Europe

The stock market rollercoaster has continued today, after opening sharply lower in the aftermath of last night’s sharp post Fed sell off and the weakness in Asia markets, European markets have slowly peeled themselves off the canvas. The FTSE100 has managed to recover back into positive territory, after trading down below 7,400 early on, we are now back to within touching distance of 7,600, and the highs this month, as we head towards the close.

While the FTSE100 has managed to shrug off everything that has been thrown at it so far this month, the DAX has lagged and while it has recovered off its lows it is still down on the week. 

The rebound on the FTSE100 has been driven by outperformance across the board with financials, energy and health care driving the gains. HSBC is leading the banks after being upgraded by Exane on a more positive US rate outlook. Standard Chartered is also doing well having been one of the worst performing UK banks last year, its shares pushing up to their highest levels since February 2020.

Diageo’s latest H1 numbers have also given the share price a lift, although the reaction has been a little bit delayed as the shares traded lower initially. The share price performance this year so far hasn’t been great, although the shares have traded down from record highs, earlier this month.

The first half has seen the business post net sales of £8bn, a rise of 20% , and an operating profit of £2.7bn, a 25% improvement on last year’s £2.2bn.

The biggest improvement came in Europe which saw an increase of 21% in net sales, while Africa and Latin America also saw good gains, driven by sales of scotch, tequila, and Chinese white spirits. The company was also able to pass on price increases which helped boost the bottom line and increase operating margins. As far as the outlook is concerned the company expects to see margins to keep track sales, although they did warn of currency impacts in H2 given that in H1 there was a negative effect of £271m.

Are things starting to look up for the easyJet share price?  Since the end of last year, the shares have risen over 15%. Today’s Q1 trading update saw revenues come in at £805m, well above most consensus estimates, with losses almost halving from this time a year ago, coming in at £213m. The number of aircraft in service was 251, above the 152 a year ago, with almost 11.9m passengers carried.

The load factor dropped off sharply in December to 67% from 81% in November, however as far as the outlook is concerned there are grounds for optimism.

Fuel costs are 60% hedged at $504 per metric tonne, compared to the current price of $840, with the airline saying that Q4 capacity on sale is close to 2019 levels, with Q2 currently at 67% of 2019 levels.

US

US markets fell back sharply in the aftermath of yesterday’s Fed meeting, with futures continuing to fall in Asia trading, before seeing a rebound during the European session, as US 10-year yields retreated from their intraday highs.

This retreat off the highs appears to have helped underpin the move higher and the losses we were looking at early on have disappeared with US markets opening higher, helped by a better-than-expected US Q4 GDP number, which shows a US economy that appeared to be recovering well at the end of last year.

On the data front US Q4 GDP came in at 6.9%, comfortably beating expectations of 5.5%, even though personal consumption rose less than expected, by 3.3%. The main reason for the outperformance was our old friend, supply chain issues.

Having used up inventory in Q3 which caused a drawdown, US companies used Q4 as an opportunity to front run these problems by ordering early and front running demand and rebuilding their stock ahead of the Thanksgiving and Christmas period, which saw inventory levels come back higher again. This trend or pull forward effect could well spill over into this year as well, given that economies all over the world are experiencing shortages in various parts of the global supply chain, semiconductors being a case in point.

Core PCE saw a jump from 4.5% in Q3 to 4.9%.

US weekly jobless claims fell back to 260k from 290k, while continuing claims rose to 1.67m from 1.62m. 

Tesla shares have slipped back after the company warned that supply chains constraints were likely to impact the ability to operates its plants at full capacity, and that this was unlikely to improve before next year.

Netflix has enjoyed a welcome respite after getting battered this week after seeing activist investor Bill Ackman up his stake in the business, after buying additional 3.1m shares by way of his Pershing Square funds.

Apple is set to report its Q1 numbers after the bell, with the shares already under pressure this year, as investors look to assess how much impact the various supply chain constraints have had on its business in what is usually its best quarter. At its last quarter, Q4, CEO Tim Cook said that the various supply problems cost Apple $, with iPhone revenues coming up short at $38.87bn during the quarter, below the $41.6bn consensus. On the plus side the various new models of newest iPhones, iPads, Watches and Macs shipping at the end of November could well have seen a surge of orders.

We’ll also get to hear from Robinhood Markets whose shares have had a shocker since its Q3 update. Total revenue for Q3 came in at $364.9m, well short of the $423.9m estimates. with the company warning that Q4 revenue could be even lower at $325m. Since then, cryptos have fallen back which doesn’t bode well for today’s numbers, and with the shares now at record lows near to $15 the bar may well be low enough to prompt a surprise uplift. Losses are expected to come in $0.39c a share.   

FX

The US dollar has also continued its recent move higher, hitting its highest level since July 2020, against a basket of currencies, helped largely by the continued surge in US 2-year yields which are now back at levels last seen in February 2020. Since the end of last year US 2-year yields have gone from 0.732% to above 1.2%, an astonishing move.

The euro has also continued to slip back, falling below its November lows, and levels last seen in June 2020, as the currency continues to suffer on the back of .  

Commodities

Gold prices slid back sharply yesterday in the aftermath of last nights Fed press conference as US short term yields surged sharply, with the US 2-year rallying over 20bps from its Monday close at 0.97%, in turn tipping the gold price to a two-week low. 

Crude oil prices have taken another leg higher, moving through $90 a barrel and hitting new 7-year highs, after Russia pushed back on the contents of a US letter which outlined areas that the US was prepared to discuss, which was delivered yesterday. The response restated Russian demands that Ukraine should never be allowed to join NATO, and that NATO should roll back its deployments in eastern Europe, demands that have been rejected out of hand. And so, the stalemate continues.

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