Europe

After yesterday’s modest falls, markets in Europe have had a more positive bias today, edging higher on a day with little in the way of drivers. The FTSE100 has had a solid day, pushing up to its highest level since 5th May, while the DAX hit its lowest levels this week before rebounding back into positive territory.

Today’s outperformers on the UK index included energy supplier SSE who saw their shares fall back sharply yesterday over concern about the imposition of a windfall tax by the UK government.

Today’s full year numbers have seen the shares bounce back after the company reported a 23% rise in adjusted profits before tax to £1.16bn. The numbers included a big increase in investment over the year of £2.1bn, while also completing a plan of disposals in non-core assets including the final disposal of Scotia Gas Networks for £1.3bn.

In a not-so-subtle dig at the UK government, the energy company made numerous mentions in its statement to the amount of money it is setting aside with respect to investment spending, saying it wants to spend £12.5bn on low carbon projects by 2026.

Net investment into vital UK and Ireland infrastructure could exceed £25bn in this decade it said, directly addressing the current energy crisis in the longer term, with a total contribution of £5.8bn to UK GDP this year. CEO Alistair Philips-Davies refused to be drawn on newspaper speculation about windfall taxes and their impact, merely stating that they were confident about their current investment plans and were investing more in infrastructure than they were making in profits.

Reports that a windfall tax would be too problematic to implement were also helping sentiment today, after yesterday’s falls with Centrica and Drax also higher.

Marks and Spencer’s shares initially dipped to their lowest levels since February 2021 after they outlined a challenging outlook for the year ahead. Their overall numbers were good, returning to annual profit, above expectations and revenues that were also ahead of expectations at £10.89bn. They’ve since recovered that lost ground, edging back into positive territory this afternoon. There is an argument that with the shares already having more than halved from their January highs, a lot of the bad news is already baked into the price. They are also investing £400m in making the business more competitive, which while a drag in the short term, should reap longer term dividends.

On the downside Ocado shares have slipped back after the company downgraded its full year outlook for sales growth from 10% to low single digit growth. The company cited higher fuel and utility costs for the impact of lower sales, as well as the impact on its own cost base, in the form of higher costs. Its retail operation which it operates in conjunction with M&S has cited lower basket sizes for an 8% drop in sales in Q2, compared to a 5.7% decline in Q1.

We’ve also seen weakness in JD Sports on the back of US sports retailer Dick’s Sporting Goods who downgraded their full year sales and profits outlook.  . 

US

After yesterday’s negative finish US markets opened slightly lower with earnings misses once again weighing in initial trade, however these losses haven’t lasted with the Nasdaq 100 leading the market into positive territory as investors look ahead to the release of the latest Fed minutes.  Tonight’s minutes could offer clues on policymakers thinking around balance sheet run off.

US durable goods for April saw a modest rise of 0.4%, while March was downgraded from 1.1% to 0.6%.

The retail weakness seen over the past week or so has continued today with Dick’s Sporting Goods after the retailer downgraded its full year outlook despite beating on revenues and profits for Q1. For 2023 sales outlook was revised down to -2% to -8%, while profits were seen down to $9.15c to $11.70c from $11.70c to $13.10c a share.

On the flip side Nordstrom has bucked the outlook for weak retail raising its annual forecasts after beating expectations of Q1 revenues. Sales rose 19% to $3.47bn with an expectation that this would translate into annual revenue growth of 6% to 8%.

FX

The US dollar appears to be rebounding after its recent bout of weakness, with the New Zealand dollar outperforming after the RBNZ hiked interest rates by 50bps, as well as outlining an outlook that suggested more hikes were on the way.

The pound has recovered some of the ground it lost yesterday, particularly against the euro as scepticism sets in that the ECB will be able to follow through on its pledge to raise rates twice by September. ECB officials’ insistence that the euro area economy won’t tip into recession and that a recession isn’t their base case simply doesn’t stand up to scrutiny and the underlying challenges facing the businesses and consumers over the next few months.  

Commodities

Seasonally lower gasoline stocks ahead of the start of the peak of US driving season, is seeing US crude oil prices edge higher and back towards their recent highs, however there is rising evidence that high energy prices are now starting to see demand destruction, and this could start to limit the upside.

Gold prices hit two-week highs yesterday but have since slipped back, on the back of a firmer US dollar as it regains some of its recent lost ground. US yields appear to be pausing near to their current lows, which is also acting as a cap on gold prices.   

Volatility

An analyst downgrade for Canopy Growth saw shares in the cannabis manufacturer slump some 15% in yesterday’s trade, driving price action in the stock. Daily vol moved out to 348% against a monthly print of 172%, although further direction is to be expected here in the medium term as the US legislative process maps out.

That downgrade saw others in the sector hit hard too, driving the price of CMC’s proprietary cannabis share basket down by well over 10% yesterday. That’s now sitting at lows for the year, with daily vol printing 266% against a monthly reading of 139%.

In commodities it was the gasoline cash contract that topped the board on Tuesday. Concerns here revolve around the fact that inventories are expected to show fresh signs of contraction during today’s session, so that slide in prices from the start of the week is already looking to be short lived. Daily vol here hit 47.13% against a monthly print of 44.2%. And in terms of fiat currencies, again the Turkish Lira continues to stand out. The US dollar cross finally broke above the 16 level during Tuesday’s trade, with daily vol printing 19.78% against a monthly reading of 13.38%.0..

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