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Europe

It’s been another positive day for European markets, with the German DAX posting yet another record high, after disappointing German factory orders data prompted increased speculation that the ECB may well be forced into cutting rates sharply in the early part of 2024.

This expectation has been reflected in sharp falls in yields across the board, German 10-year yields falling to their lowest levels since May at 2.2%, while UK 10-year gilt yields fell below 4% and a 6-month low. 

The FTSE100 has had a better day of it bouncing back after two days of declines, pushing back above 7,500, helped by the basic resource sector which is having a better day of it after Rio Tinto brought forward the start of production of iron ore at its Simandou project in Guinea, as well as expressing confidence in demand from China.

TUI shares have surged today after announcing an increase in full year revenues to €20.67bn and a return to profit before tax of €551m for the year.

Average load factor for the Q4 rose to 92%, while hotels and resorts were in line with expectations, while the cruises business saw a solid improvement on the same period last year. Looking forward TUI said they expect to see revenue to increase by at least 10%, and underlying EBIT to rise at least 25% year on year. The company also exploring delisting its shares in the UK and keep its primary listing in Frankfurt. This has given a wider bid to the travel and leisure sector with IAG, easyJet and Jet2 also seeing a solid session.

Engineering and oilfield services company Weir Group is higher after announcing that its 2026 operating margin target would be 20%

It’s been a very poor year for the British American Tobacco share price, with the shares down over 30% year to date, and the shares have got smoked further today, falling to 13-year lows, pushing it close to being one of the worst performers year to date.

In June the company reiterated its full year guidance with new CEO Tadeu Marroco reiterating that there would be no change in the current strategy to reach £5bn of NGP revenues by 2025. Combustibles performance in the US was disappointing with today’s pre-close trading update reiterating these targets, while saying it sees full year revenues at the low end of their 3% to 5% guidance. The tobacco company also said it was taking a £25bn impairment charge on some of its US brands in response to the difficulties being faced in its US market.

The sector is also having to contend with UK plans to eventually raise the legal smoking age over time, as well as placing restrictions on the purchase of vaping products to children, looking at flavours, packaging as well as disposability, with Imperial Brands shares also weaker.

Diageo shares are also lower after sector peer Brown-Forman, owner of the Jack Daniels brand of whiskey cut its sales forecast due to lower demand for its main marque brand.  

US

US markets have opened higher taking their cues from the positive tone in European markets, and after the November ADP jobs report showed the US economy added 103k jobs over the month, coming in below expectations in a further sign that the labour market is slowing.

Exxon Mobil shares are lower despite the US oil giant saying they are on track to deliver $14bn of further earnings cashflow growth over the next 4 years. Oil and gas production seen rising to 4.2m OEBPD by 2027, driven by the Permian and Guyana basins.

Delta Airlines says it expects to meet its full year revenue and profits forecast for 2023, reaffirming profits of between $6 and $6.25 a share, and a 20% increase in revenue.

Apple shares have regained their $3trn market cap status for the first time since July.

Nvidia shares edged higher after CEO Jensen Huang said that the chipmaker would be able to deliver AI chips to China in compliance with US restrictions.

Citigroup shares have shrugged off a warning from CFO Mark Mason who said that trading revenue for Q4 could be 20% lower quarter on quarter.

With Bitcoin pushing above $44k for the first time since April 2022, the likes of Robinhood, Coinbase and other crypto stocks have continued to outperform.

FX

The pound is little changed after the Bank of England released the contents of its financial stability report. The key components were that with the full effects of rate hikes to be fully felt, there are at least 4m households who haven’t yet felt the effects of a mortgage repricing and 5m that have. The report also showed that a rise in real incomes is helping to make a difference in the ability of households to repay and service that debt. This means that bank net interest margins are likely to have peaked.  

The euro has also continued to struggle after a simply shocking German factory orders which saw a 3.7% decline in October, prompting a further repricing of when to expect the first ECB rate cut.

The Canadian dollar is slightly firmer after the Bank of Canada left rates unchanged, while expressing concern about risks to the inflation outlook and remaining prepared to hike again if needed.

Commodities

Having declined for 4 days in a row, crude oil prices have continued to struggle, with Brent sinking to fresh 5-month lows, as US producers flood the market with exports which are set to rise to a record 6m barrels a day. Today’s inventory data saw a bigger than expected draw of 4.6m barrels against an expectation of 1m.

Gold prices have seen a modest rebound after hitting a one-week low of $2,009 yesterday, with a slight softening in yields helping to stem the recent bleeding from the record highs on Monday at $2,148.     

Volatility

The Aussie Dollar found itself in focus on Tuesday and although the RBA’s latest rate verdict caused few surprises, it did little to lend support to AUD/USD which has been sliding since its test of multi-month highs at the end of last week. It does seem as if some bargain hunting may have been in evidence later in the day as any relaxation of policy is still likely to emerge from the Federal Reserve first. One day vol on AUD/USD came in at 13.16% against 10.29% for the month.

An upbeat sales outlook from key Apple supplier Foxconn was enough to drive renewed interest in the consumer tech play, with the company’s valuation re-taking the $3 trillion mark as a result. The underlying added more than 2% over the session with one day vol standing at 40.93% against 23.91% for the month.

Wheat prices continue to trend higher, with the underlying having advanced more than 15% since the end of last month. Confirmation of bulk private sales from the US to China along with the resulting short covering are seen as driving the latest leg of these gains higher, but unlike some other grains, market conditions are seen as remaining tight running into the year end. One day vol on US Wheat printed 44.34% against 32.09% for the month. 

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