Europe

European markets have struggled again today with little in the way of direction, after a weak lead from Asia markets which fell back after Chinese retail sales dropped sharply to 2.5% in August, raising concerns that the world's second biggest economy is in much worse shape than was originally believed.

With energy prices soaring across Europe, the economic outlook is starting to look increasingly uncertain, and while central banks are likely to take that into account, the fact remains that the rebound which was looking so solid a couple of months ago is starting to show signs of slowing markedly.

Unsurprisingly the likes of BP and Royal Dutch Shell are benefitting from the surge in natural gas prices, as well as crude oil prices which have hit their highest levels since the summer.

Evraz is leading the gainers on the FTSE100 after being on the receiving end of a broker upgrade to buy with a 1,000p price target, while rising copper prices are helping to support BHP and Glencore.

Airlines are once again getting clobbered on the other side of the ledger, with IAG, easyJet and TUI all at the bottom of the heap, along with Rolls Royce shares as the prospect of higher fuel prices, along with uncertainty over travel restrictions, sets up another obstacle to a rebound.

Just Eat Takeaway is also lower after the announcement that Amazon Prime members would be able to take advantage of free delivery from Deliveroo.    

Darktrace has been an IPO success story for the UK market, with the shares performing strongly since jumping out of the blocks back on 30th April, launching well above its 250p IPO price, and now set to join the FTSE250.

Having already upgraded their forecasts in July, today’s full year numbers saw revenues come in at £281m, a rise of 41%, and above expectations. Over the 12-month period the company saw client numbers increase over 45% to 5,605, although losses increased to $147.6m, largely due to a sizable rise in finance costs.

The higher losses don’t appear to be bothering investors for now, with the shares rising sharply, after the company upgraded its forecasts for 2022 for annualised recurring revenue (ARR) again, this time from between 32% and 34%, to 34% to 36%, as it looks to add new clients.  

Retail stocks have also lagged after the latest updates from H&M and Inditex, as well as concern that the sharp rises in energy prices could erode consumers' disposable income, and hamper the economic recovery over the rest of the year.

H&M shares slipped back after Q3 sales fell short of expectations, due to store closures in its Asia operations, with still over 100 stores closed at the end of the quarter, compared to 180 at the beginning. Its operations in Australia have been particularly hard hit with the government there struggling with its vaccination program.

Zara owner Inditex on the other hand has seen a much better performance in its first half, with H1 sales coming in at €11.94bn. The outperformance is predominantly down to a better e-commerce operation which has helped the business through the various lockdowns, with 25% of its sales coming by way of its digital channel.

Fevertree shares got off to a rocky start to trading this morning, dropping sharply initially after reporting half year interim results, which saw the company’s gross margin slip back from 46.8% to 44.1%. The lower margin rather overlooked the fact that half year revenues rose 36% to £141.3m, with decent gains from its US and European operations, helped by a continued expansion in the US and its acquisition of GDP in Germany, just over a year ago. This has seen the shares recover with the company lifting its payout to 5.52p per share, which was a welcome tonic for shareholders.    

US

US markets opened slightly higher after the latest Empire Manufacturing survey for September rebounded sharply to 34 after dropping sharply in August, with the outlook in the New York region picking up quite substantially with new orders and shipments rebounding, along with employment.  

The biggest movers to the downside have been the casino stocks of MGM Holdings, Las Vegas Sands and Wynn Resorts on the back of the regulatory crackdown in China, specifically targeting the island of Macau.  

Apple shares are only modestly lower after a fairly lukewarm reaction to the company’s latest product launch.

On the upside, the rise in energy prices is also feeding into gains for the likes of Exxon Mobil, ConocoPhillips and Occidental.  

FX

The US dollar isn’t having a particularly good day as yesterday’s softer than expected inflation numbers temper expectations about the US central bank’s policy response when it comes to the tapering of asset purchases.

The commodity currencies are enjoying a strong rebound with the Norwegian krone seeing the strongest gains, along with the Canadian dollar, although on the flip side the Australian dollar is underperforming probably as a consequence of concerns about the Chinese economy.  

UK inflation saw a big rebound in August rising from 2% in July to 3.2% in August, driven by a rise in prices in restaurants, and other hospitality establishments. With energy prices set to rise in the autumn, and the temporary VAT reductions set to expire the rate of price increases is only set to increase, while we can expect to see further upward pressure in prices in January when rail prices are set to rise again.

Commodities

The continued rise in energy prices is certainly helping boost the energy sector, however the sharp rises in not only crude oil prices, as well as natural gas runs the risk of a price shock if the current momentum doesn’t start to show signs of waning. In the UK a large fire at an interconnector cable between France and the UK isn’t helping either, with little likelihood it will be back on line before October 13th. With shortages already a concern with low wind levels, and other renewables also under pressure, the likelihood of power supply problems over the winter is growing.  

European gas prices are also surging, up at record highs although it is noteworthy that US prices are still well below their financial crisis peaks, and the peaks we saw in 2014.

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