European markets have spent most of the day edging cautiously higher, with the FTSE100 shrugging off the UK government’s decision to impose a 25% windfall tax on the oil and gas sector.
In yet another government U-turn, Chancellor of the Exchequer Rishi Sunak announced a £5bn tax raid on the oil and gas sector in the form of an energy profits levy, which is just another name for a windfall tax.
While it’s not good news for shareholders it’s still removed the uncertainty around whether one would be imposed, with BP, Shell, and Harbour Energy shrugging it off. It’s not such good news for the likes of SSE and Centrica with the Chancellor saying that he would be looking to claw back some of their profits, later in the year when more measures could well be needed. On the plus side there is a sunset clause of December 2025.
Also getting a boost from the Chancellors fiscal package UK retail stocks are higher, on the basis that with consumers getting help with their energy costs, they’ll have great disposable income as a result, and more capacity to spend. Next, B&M European Retail, Ocado and Primark owner Associated British Foods are reaping the bulk of that uplift.
ICG is also doing well after reporting a big jump in full year revenues to £982.1m. A good chunk of this was driven by a big rise in fee income from £331.2m to £434m, while full year profits jumped to £525.1m, up from £461m a year ago.
BT Group shares are under pressure after the UK government announced that it would be reviewing the recent increased stake by Altice in the business. Altice originally bought a 12.1% stake in BT in June last year, which it then increased to 18% in December. BT said the stake increase was being reviewed due to national security concerns, even though Patrick Drahi has said he has no intention of conducting a takeover of the business. Of course, if the government sees nothing wrong then Drahi’s intentions could change and signal that BT is in play for a bid.
United Utilities shares have slipped back sharply after adjusted pre-tax profits cams in short of expectations, falling to £301.9m, down from £460m last year, and below forecasts of £310m. The company also said it expects higher operating costs to the tune of $100m, while financing costs are also expected to be £150m higher due to higher inflation.
US markets opened modestly higher after US Q1 GDP was adjusted down to -1.5%, although on a positive note personal a consumption was revised up to 3.1% from 2.7%.
Core PCE on a quarterly basis also came in lower than expected at 5.1%, down from 5.2%, increasing the hope that inflation might be peaking. Weekly jobless claims also fell from 215k to 210k.
In another sign of concern about slowing demand Apple shares have slipped back after the company announced its production plans for iPhones will remain flat for this year at 220m. This is below market expectations given that expectations were for Apple to produce 240m iPhones. This could be a canary in the coal mine when it comes to how this year might pan out, and a demand slowdown. With the various supply chain problems showing little sign of clearing given the problems in China, production numbers could come down, while Apple’s costs look set to rise.
Nvidia shares also dropped after the chip company downgraded its Q2 forecasts. Its Q1 numbers were still strong with revenues beating expectations at $8.29bn, however Q2 revenue was downgraded to between $7.94bn to $8.26bn from a consensus estimate of $8.45bn. Nvidia said that events in China, as well as the Russia situation, were playing a part in the downgrade to the outlook. These two factors are expected to cost in the region of $500m.
Snowflake shares have slid back after posting a bigger than expected loss for Q1 of $166m, or $0.53c a share, although revenues beat expectations, coming in at $422.37m. Its Q2 revenue forecast was in line with expectations, between $435m to $440m, however a deterioration in operating margins appears to be weighing on profits.
Twitter shares jumped on reports that Elon Musk had increased his financial commitment to the deal to $33.5bn.
Broadcom has confirmed that it will be paying $61bn deal for cloud services company VMWare
It’s been a fairly quiet day on the currency markets with the US dollar showing little if no reaction to the latest Fed minutes . With little in the way of surprises there was not much in the way of a catalyst to drive the greenback today.
The pound also saw little in the way of a reaction to today’s announcement of a windfall tax in the UK, which is a little surprising given it gives the Bank of England more flexibility in its ability to raise interest rates in the coming months. In easing some of the burden on UK consumers by his windfall tax the Bank of England now has more freedom to raise rates at its next meeting.
Crude oil prices are continuing to move higher, despite China’s Premier Li saying that the Chinese economy is in bad shape. A bigger than expected inventory draw yesterday is helping to support prices in the near term, along with an expectation that we will probably see some sort of fudged agreement next week by the EU to impose an embargo on Russian oil.
Gold prices look set for a second successive daily decline, in the wake of yesterday’s Fed minutes as it continues to give up some of the gains of the last week.
Talk of windfall taxes on energy firms in the UK has resulted in heightened levels of price action for the sector, with both Drax and SSE finding themselves on our radar yesterday. This was off the back of a rebound from Tuesday’s lows, but daily vol on Drax advanced to 282% against 105% on the month, whilst Scottish & Southern printed 199% against 71%.
Social Media stocks have also seen elevated levels of interest as the market attempts to stabilise after being rattled by that shock profit warning from Snap. That in turn resulted in elevated interest in CMC’s proprietary Social Media share basket, where daily vol of 265% was more than double the monthly print of 123%. The underlying collapsed by more than 10% at the start of the week although has now recovered almost half of its losses.
Wheat prices remain in focus but have been trending lower in recent trade, with levels not seen in almost two weeks being tested during yesterday’s session. An upbeat crop report from the US may be taking some of the momentum out of the market here, with daily vol on the US Wheat Cash Contract reaching 59.47% against 54.22% on the month.
Cryptos continue their retreat from the spike in activity too, with daily vol on Bitcoin coming in under 44%, against 81.18% on the month whilst Ethereum sits at 52.54% versus 96.78%. Arguably it’s the magnitude of the slowdown in price action here that is most remarkable.
And finally, with fiat currencies, the Turkish Lira remains in focus ahead of today’s monetary policy meeting. The market is already banking on a dovish outlook here, with the currency continuing to slump against the likes of the greenback. Daily vol on USD/TRY sat at 18.9% against 13.49% on the month.
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