Rolls-Royce and easyJet standout on another subdued day for the FTSE100

Europe

We’ve seen another soft session for markets in Europe on the back of more light profit taking as we ease closer to month end and what has been a strong month for stock markets.

The FTSE100 has struggled, slipping briefly to a 2-week low, with weakness in the luxury sector acting as the main drag after HSBC cut its outlook on the sector due to concerns that demand is likely to be subdued for the next 5 to 6 months, with Burberry sliding back, along with the likes of LVMH, Hermes and Kering.

On the plus side, Rolls-Royce shares have seen another decent uplift, rising to a 4-year high, after the engineering business upgraded its expectations for full year cash flow to £3.1bn by 2027.

Back in August the company announced that it was looking to reduce the global headcount from 42,000 by between 2,000 and 2,500, with the focus on the core business, with engineering technology and safety being rolled up into one division.

Today’s Capital Markets Day has seen the company set a series of mid-term targets including operating profit of £2.5bn to £2.8bn and an expectation of free cashflow between £2.8bn and £3.1bn. for the current year expectations for free cash flow were kept unchanged at £1bn.

CEO Tufan Erginbilgic said he expects to see 2023 profits and cash to be materially ahead of 2022 levels. The company also said it plans to make disposals of between £1bn and £1.5bn over the next 5 years.  

We’re also seeing gains in packaging companies on the back of the strong online shopping numbers out of the US with Smurfit Kappa and Mondi near the top of the FTSE100

easyJet shares are also higher after announcing a dividend of 4.5p a share to be paid in early 2024, which is 10% of the after-tax headline profit with the intention to grow that to 20% in 2024 and 2025. For the new financial year easyJet remained optimistic however the impact from events in the Middle East has prompted a modest reappraisal of the H1 outlook due to the suspension of flights to Israel, Jordan, and Egypt.

The easyJet holidays business is projected to see 35% growth in 2024 taking its UK market share to 7%.

Consequently, easyJet said it doesn’t expect to improve on the Q1 loss it experienced last year, however a pickup in the summer months next year is expected to offset a slow start to the year.

US

US markets opened modestly lower taking its cues from today’s softness in European markets with the positive momentum of the past couple of weeks giving way to modest profit taking as we head towards month end.

In company news Adobe shares have shrugged off concerns that the UK regulator the CMA said that the Figma deal might harm the UK’s digital design sector.

Chip stocks are slightly softer despite Micron Technology reporting better than expected outlook for Q1 earnings, upgrading its revenue guidance to $4.7bn, up from $4.2bn to $4.6bn. the company also upgraded its gross margin guidance to 0% from –2% to -6%.

US retailers have remained in focus as the level of spending over the Thanksgiving weekend continues to look resilient. 

FX

The US dollar has continued to soften, falling for the 3rd day in a row as well as slipping to a 3-month low against a basket of currencies, with the euro closing in on the 1.1000 area for the first time since August 10th.

The pound has continued to build on its recent progress against the US dollar after Bank of England deputy governor Dave Ramsden said that inflation was starting to become much more of a home-grown problem due to sticky services inflation which is still trending well above 6%, and that rates would need to stay higher for longer. Ramsden was followed in this by external MPC member Jonathan Haskel who voted for a 25bps rate hike at the last meeting but was outvoted by the majority, saying it was too early to even think about rate cuts with the labour market as tight as it is. . 

Commodities

The weakness in the US dollar continues to add a bid to the gold price, along with the softness in yields which has seen a further decline in the 2-year today. We’ve once again pushed up to a new 6-month high on the back of this weakness with the next key resistance at the $2,045 area. With US economic data continuing to look a little on the soft side the main obstacle to a retest of the record highs this year would be if US yields started to see a sustained rebound from their lows of last week.

Having declined for 4 days in a row, crude oil prices are seeing a modest rebound today ahead of Thursday’s OPEC+ meeting, as expectations build on the prospect of another output cut in the face of weakening demand and lower prices.

Volatility

The USD/JPY trade remains active with notably worse than expected US new home sales for October reinforcing the line that the Federal Reserve’s tight monetary policy is impacting the wider economy. Combining that with the fact that the BoJ could deliver that pivot as it eyes rising inflation, and the Yen remains on the front foot. The pair drifted more than one big figure lower on Monday with daily volatility printing 7.56% against 6.99% for the month.

Wheat prices tested their lowest levels in more than eight weeks on Monday, with slow demand and technical drivers from looming delivery dates in futures markets taking a toll here. With supplies being reported as plentiful and the USDA reporting better than expected quality winter wheat, downside pressures could well prevail here. One day vol stood at 38.69% against 30.79% for the month.

Oil prices remain in focus ahead of the delayed OPEC meeting which is now scheduled for Thursday. That’s impacting both crude and refined products with the overall trend being that prices continue to drift lower. One day vol on WTI crude printed 36.58% and 32.65% on the month, whilst Gasoline also remined active, sitting close to lows for the year. One day vol on the contract came in at 33.54% against 29.58% for the month.