European markets have seen a much more positive session today, carrying over the momentum from yesterday’s positive US finish, but also getting a lift after China announced a 0.5% cut in the bank reserve requirement rate from 5th February.
Europe
This comes across as another attempt by Chinese authorities to try and create momentum for a rebound in the domestic economy in the lead-up to Chinese New Year.
The DAX has seen a decent move higher as it looks to retest the highs of this month, while the FTSE100 has underperformed albeit it has managed to rise to a one week high, helped by a rebound in basic resources, and other China exposed stocks.
Mining stocks have been helped by the China triple R cut reports as well as a jump in copper prices, led by Antofagasta and Anglo American, while Burberry and Prudential are also higher.
There are also other sources of domestic strength with easyJet shares rising to their highest levels since June 2022 in early trade after reporting a headline loss before tax of £126m which is a modest improvement on the £133m loss a year ago. The number of passengers saw an increase of 14% over the period with revenue per seat rising 3%. Total revenue saw a 22% increase to £1.8bn with strong growth in ancillaries of 20%, while holidays revenue jumped 95% to £181m, although total costs per seat rose by 2% to £77.2m
easyJet holidays has been the standout performer here managing to more than double its profits to £30m from £13m. While this is welcome the improvement here serves to mask a bigger loss in the rest of the business.
On the downside Haleon is lower on the back of a downgrade from JPMorgan due to concerns over lower sales volumes ahead of full year results next month.
JD Wetherspoon shares have slipped back despite a positive trading update from the pub chain which showed an 11.1% rise in total like for like sales in the most recent 12-week period. For the half year (LFL) total sales rose by 10.1%, with food sales rising by 7.9% and bar sales by 11.8%.
On the outlook Tim Martin said that full year outcomes for revenues and profits would be in line with previous guidance despite having to raise prices by 13.5p a pint to help offset a rise in costs.
US
US markets have continued their positive momentum, opening at new record highs for both the Nasdaq 100 and S&P500, fuelled by optimism over the latest earnings numbers after Netflix comfortably beat expectations on its Q4 earnings numbers.
Last night’s bumper numbers have seen Netflix shares surge to their highest levels in 2 years after blowing through expectations for revenues, subscriber numbers as well as updating their guidance for Q1 on revenues and margins.
Tesla shares are also in focus ahead of its Q4 numbers later today, as well as Musk saying he wants to start production on a new affordable electric vehicle, codenamed Redwood mid next year. Tonight’s investor focus is expected to be on the guidance for next year in respect of sales, and whether he can pass the 2m mark, without sacrificing too much on margins.
FX
The US dollar has drifted lower on the back of the more positive tone in equity markets today, with losses across the board.
The Japanese yen is the best performer on the back of a strong set of trade numbers and an expectation that the era of negative rates is closer to coming to an end.
The pound has got a lift after a stronger than expected services PMI number which saw economic activity rise to its highest level since May last year, at 53.8, although manufacturing has continued to struggle, coming in at 47.3. This resilience in the services sector suggests that the economy might be in better shape than the December retail sales numbers suggested earlier this month, pushing back on any urgency for the Bank of England to start cutting interest rates.
The Canadian dollar is underperforming after the Bank of Canada left rates unchanged for the 4th meeting in a row.
Commodities
Crude oil prices have continued to ebb and flow between concerns over supply disruptions in the Middle East, while being capped by concerns over demand. Today has seen prices edge higher on hopes that the new measures announced by China will provide an uplift on the demand side, although the fact that they are due to arrive just before Chinese New Year could mean that the pickup in demand might be delayed several weeks.
Gold prices are treading water and are struggling to rally despite a softer US dollar and lower yields with little in the way of direction either way. While above the $2,000 an ounce support level the outlook for prices should remain positive.
Volatility
Fiat currencies were back in focus on Tuesday with the Japanese Yen leading the drive. Whilst the Bank of Japan may have elected to leave monetary policy alone, this was wrapped up with comments hinting that consumer inflation may be moving higher, adding weight to the idea that rate hikes will be seen around the end of the first quarter. On EUR/JPY, losses were less than one big figure, but this was still enough to drive daily vol on the cross to 8.94% against 7.71% for the month.
Calls from China’s Premier Li for forceful action to halt the rout in local equity market valuations proved sufficient to draw a line at least for under losses on the Hong Kong benchmark index on Tuesday. Reports are hinting that authorities are looking to utilise up to 2 trillion Yuan held overseas by state enterprises in order to stabilise equities. The Hang Seng advanced 2.6% with one day vol of 50 06% against 26.61% for the month.
At the stock specific level, hopes of stimulus gave Alibaba a shot in the arm, too. The US listing of the e-commerce play added almost 8%, bolstered by news that its founder had also added $200m to his holding in the company. One day vol on the stock advanced to 50.06% against 26.61% for the month.
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