It’s been another day of choppy trading for markets in Europe with the latest company results indicating a range of fortunes for various businesses over the last quarter. Today’s bias has remained very much tilted towards the downside with a distinct risk off tone, with US markets pulling Europe into the red in the afternoon session.
Europe
The FTSE 100 has been helped by reports from Beijing that China would be stepping up spending plans on infrastructure to generate an economic bump in Q4 which has lifted metals prices, and ergo mining stocks, with Rio Tinto and Glencore higher.
Also gaining is Lloyds Banking Group whose shares initially slipped to one-year lows despite posting Q3 profits that came in ahead of forecasts. The initial negative reaction to today’s positive update appeared to be on concerns that net interest margins are on a downward path from the peaks at the start of the year, and that from hereon in profits are likely to slow. This really shouldn’t have been news to most people given that they have been trending down for a while now and is already in the price given that the shares are already down over 20% down from its peaks this year. As the day has gone on investors have realised that aside from that, the overall numbers are solid and the bank is in good shape, despite the challenges facing its customer base.
While Lloyds initially struggled for gains, German lender Deutsche Bank has seen its shares rise on the back of a management pledge to look at increasing payouts after Q3 revenues came in ahead of forecasts. Q3 revenues rose 3% to €7.3bn putting full year revenue on target for around €29bn, with the corporate bank leading the way with a 21% increase, helping to boost pre-tax profits to €1.72bn.
The rest of the sector has remained under pressure with Barclays shares continuing to sink with NatWest also lower ahead of its results on Friday, where the numbers could get overshadowed by the size of any payout to previous CEO Alison Rose.
Reckitt Benckiser shares have slipped back after Q3 sales fell short of forecasts and net revenues declined 3.6%. The biggest drag came from the nutrition business which saw like for like sales fall -11.9%. the health business also saw revenues decline by -3.3% even as like for like sales rose 5.4%. To try and appease shareholders management announced a £1bn share buyback program, however this appears to have fallen flat with the company also announcing a strategic review.
US
US markets underwent a mixed open with the S&P 500 and Nasdaq 100 opening lower, on a weak readthrough on tech stocks, although outperformance from Microsoft saw the Dow open higher.
The weakness in tech has seen the S&P 500 look to retest its lows from Monday, with the potential for further losses if we take out these four-month lows.
Microsoft shares have rallied after comfortably beating expectations on both revenues and profits. Q1 revenues rose 13% to $56.5bn, driven by revenue growth in Azure and other services rising 29%, above forecasts of 25% to 26%. Profits came in at $2.99, an increase of 27%. Revenue in personal computing rose 3% to $13.7bn, helped by an increase in Windows revenue, of 5%, while Xbox content and services rose 13%, although devices proved to be a drag with a decline of 22%.
Alphabet on the other hand has seen its shares fall sharply, dragging the rest of the sector lower, despite also beating comfortably on both revenues and profits. Q3 revenues rose 11% to $76.69bn, and profits of $1.55c a share or $19.69bn. On the break down there was only one area of weakness, and that was in cloud revenue which came in at $8.4bn, slightly below forecasts of $8.6bn, even though it was still well above last years $6.87bn. This appears to be what has prompted today’s sell-off, a miss of $190m which is significantly less than the headline beat we saw on total revenues, which came in $790m above forecasts, proving once and for all how irrational markets can be. Amazon shares are also lower on the back of the miss on cloud revenue.
On the subject of clouds, the solar sector outlook has continued to darken after SunPower said it plans to restate its FY22 results as well as its Q1 and Q2 2023 results after it was found that there were material shortcomings in its internal controls which suggested that inventory values in the accounts were overstated.
Sunrun is also lower after it was reported short seller Muddy Waters had taken out a short position on the stock.
Snap shares are also in focus after reporting a surprise profit, and better than expected Q3 revenues of $1.19bn. They also upgraded their Q4 guidance to between $1.32bn and $1.38bn.
Facebook owner Meta Platforms is due to report after the bell. For Q3 Meta said they expect to see revenues of between $32-34.5bn, with total annual expenses of between $88-91bn, which was slightly higher than the previous $86-90bn. On the downside the Reality Labs unit is expected to see an increase in operating losses over the next year. Revenues here fell to $276m from $452m, while losses rose to $3.7bn, pushing total losses for H1 in this area to $7.7bn.
Boeing shares initially opened higher after reporting Q3 revenues of $18.1bn and posting a bigger than expected loss of -$3.26 a share, while its free cash flow was also worse than expected at -$310m. On the plus side Boeing said it was making progress on sorting out the various problems and production snarls that have affected its business in recent quarters. Boeing says it expects to hand over up to 400 737s by year end as it looks to resolve a fuselage issue that has slowed down production.
FX
The US dollar is firmer across the board pushing higher for the second day in a row, as it continues to get a lift on the back of the economic weakness of its peers. Yesterday saw the latest PMIs show a pickup in economic activity out of contraction territory, while the PMIs in Europe and the UK remained stuck in contraction. US 10-year yields have also moved higher, although US 2-year yields are lagging.
The Bank of Canada left rates unchanged at 5%, while hiking its inflation forecasts, and cutting its 2023 and 2024 growth forecasts, sending the Loonie to its lowest levels since March.
Commodities
Coming off the back of 3 days of losses oil prices have continued to struggle as calls for a ceasefire grow louder in the wake of the continued Israeli bombardment of Gaza. While those calls are understandable given the scenes being witnessed daily, it takes two sides to uphold a ceasefire and there’s no indication that Hamas is willing to stop firing rockets into Israel.
Gold prices are edging higher again, with the negative sentiment currently weighing on US stock markets serving to give the yellow metal a modest bid.
Volatility
Barclays stock came under pressure on Monday after the bank published earnings news. Lower guidance, rising impairment costs and the prospect of layoffs in a bid to preserve margin all combined to leave the underlying almost 10% lower at one point, although a rally was seen heading into the close. One day vol printed 113.43% against 42.81% for the month.
Cryptos remain in focus after Bitcoin traded briefly around the $35,000 level, before slumping late session. It’s still the idea that the SEC could approve a Bitcoin ETF that is driving sentiment here, with one day vol on BTCUSD now at 120.73% against 44.55% on the month.
Hong Kong’s Hang Seng index may have started back from the long weekend break by picking up some modest losses but rallied hard in after-hours trade, buoyed by a solid start on Wall Street plus gains for the US Dollar. One day vol on the Hang Seng printed 30.87% against 23.28% for the month.
Disappointing Eurozone PMI data saw the common currency under pressure, although it was a game of two halves on the Euro-Sterling cross after the release of UK PMI numbers also underwhelmed. One day vol on Euro against the Pound sat at 5.04% against 4.56% for the month.
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