Europe

We’ve seen another positive day for European markets with the FTSE100 pushing up to its highest levels in 2 weeks, although it remains well short of reversing its March losses, unlike the DAX which has reversed nearly all its post 9th March decline.  

Ocado has continued to make gains and has risen sharply for the 2nd day in a row. The gains of the last two days have come despite the shares finishing lower on the day that they published their Q1 numbers. At the time there was a sense that the fall seemed overdone given the weakness we’d already seen since January, begging the question as to whether a lot of the bad news was already in the price. The reaction of the last two days would appear to suggest that there is a degree of that, hence the gains seen in the last couple of days.  

The commercial real estate sector has continued its rebound from yesterday, led by British Land and Land Securities in London and Vonovia in Germany.

Swedish retailer H&M is seeing some strong gains today after surprising the markets with a return to profit in Q1. Operating profits came in at SKr725m on sales of Skr54.87bn. Gross margins also came in better than expected at 47.2%.This appears to be giving a lift to the likes of JD Sports, Frasers Group and Next.

SSE shares are amongst the best performers after announcing another upgrade to its full-year profits guidance to more than 160p per share. This trend has been helped by the rise in power prices which has accompanied the Russian invasion of Ukraine, however, it has also allowed the company to up its investment plans to record levels, with an expectation to invest over £2.5bn this year in line with its Net Zero Acceleration Plan.

On the downside insurers are lower on concerns over their exposure to commercial real estate, and any potential losses, as well worries that margins are likely to get hit by inflation pressures over the course of the next 12 months. This pressure is expected to impact on margins, while their ability to pass on price rises is likely to be constrained by the rising cost of living. 

US

US markets have picked up where they left off yesterday, opening higher after weekly jobless claims came in at 198k, with the Nasdaq 100 once again leading the way, with the index up over 17% year to date.

This outperformance is completely at odds with the wider narrative and needs to be set in the context of where it started the year. At the start of the year the Nasdaq 100 was trading close to its October lows, while the S&P500 was much higher. If you compare the two since the October lows the gap isn’t anywhere near as big, while the Nasdaq 100 also saw the biggest losses last year.

While the Nasdaq 100 has done well in Q1, the big test is yet to come as we head into Q2. What happens to US yields, the outlook for the US economy, and the timing of any rate cuts. My feeling is that rate cuts may be a long time coming, and that is something that isn’t currently being priced by markets.

Today’s final Q4 GDP numbers showed that the US economy grew by 2.6% with personal consumption coming in at 1%. Core PCE for Q4 was revised slightly higher to 4.4%. The fall in personal consumption wasn’t altogether surprising given the sharp slowdown that we saw in US consumer spending at the end of last year. We already know that is ancient history given the big rebound in US retail sales we saw in January.

Roku shares are higher after the streaming company announced it was implementing a restructuring plan that involves the loss of 6% of its workforce, about 200 positions. These would be completed by the end of Q2.   

FX

The euro is the best performer, moving above 1.0900 against the US dollar, after a mixed set of inflation numbers from Spain and Germany.

In the latest March numbers, headline inflation in Spain fell to 3.1% from 6% in February largely due to a sharp fall in energy prices, however in a slightly more worrying trend core prices remained higher, slipping modestly to 7.5% to 7.6%. In Germany we saw a similarly sharp fall in the headline rate, albeit not on the same scale, falling from 9.3% to 7.8%, in a sign that while headline price pressures are dissipating quickly, the outlook on core prices is much less clear. These numbers place a much greater emphasis on tomorrow’s headline EU CPI numbers as well as core prices, where we can expect to see similar slowdowns on the headline rate, however, the main focus now is on core prices and here the picture is much less clear.

After yesterday’s brief rebound the US dollar has slipped back again as markets continue to bet that US rates could well be near a peak.

Commodities

Gold prices have been treading water today and while US 2-year yields have edged a little higher the US dollar has slipped back. The outlook for prices remains constructive especially if the market is correct in surmising that the Federal Reserve might be close to a rates peak.

After the recent bigger than expected declines in US inventories, crude oil prices have continued to edge higher, although we are off yesterday’s peaks, with Brent prices appearing to finding some resistance just below $80 a barrel.

Volatility

Shares in Intel rallied hard yesterday following news that it would have new technology for the lucrative server market ready earlier than had been expected. The underlying advanced close on 8%, driving one day volatility to 81.62% up from 65.07% over the month. It’s worth noting however that this relatively modest uptick was sufficient to propel the stock to being one of the most active performers on the day, emphasising the becalmed state of the market.

In terms of commodities, once again it’s wheat that’s the outlier with the underlying temporarily testing ground above the $7 level on Wednesday. This wasn’t sustained but with the grain trading in a range of well over 3.5% before closing almost flat, one day vol printed 36.03% against 34.95% for the month.

Stellar Lumens remains the only crypto with any price action worth noting, as it advanced to levels not seen in almost five months. Why the asset is faring well is difficult to pin down but a recent integration with a USDC supplier may helping. One day vol was 82.46% against 59.47% for the month.

As for indices, it’s Hong Kong and China that remain the stand outs. The index of Chinese shares listed in Hong Kong spiked late on Tuesday and came off noticeably in early Wednesday trade. One day volatility printed 37.72% against 34.43% on the month..  

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