Europe

Having started this week very much on the back foot, and then posting three days of gains, European markets have been on a bit of a rollercoaster this week, after hitting two-month lows on Monday.

As we come to the end of the week, we look set for another negative session, which would neatly bookend a week that has seen decent gains for the travel and leisure sector, and that has helped to reverse a trend of three successive weekly losses for the FTSE100. It’s been a similar story for the new DAX 40, which hit a four-month low on Monday, and which looks set to reverse its losses for the week too. Concerns about contagion effects from Evergrande haven’t gone away, but they appear to have taken a back seat to worries about supply chain blockages, surging energy prices and rising inflationary pressure, hence the rise in bond yields this week.

Rolls Royce has continued its gains this week, after being on the receiving end of another broker upgrade today. Last weekend’s news that transatlantic routes are set to reopen in November has generated a sharp change in sentiment around the company which relies on revenues from EFH (engine flying hours). The resumption in transatlantic travel will certainly help it meet its target of 55%, for this fiscal year, however, as at the end of H1 it was still well short of it at 43%, so it has some way to go to meet it.

British Airways owner IAG has had a similarly good week for the same reason, given it relies on its US routes for a good chunk of its revenue, thus unlocking the potential for a lot more cash flow than was looking likely a week ago. It has also helped alleviate concerns that the airline might have to raise fresh capital, in the wake of last week’s decision by easyJet to do just that.  

AstraZeneca shares are also higher after another positive development in a drug trail of its Lynparza drug for prostate cancer.

JD Sports shares are near the bottom of the FTSE100 as a consequence of the read across from Nike, and the slowdown in sales. We’ve also seen similar weakness in the likes of Adidas as well.     

US

After yesterday’s gains US markets have opened modestly lower, with crypto stocks leading the losers after China banned the use of cryptocurrencies from a transactional point of view.

Coinbase, MicroStrategy, and Robinhood Markets are all on the back foot.

After a solid Q4, Nike’s latest Q1 numbers have reverted to type with supply chain disruptions hitting sales, prompting the company to cut its guidance for the rest of the year sending the shares lower after hours. Factory shutdowns in Vietnam have hit production meaning that the company hasn’t been able to meet demand. Revenues came in at $12.2bn, coming in short of expectations of $12.5bn, while its sales in China slowed as well as the economy there slowed.

FX

The US dollar looks set to close the week higher, for the third week in a row, despite the selloff seen in the wake of Wednesday’s Fed monetary policy decision.

With today’s moderately negative bias in stock markets, the worst performers are in the commodity space, with the Australian dollar amongst the biggest fallers along with the Kiwi dollar. The pound is also under pressure as concerns over how the UK economy might perform over the winter months as consumers face a perfect storm of higher bills from rising energy and food prices, and clogged up supply chains. As if to reinforce those fears Gfk consumer confidence in September fell to its lowest level since May to -13, as we head into the autumn.

Commodities

The main headlines this week have once again been around surging energy prices, although natural gas prices do appear to be showing signs of peaking, having fallen back from their highs at the beginning of the week, although that might be wishful thinking.

Crude oil prices are pushing higher again, with Brent prices back at their July peaks, with the potential to hit $80 a barrel if tightness of supply doesn’t ease any time soon.  

Gold has also come under pressure this week, hitting four-week lows before rebounding modestly. Higher US treasury yields are hindering flows into gold, with the US 10 year breaking above 1.40% for the first time since July.

Bitcoin and other cryptocurrencies have all slumped, after the People’s Bank of China said that all transactions in crypto are illegal, as well as cracking down on bitcoin miners, in an attempt to curb energy emissions at a time when power is becoming much more expensive.  

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