It’s been a modestly positive start to the week for European markets after the declines of last week and as we head into the dying embers of a year that has seen some significant volatility and weakness.
This morning we saw the latest German IFO business survey for December rebound more than expected, largely due to the recent sharp fall in energy prices, while a rebound in oil prices has helped the likes of BP and Shell which are leading the gains on the FTSE100.
Reports that the UK government is looking at extending the energy support package beyond April while acting as a positive for some businesses like JD Wetherspoon and Wagamama’s owner Restaurant Group, is also acting as a tailwind for UK yields over concerns it might make inflation slightly stickier in the longer term.
Basic resources have also seen a modest rebound on the back of a pledge by the Chinese government to stabilise the economy in the coming weeks, despite continued rising Covid infections.
Retailers have taken a bit of a nosedive after retail consultancy Springboard revealed that footfall on the high street during last week fell by 4.6% due to the cumulative effects of the rail strikes and cold weather. The biggest fallers have been the likes of JD Sports, Next and Frasers Group. Coming on top of a weak November retail sales number earlier this month, there is rising concern that we could see further warnings on profits when we get the latest retail trading updates at the beginning of January.
US markets opened broadly unchanged with most investors content to sit on the side-lines with the main focus likely to be on this week’s core PCE inflation data and personal spending numbers for November which are due on Friday.
Earnings numbers are also likely to be front and centre and while we are set to hear from the likes of FedEx and Nike tomorrow the real test will come in early January, when JPMorgan Chase kicks off the next earnings season on 13th January.
Tesla shares have edged higher, recovering from two-year lows, after an online poll conducted by CEO Elon Musk asked whether he should step down as CEO of Twitter. He said he would abide by the result of the poll which resulted in a majority for him to do just that. While it remains to be seen whether he will do that he would still have to find someone to do the job in his stead.
Facebook owner, Meta Platforms is lower after the EU Commission said the company is potentially in breach of antitrust laws, and could well be in line for a fine of 10% of the company’s global turnover.
Currencies have been a bit of a mixed bag today, with the Japanese yen initially starting the day on the front foot on reports that new Japanese PM Kishida would look at revising the Bank of Japan’s remit when it comes to its inflation target measure. There has been some talk in recent weeks that the BoJ might be looking at tweaking its current monetary policy settings when it comes to yield curve control. It is unlikely however that we’ll see any significant movement on any of that much before Q2 of next year, when current governor Kuroda is due to step down. In any event the yen gains soon disappeared when the government denied the report, although they were highly unlikely to do anything else.
Today’s main gainers have been the commodity currencies with the Australian and Canadian dollar seeing gains from firmer commodity prices.
The pound is also higher on the back of higher gilt yields, and reports that the government might be inclined to extend its business energy support package beyond April
Crude oil prices are getting a slight bid as the US starts to take steps to refill its strategic petroleum reserves, which have been run down in the last few months in an attempt to keep a lid on energy prices. A pledge by China to support the economy in the wake of rising covid cases is also helping on the margins.
Gold prices are currently steady and likely to remain range bound ahead of this week’s US core PCE numbers, which have the potential to give the yellow metal an uplift if they confirm the peak inflation narrative that markets have become fixated on in the past few weeks. Any disappointment on this Friday’s numbers could prompt a sharp fall in the gold price towards the recent lows at $1,760 area.
Better than expected sales numbers from Adobe on Thursday night were sufficient to see the stock come in as one of the most active in the week’s final session. The underlying advanced by as much as 7% before retreating a little into the close. One day vol printed 76.2% against 53.77% on the month.
One proprietary basket of stocks which has been a perennial favourite this year has been CMC’s index of cannabis growers. The underlying has lost more than 50% despite the ongoing expectation of regulatory reform at a federal level in the US, with the latest dip evidently stemming from concern that banking reform won’t now be passed in Washington before the year end. One day vol on the basket sat at 100.14% against 89.76% for the month.
That more hawkish than expected statement from the ECB on Thursday left the Euro to find elevated levels of interest heading into the weekend break. Even if the rate hike was less aggressive than had been predicted, the outlook for 2023 is one of more policy tightening. Euro/Swiss Franc topped out in terms of price action, printing 10.42% on the day versus 7.72% on the month, whilst Euro/Sterling came in at 9,69% on the day and 8.18% on the month.
And activity across crypto assets is once again in focus, with Cardano finding itself to be something of a stand out. The underlying hit levels against the US Dollar not seen since the very start of 2021, in round numbers that’s some 90% off all-time highs. One day vol was 59.8% against 43.46% on the month.