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Europe

It’s been another weak session for the FTSE100, even as European markets push higher with the DAX posting a new record high and record close, after ECB member Isabel Schnabel signalled that rate hikes were now at an end, given recent progress on inflation.

The FTSE250 is also doing well as the FTSE100 once again acts as the market party pooper with another disappointing session, largely due to weakness in basic resources and energy.  

Weakness in commodity prices, appears to be the culprit once more with brent crude and WTI oil prices continuing to struggle, as they look to retest the November lows over doubts about how effective the latest agreements by OPEC+ to further cut production next year will be. Not even an intervention by the Saudi energy minister that the summer cuts could be extended well into 2024 has been enough to sustain a move higher.

Also underperforming is equipment hire and rental company Ashtead Group which has slipped lower after reporting Q2 numbers in line with expectations. Q2 revenue rose 13% to $2.88bn while adjusted pre-tax profit rose 1.3% to $696.9m, however the downgrade to free cash flow to $150m, more than expected from $300m appears to have taken some of the gloss off the numbers, which had already been revised lower in the trading update of 20th November.

Barclays shares are also under pressure after the Qatari Investment fund decided to offload almost half its stake in the business which it had held since the financial crisis when Barclays management went cap in hand to the Middle East to avoid a government sponsored bailout. 

The latest Kantar UK supermarket update has seen supermarket sales remain robust with strong sales growth of 6.3%, for the 12-weeks to 26th November.

Aldi was the big winner with sales of 11.1%, however Sainsbury’s also performed strongly over the quarter with 10.2% sales growth, increasing its market share to 15.6%, while Tesco saw sales growth of 8.6%. Grocery inflation slowed to 9.1% for the 4-weeks to the end of November, from 9.7%.

London Stock Exchange shares are slightly lower despite another trading outage, which like it did in October only affected shares outside of the FTSE350 and the International Order book. While one can argue that one trading outage is unfortunate, the fact that we’ve seen another two today suggests evidence of a much deeper problem, and one which deserves an explanation, if only to restore confidence in the resilience of the LSE systems. 

US

US markets have continued to struggle as once again caution sets in ahead of this week’s plethora of jobs data, as the tug of war goes on with respect to the timing of when we can expect to see the first rate cut. Last week bond market expectations may have got slightly ahead of itself and this week’s pause in stock market gains appears to be a consequence of that.

Today’s ISM services data was somewhat of a mixed bag with the headline number coming in ahead of forecasts at 52.7. Prices paid did slow but by less than expected, coming in at 58.3 pointing to stickier than expected inflation, while the employment index edged higher to 50.7. Job openings in October slowed sharply to 8.73m the lowest number since March 2021.

FX

The US dollar continued its recent rebound with commodity currencies feeling the heat the most.

We got a significantly dovish shift on European Central Bank rate policy today when German ECB member Isabel Schnabel commented that given the “remarkable” fall in inflation its unlikely further rate hikes will be needed. This is a significant development given who it is from and her previously hawkish stance. She went on to say there might need to be a rhetoric shift when it comes to rate policy in 2024, opening the door to the prospect of rate cuts, over the course of the next 12 months. This is a significant shift, albeit a belated one given the direction of travel when it comes to inflation over the last 6 months, however it is nonetheless a welcome one, with Schnabel admitting when the facts change, I change my mind, what do you do, echoing John Maynard Keynes.

The Australian dollar is the worst performer on the day after the RBA kept rates unchanged at 4.35%, and while Governor Bullock left the door open to another hike the reference to uncertainty over monetary policy lags suggests that the RBA is done for the time being, with the next move likely to be a cut.   

Commodities

Gold prices have continued to punish the bulls after this week’s record high as long positions get squeezed further on the back of a stronger US dollar with the potential to see further declines in the coming days if we see a fall below the $2,000 an ounce level.

Brent crude oil prices have continued to come under pressure, shrugging off remarks earlier today by the Saudi Energy minister that current output caps could be extended well into 2024, in the face of concerns over demand. Record US output is also prompting concerns over a supply surplus as we head into 2024.   

Volatility

Gold prices started the week at an all-time high amidst a perfect storm of economic and geopolitical uncertainty. That was enough to drive underlying spot prices above the $2140 mark, albeit only briefly before the market reverted, admittedly to around the still elevated levels of last week. One day vol on Gold stood at 40.09% against 13.43% for the month.

The Swiss Franc was also in focus on Monday, although not as the result of a safe haven trade. That may have teed up gains late last week, but yesterday the country’s CPI print fell short of expectations driving Dollar-Swiss higher as a result. One day vol on the trade stood at 9.89% against 7.23% for the month.

The prospect of US rate cuts and crypto ETF approvals have combined to drive bitcoin significantly higher of late, with the momentum spilling across into other digital assets, too. Whilst BTC’s vol is ticking higher at 46.21% on the day and 37.04% on the month, select altcoins are also proving active. A 10% uplift in bitcoin cash at the start of the week was enough to drive one day vol on the instrument to 129.86% against 61.94% for the month.

And sugar prices rebounded off three-month lows yesterday with short covering being seen as driving momentum here. One day vol on the raw contract printed 62.09% against 34.5% for the month. 

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