European markets drift lower on inertia

Europe

Markets in Europe have had a slightly softer tone today after the modest gains of yesterday, with very little in the way of direction one way or the other.

Having ended 2023 very much on the up there appears to be little in the way of enthusiasm to drive markets higher in the short term, with trading activity subdued and a relatively negative bias so far year to date.

The FTSE100 has underperformed more than most month to date simply due to weakness in commodity prices, although oil prices are having a bit of a rebound today.

The basic resource sector continues to act as a lag with weakness in Rio Tinto and Glencore, while retail is also a little softer today with JD Sports down for the second day in a row, while disappointing BRC retail sales for December is also weighing on the rest of the sector, with Ocado, Marks and Spencer and Kingfisher all near the bottom of the UK index.

These retail sales numbers did show some positive signs with strong growth in food sales during the month, with spending of £13.7bn in the lead-up to Christmas which augurs well for this week’s updates from Tesco, Sainsbury, and Marks & Spencer

B&M European Retail is bucking the negative trend in UK retail today after their latest Q3 trading statement showed that the retailer enjoyed its “Golden Quarter” with a 5% rise in group revenue to £1.65bn, with strong growth across all its regions. The UK business saw revenues rise by 3.7% to £1.35bn while the French business saw growth of 11.3% to £151m. The company reiterated its full year guidance for group adjusted EBITDA of between £620m and £630m.

On the plus side health care is the best performer after GSK announced it had reached a deal to acquire Aiolos Bio, a US biopharma company which specialises in respiratory treatments for $1.4bn.

US

US markets opened slightly lower after its gains from yesterday, with the tech sector coming under some selling pressure after South Korean electronics maker Samsung issued a profit warning, saying that it expects Q4 profits to be 35% lower than the same period a year ago. This has weighed on Apple’s share price in early trade with concern over its growth prospects in China weighing on the shares in recent weeks.

Boeing shares remain in focus after both United Airlines and Alaska Air found further areas of concern in their 737 MAX 9 fleet after loose bolts were identified on the parts of the fuselage where the door plug is located. Consequently, all MAX 9 aircraft would remain grounded until further inspections of all exit plugs and door components have been completed.

Nvidia shares are treading water after closing at a new record high yesterday after announcing new AI chip sets for desktop PCs.

Hewlett Packard Enterprise shares have slumped sharply after announcing a $13bn deal to acquire Juniper Networks as it looks to enhance its offering with respect to AI. Juniper specialises in routers and switches as well as wired and wireless connectivity solutions between computers. The company has also been exploring new services which tap into AI and it is here that HPE appears to have an interest. .

FX

Not much activity in currency markets today with commodities currency the biggest laggards given weakness in the likes of natural gas, crude oil, and metals prices.

The Japanese yen is modestly higher largely due to the slightly negative bias in equity markets.

Gold prices are treading water close to 2-week lows with little in the way of directional drivers from yields or from the US dollar.

Commodities

After the losses from yesterday crude oil prices are undergoing a modest rebound today with outages in Libya affording the possibility of a pullback without mitigating the underlying concerns that demand is waning.  With US production at record levels the downside is still expected to be limited given that the Biden administration is likely to be a buyer of last resort at levels below $70 a barrel as it looks to top up the SPR which is currently close to multi year lows. 

Volatility

Renewed speculation that the SEC may imminently approve Bitcoin ETFs saw the underlying advance to levels not seen in two years on Monday. Having broken above the $47k mark, one day vol stood at 54.57% against 47.7% for the month, making it the most active of the wider crypto asset class. Boeing found itself as one of the most active single stocks on Monday after a panel on a plane made by the company blew out mid-air on Friday night.

As the latest crisis to hit the 737 Max series, the 8.5% sell off in the underlying is of no surprise and it’s clear that the situation could have been significantly worse. One day vol on the stock advanced to 92.88%, more than double the 41.6% seen for the month. That news from Boeing was seen as contributing to early losses on the DOW 30 index.

Boeing is the 10th biggest constituent, accounting for 4% of the overall index weight, although broader equity sentiment found support as the session progressed, leaving the DOW to close materially higher supported by renewed optimism over monetary policy easing. One day vol on the DOW printed 10.6% against 9.17% for the month.

Natural gas prices remained in focus, continuing their move higher as colder temperatures supported the market. Questions remain as to whether that’s sustainable in the longer term, but one day vol on the asset was again elevated, printing 77.53% on the day and 62.15% on the month.