Europe

The fragile nature of this week’s rebound has been laid bare today, with a sharp slide in oil prices in Asia, spilling over into broader market weakness, with the DAX sliding below last week’s lows, before rebounding, while the FTSE100 has also slipped back sharply.

Today’s inflation numbers from the UK came across as rather mixed in the same way as the US inflation numbers a couple of weeks ago, with core prices softening, however PPI prices continued to push higher, suggesting that there is still a lot of price pressure still in the pipeline.

These concerns have also fed into weakness in metals prices with another sharp drop in copper, which has fallen to new one-year lows, and its weakest levels since March 2021, as worries over an impending global slowdown gain traction.

Bond yields have fallen sharply as money moves into treasuries, and other haven assets with gold prices also edging higher.  

Unsurprisingly given today’s commodity price weakness, the worst performers have been in the likes of Glencore, Antofagasta, BP and Shell.

Ocado shares have continued to weaken in the wake of yesterday’s placing, with some investors a little nervous that it might not be the last, as the prospect of profitability continues to get pushed further out.

Housebuilder Berkeley Group shares have also slipped back sharply despite posting a decent set of full year numbers. Revenues rose 6.6%, coming in above consensus forecasts at £2.35bn, while pre-tax profits rose 6.4% to £551.5m. The house builder says it still has the aim of delivering pre-tax profits of £625m by 2024/2025, starting with around £600m in the upcoming tax year. Forward sales currently sit at £2.17bn, a 27% rise on the same period a year ago.

JD Sports has finally got round to publishing its full year results, reporting revenues of £8.56bn in line with expectations, while profits before tax more than doubled rising to a record £654.7m, helping to push the shares to the top of the FTSE100.

The delay to the numbers was because auditors needed to assess the impact of the effect of the sale of Footasylum. For 2023 the company said it expected pre-tax profits to be at a similar record level to this year, with the focus right now to secure the recruitment of a new CEO with the departure of Peter Cowgill.

US

US markets opened very much on the back foot, taking their cues from the negative sentiment emanating from today’s European session and the slide in oil prices, although the Nasdaq is holding up better than its peers, helping to pull stocks off their lows of the day.

Fed chair Jerome Powell’s comments about central bank policy haven’t altered the calculus when it comes to the Federal Reserve’s future rate intentions, as he fends off various partisan questions about food and energy prices from both sides of the political divide.

His testimony appears to be helping to pull US markets off their lows, however the rally continues to remain fragile as investors weigh up the twin risks of a global slowdown against central banks overplaying their hand and tipping the economy into recession.

This appears to be a vain hope given that some sort of recession or slowdown is inevitable, whatever central bankers might say publicly. The only question is around the degree of severity depending on where you are.  

Moderna shares are higher on reports that the new vaccine candidate shows good efficacy against various Omicron subvariants, as well as reports that it has signed a new £1bn deal with the UK.

FX

The US dollar is advancing again, although the Japanese yen is having a bit of a pause after hitting a new 24 year low earlier today.

The weakness in commodity prices is hurting the likes of the Australian and Canadian dollar, which have come under pressure, although the big jump in Canada CPI to 7.7% has pulled the loonie off its lows of the day.

The pound is on the back foot after May CPI rose to 9.1%, and another record high, although core prices slipped back to 5.9%. Despite the slide in core prices, every other measure including RPI and PPI showed little sign of a slowing in underlying price pressures, with PPI input prices jumping staying above 20%, and increasing further in May to a new record of 22.1%.

There has been some straw clutching because core prices slipped back, however food and energy prices are showing little sign of slowing, and that ultimately is all consumers care about, whatever economists might say.

Commodities

Crude oil prices are back on the slide again, as concerns about a global slowdown appear to be outweighing any concern over supply issues derived from Russia’s invasion of Ukraine, and the prospect that Chinese demand could return. Although the concerns about Chinese demand could well be offset by the fact that they can probably source all of their needs from Russia given that they aren’t abiding by a lot of the sanctions imposed by the US and EU when it comes to their own energy needs.  

Copper prices have also resumed their downward track, sliding to 15-month lows for the same reason. Despite worries over disruption of supply from Chile hasn’t been enough to stop the slide, with the firm US dollar helping to pressure prices.

Gold prices have got a bid on the back of the slide in yields as well as equity markets, but haven’t been able to move much beyond the highs of the last few days.      

Volatility

Interest in Rank Group remained elevated during yesterday’s session following Monday’s gloomy outlook. Net losses on the day were less than 1% but with the stock trading in a range of close to 10%, that served to leave daily vol at 321% against 172% on the month.

Soft commodities saw downside pressure at the resumption of trade yesterday following a three-day weekend in the US.  Corn traded down to a two-week low whilst Soybeans slipped to levels not seen in five weeks, driving daily vol here to 52% and 37% respectively. However, even greater levels of activity were seen in the Agricultural Mix Index. This represents a dozen crops but is dominated by Corn and Soybean, posting daily vol of 58% against a monthly reading of 32%.

Fiat currencies look relatively calm following last week’s uptick in activity, but cryptos continue to see elevated price action with Litecoin at 212% on the day versus 124% on the month as it gave back a little of its gains.

Finally, the proprietary CMC Oil & Gas Index had a good start to the shortened trading week, recovering all of Friday’s losses in the early part of the day. All 10 constituents were up on the day, but this basket has come off some 20% over the last two weeks. Daily vol sat at 108% against a comparative of 75% for the month.

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