Europe

A sharp rise in global bond yields has sent European stock markets into retreat today over concern that higher inflationary pressures will trigger a much more aggressive hiking cycle from central banks around the world.

These concerns have also manifested themselves into European bond markets, helping to push German bund yields to within touching distance of 0%, and their highest levels since the summer of 2019. The move higher also raises the prospect that the European Central Bank won’t be able to hold its line of no rate rises this year.

New seven-year highs for both Brent and WTI oil prices have merely served to reinforce these concerns, as rising geopolitical risks raise the prospect that oil prices might move up towards $100 a barrel in the coming weeks.

Despite today’s falls the FTSE100 has held up better than the DAX and CAC40, largely due to gains from BP and Royal Dutch Shell, with BP shares briefly touching 400p and its best level since February 2020, as higher energy prices continue to drive this year’s strong gains.

Also doing well is BT Group after Goldman Sachs raised its price target to 270p and put the company on its “Conviction Buy” list.

On the downside Unilever shares have continued to come under pressure, sliding to their lowest levels since 14th February 2020, after Fitch said that it risked a downgrade with its new growth strategy, if it followed through in its determination to buy GlaxoSmithKline’s consumer health business.  

In France Ubisoft games, who make Assassin's Creed, and the Tom Clancy games, is also doing well in the wake of this afternoon’s news that Microsoft has bought Activision for $68.7bn.     

US

US equity markets have returned from their long weekend, and opened sharply lower as concerns about rising inflation prompt a sharp rise in US 10-year yields to their highest levels in over 2 years. US 2 year yields also moved higher, gapping above 1% to their highest level since February 2020.

The Nasdaq 100 is once again bearing the brunt as the more highly valued areas of the US stock market feel the chill the most.

On the earnings front Goldman Sachs latest Q4 numbers were still pretty good, with the CEO David Solomon citing a record year, however that hasn’t been enough to stop the shares sliding back sharply.  

The main headlines saw net revenues come in at $12.64bn and EPS of $10.81c a share. The EPS number was down from Q3 of this year, as well as the same quarter a year ago, with the bank pointing to an increase in headcount of 8% in 2021, which has helped contribute to an increase in operating expenses.

Q4 trading revenue came in short at $3.99bn, below expectations of $4.27bn, as did equities and sales trading which came in at $2.12bn, well short of forecasts of $2.47bn, and also below 2020 levels. The Investment banking division turned in a record quarter with revenues of $3.8bn.

In M&A news Microsoft has agreed a deal to buy Call of Duty maker Activision for a price of $95 a share, or $68.7bn. Following on from the recent deal between Take-Two Interactive and Zynga earlier this month, this is a big step up with Microsoft getting in on the ground floor when it comes to creating content on its own Xbox gaming platform.

FX

The US dollar has continued its recent rebound today, with the rise in yields contributing to its rise, although it’s not the best performer, with the Japanese yen also outperforming, due to the slide in equity markets.

The rise in the oil price is aiding the Canadian dollar to some extent due to speculation that the Bank of Canada will hike rates when it meets next week. The Japanese yen is finding support from the wider risk off sentiment that is driving through equity markets.  

Commodities

Gold prices have once again come under pressure as the rise in US yields and the strength of the US dollar combine to push it back down, after the failure last week to push above resistance at $1,830.

Both US and Brent crude oil prices have gapped up to their highest levels since 2014 in the wake of the Houthi rebel drone strike against the United Arab Emirates, which caused a fire on the outskirts of Abu Dhabi, near the airport, as tensions in the region ratcheted up. Combined with rising geopolitical tension on the Ukrainian border, there is increasing nervousness around tightness in oil markets at a time when OPEC+ members are struggling to meet their supply quotas, and rising demand as Omicron coronavirus cases fall back sharply.    

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