Surging metals and energy prices push FTSE 100 to a two-month high

Europe

It’s been another decent day for basic resource stocks as metals price continue to rise. Copper prices have risen back to their highest levels since July, while aluminium prices are back at 2008 levels.

Rising oil and gas prices are once again putting pressure on energy intensive industries, forcing them to cut production in the face of spiralling costs and creating supply shortages, with Belgian metals supplier and manufacturer Nyrstar cutting output by 50% at three of its European zinc smelters.

The FTSE100 has managed to get back near to its recent range highs, above 7,200 led by the likes of Anglo American, Antofagasta and Glencore, while oil prices are helping to support the likes of BP and Royal Dutch Shell.

We’ve also seen some decent numbers from a range of UK corporates this week, which is also helping sentiment, with the FTSE250 seeing a good performance from the likes of Darktrace, which is posting its second day of strong gains after upgrading its revenue guidance yesterday, after a decent Q1.

Airlines are also seeing a bit of a relief rally after two days of losses with IAG and easyJet rebounding from three-week lows.

It’s been a strong quarter for Domino’s Pizza with Q3 like for like sales rising 8.8%, with collection orders seeing an increase of 40.3%, and 89% above 2019 levels. Delivery performance has been slightly more muted with a rise of 1.5% across all stores. With demand set to increase in the leadup to the Christmas period Dominos has said it intends to hire up to 8,000 extra drivers to maintain service levels. Investors don’t seem that impressed with the shares getting a bit of indigestion probably due to concern over higher costs, and supply chain issues.

It’s been another decent quarter of trading for Dunelm, as they start a new financial year, although you wouldn’t know it from the share price reaction. Having posted Q4 sales of £380.1m, they’ve seen a better performance in Q1, with sales of £388.8m, an increase of 8.3% year on year. When compared to 2019, the gains were even more impressive, with a 48% increase. Over 12-month period digital sales rose by 3%, with management saying that they expected full year profit before tax for 2022 to be in line with recently raised consensus expectations.

The lacklustre in some consumer stocks appears to be a bit of a theme today with weakness in Tesco, Kingfisher, and Primark owner Associated British Food perhaps a symptom of the feeling that consumer spend here could well be impacted by higher energy costs eroding disposable income, although we are seeing minor gains in the likes of Next.

We’ve also seen a little bit of weakness in the more defensive areas of the market with utilities and health care lagging, with the likes of AstraZeneca and United Utilities underperforming.

US

The solid numbers, outlined below from US banks have seen US markets get off to a solid start, after yesterday’s somewhat tepid session.

They’ve also been helped by weekly jobless claims dropping below 300k for the first time since early last year, which continuing claims also fell to just below 2.6m. US PPI for September also came in slightly below expectations, although it was still higher than August, at 8.6% on the headline, and 6.8% for core prices.

Bank of America has picked up where JPMorgan left off yesterday, by announcing a beat on revenues and profits for Q3. Total revenues came in at $22.77bn, while profits came in at $0.85c a share, helped by another release from reserves to the tune of $1.1bn, on top of the $2.2bn seen in Q2. The bank beat expectations across the board with an impressive performance from its equities division which saw an increase in revenues of 33%, which helped to offset a disappointing performance in FICC which saw a 5% decline.

Unlike JPMorgan the bank said it was starting to see the first signs of an improvement in consumer spending with credit card balances showing an increase of 3% on Q2, rising to $75.6bn, and the first increase since before the pandemic.

Wells Fargo also saw a similar pattern when it came to an improvement in consumer spending in Q3, with the bank seeing a 4% rise in credit card revenue, compared to a year ago, and a 3% rise from Q2. Offsetting that however was weakness in ordinary loan growth which showed a 14% fall.

On the revenues front the bank beat expectations, coming in at $18.83bn, and profits of $1.17c a share, or $5.1bn. The bank has also been looking to cut costs, as new CEO Charles Scharf looks to restructure the bank and steer it away from its problems with regulators. Here the progress is slightly more mixed, and while costs are 13% lower, markets were expecting more. The increase on profits was also boosted by a release of reserves to the tune of $1.4bn.

Morgan Stanley latest Q3 numbers are also decent, revenues coming in at $14.8bn, beating across the board, apart from wealth management which came in short, at $5.9bn. The equities and trading business was a strong performer, with revenues of $2.88bn. Wealth management was a little disappointing as revenues came in below the $6.1bn expected, which suggests that even with the expectations around the continued integration of Eaton Vance and E*Trade there was slightly too much optimism. Nonetheless assets under management still rose to $6.2trn. Profits came in at $2.04c a share.

Citigroup rounded off today’s Q3 numbers for US banks by also beating expectations, with revenues coming in at $17.8bn and profits rising to $2.15c, well above the $1.79c consensus, although as in Q2 this was helped by a loan loss reserve release of $1.16bn.

As with the other bank reports today we’ve seen a decent performance across their divisions with equities and trading doing particularly well, with a 40% increase on last year to $1.23bn. The retail bank on the other hand painted a picture of a US consumer very much in pay down debt mode. Revenues in the credit card division saw a decline of 13% which would suggest that the US consumer is very much in cautious mode as we head into the winter months.

FX

The US dollar looks to be on course for its second successive daily decline, sliding to its lowest level since October 4th, as traders take profits on some of the gains of the past 5 weeks. Last nights Fed minutes confirmed what everyone had long suspected that the Federal Reserve would start its taper program by the end of this year. The best performers today have been the commodity currencies of the likes of the Norwegian Krone, Australian and Canadian dollar.

The pound has hit its highest level in three weeks against the US dollar, and a two-month high against the euro, as various short positions get squeezed further, and bets increase that we could see rates go higher before the end of the year.

Commodities

Copper prices are up to their highest levels since July, as concerns over shortages in supply at energy intensive producers help to drive prices higher. The decision by Nyrstar a Belgian metals supplier and manufacturer to cut output by 50% at three of its European smelters has seen prices of zinc surge. Aluminium prices have also hit their highest levels since 2008.

Brent crude prices also rising again after two days of declines, and on course for its highest daily close since 2018. European natural gas prices are once again leading the move higher, as concerns over higher prices drives moves into the likes of crude oil as well as coal.

Gold prices have continued to push higher, hitting $1,800 an ounce, with the sell-off in the US dollar, and weakness in long term US yields helping to push prices back towards and above the 200-day MA.