European markets have got off to a solid start to the week after a positive lead from Asia markets which were boosted by the continued relaxation of restrictions in Chinese cities, which for over two months have acted as a brake on sentiment.
Following on from Shanghai on 1st June, Beijing authorities announced the reopening of public transport, as well as restaurants in a sign of a gradual return to a semblance of normal.
This optimism has played out in the form of outperformance in basic resources, while oil prices have also edged higher after Saudi Arabia raised prices to Asia markets, having announced it would be raising output by around 648k barrels a day from July, with BP and Shell helping to support the FTSE100, which retested the highs from last week, but was unable to break above them.
On the downside the risk on nature of today’s move has meant that defensives are under pressure with AstraZeneca, Dechra and GSK all underperforming.
AstraZeneca has slipped to the bottom of the FTSE100 despite reporting encouraging results from its Enhertu drug which it is developing in conjunction with Daiichi Sankyo shares. While the results were positive, the shares appear to have slipped back due to uncertainty around the timing of any imminent deliverables in terms of commercials.
After slipping back in the aftermath of Friday’s payrolls report, US markets have opened higher, taking their cues from the more positive tone in Asia and European markets today.
Chinese tech shares have undergone a decent bounce as covid restrictions slowly get relaxed with Alibaba, JD.com and TenCent rebound, while Didi Global has rallied strongly on reports that Chinese regulators are poised to wind up its regulatory investigation into the company this week.
Tesla shares have also rebounded after Friday’s big fall in the wake of comments from Elon Musk that he had a bad feeling about the US economy and may have to get rid of some staff.
In separate news Musk has also called out Twitter management for breaking the terms of the merger deal due to its refusal to provide further information on fake and spam accounts, in a move that appears to pave the way for him to pull the ripcord on the deal, at least at its current price point.
Apple shares are modestly higher as the WWDC gets underway, along with the rest of the tech sector as hopes rise of a pickup in China, as covid restrictions get eased further.
The Australian dollar is set to be in focus early tomorrow when the Reserve Bank of Australia is set to raise rates for the second time in two months. The May move was a little surprising given the timing just before an election, and this may have tempered its response given how it might have been perceived. The central bank should have no such inhibitions this month, which is why the consensus for a 25bps to 0.60%, is so surprising. It’s increasingly clear the central bank is well behind the curve, especially given the increase in inflation forecast last month, and the fact the RBNZ moved by 50bps at its most recent meeting, and is also well ahead of the RBA in its own hiking cycle. Hiking by 25bps almost comes across as half hearted, while a move by 40 to 50bps would send a message they are serious about their mandate. If RBA governor Philip Lowe is serious about a cash rate of 1.5% by the end of the year, he needs to be showing a little more urgency, than the 0.25% consensus.
The US dollar is broadly lower, on the back of the more buoyant tone in equity markets with the best performers being the commodity currencies, while the pound has picked up some ground, after spending the last three days looking weaker.
Crude oil prices have retained their recent resilience after slipping back sharply towards the end of last week, after Saudi Arabia announced it would be upping its output capacity from next month. We briefly edged above $120 a barrel on the back of the gradual easing of restrictions in China, along with the levying of higher prices by Saudi Arabia on its Asia clients, which is helping to keep a floor under prices.
In a week beset by market holidays in both the US and UK, by and large we’ve had to look a little further afield to find the stories of price action.
Australian listed A2 milk found favour at the start of the week off the back of speculation that it would be able to help fill the gap in baby milk supplies which is currently causing something of a crisis for families in the US. Daily vol last Monday hit 225% against 84% on the month, declining slightly on Tuesday to 185%.
Strong earnings from US-listed identity and access management company Okta also helped propel the company’s share price more than 25% higher late last week. Some of the upside was given back, by the close, but the upshot was to lift vol here to 319% on Friday, against 192% on the month.
Elsewhere, price action has been relatively limited, but one other point of interest comes from US Soy Oil. Vegetable oils, in general, are in focus with sunflower product exports out of Russian and Ukraine seeing significant disruption, whilst the Indonesian government has tightened export controls on palm oil. That means there’s a bunch of fundamentals in play here but the underlying US Soy Oil contract traded in a relatively wide range last week, settling higher and touching two-week highs in the process By Thursday, Soy Oil printed volatility of 44.85%, up from 36.42% on the month.
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