%, well below forecasts of 0.6%, although December was revised higher to -1.7% from -2.7%. Investor confidence for March also slipped back to -11.1perhaps suggesting that the recent moves higher might be starting to generate a feeling that we may not have much further to go.  

The pound has been struggling for gains today despite better-than-expected economic numbers. We saw a decent rebound in construction PMI in February, rising to a nine-month high of 54.6, up from 48.6 in January. The numbers were encouraging across the board with a strong expansion in output, due to civil engineering activity. Business confidence also appeared to be returning with input cost inflation at the lowest since November 2020. 

The Australian dollar is also struggling after China’s rather tepid GDP target for 2023, slipping lower on concerns over weaker demand for iron ore, nickel, and copper. Trading is also cautious ahead of tomorrow’s RBA rate decision, where another 25bps rate hike is expected. 

The Norwegian kroner is also weaker on the back of lower oil prices. 

Commodities

Crude oil prices have slipped back after the Chinese government laid out an unambitious GDP target for 2023. It’s also disappointing when it comes to the prospects for global GDP as a more restrained China means less potential for demand, for commodities in general, with copper, iron ore and nickel prices also sliding lower.

Gold prices are treading water, along with yields ahead of tomorrow’s testimony to US lawmakers by US Fed chair Jay Powell.

Volatility

Shares in THG traded in a range of well over 8% on Friday. The stock had a good run-up across the last few sessions although there’ s nothing of weight to pin these latest gains on. One-day volatility stood at 127.35% against 103.24% for the month.

Corn prices had an active session heading into the weekend break, as they continue to advance from the multi-month lows posted at the start of the month. Although downside pressures have been broadly sustained across grain markets in recent weeks, the imminent release of USDA forecasting reports does seem to be lending a degree of support. One-day volatility sat at 20.45% against 17.4% for the month.

Big gains for the VW share price on Friday off the back of better-than-expected earnings and forecasts of increased deliveries for the year ahead, saw elevated levels of price action in CMC’s proprietary EU Automobiles basket. With the 11% advance in the share price being underpinned by better availability of microchips, that was sufficient to see read across for the sector as a whole. One day vol on the basket sat at 39.73% against 30.49% for the month.

And that spike in action for automakers helped drive the DAX index on Friday, too. The underlying advanced by 1.65%, lifting one-day volatility to 15.97% against 14.34% for the month as a result. 


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