European markets have managed to post some solid gains today with the CAC 40 posting a new record high, while the DAX retested its own record high from last month, after Q4 GDP data showed the eurozone stagnated at the end of last year, with better-than-expected growth numbers from Italy and Spain helping to prevent a second successive quarterly contraction.
Europe
The FTSE100 is also having a positive session rising to 3-week highs, with the ups and downs of drinks maker Diageo having a big part to play in the UK index’s fortunes today.
Diageo shares initially slid sharply on the open after a disappointing set of H1 numbers showed a 1.4% decline in net sales, and a 11.1% decline in operating profit, with the Latin American and Caribbean market proving to be the main drag due to large falls in sales across the region in Brazil, Mexico, Colombia, and Venezuela.
With the shares slipping close to this month’s 3-year lows it could be argued that today’s initial sell-off may have brought out some bargain hunters, on the basis that a lot of the bad news was already priced in, sending the shares briefly up to their highest levels in 2-months.
Operating margins declined 329bps. Management was keen to highlight that without the slowdown in LAC that sales and operating profit were higher in every other region, with LAC contributing to a $234m decline in profits. Volumes were also down from the same period last year to the tune of 5%.
Saga shares have edged higher after the travel and insurance business said it was on track to deliver underlying profit of more than double of last year. The cruise and travel business has also continued its recovery, taking 120k passengers on their ships. Forward bookings are at decent levels with the business predicting revenue growth of between 10-15%.
Saga confirmed last week’s reports that the business was looking at partnership arrangements for its Ocean Cruise business due to reaching peak or optimum capacity.
Deliveroo shares have fallen sharply after German based Delivery Hero, which owned a 4.5% stake in the business, sold its stake at a discounted 113p per share, taking a hefty loss in the process well below the price it paid back in August 2021, when the shares were up near 280p. Delivery Hero shares are also lower as questions get asked why they would lock in such a hefty loss.
US
US markets opened cautiously lower as earnings updates continue to come in thick and fast, and the latest economic numbers pointed to a resilient US economy.
Job openings in December rose to 9026k, from 8926k, while consumer confidence for January rose more than expected to 114.8 and a 2-year high.
Despite rising costs and problems with its EV range GM has reported Q4 revenues and profits that are better than expected, sending the shares higher in early trading. Q4 revenue came in at $42.98bn well above expectations, while profits slowed to $1.24 a share. For the new fiscal year GM said it sees a significant improvement in the outlook for profits of between $8.50 and $9.50 a share
US logistics and parcels company UPS has seen its shares slide after reporting Q4 revenue of $24.9bn and profits of $2.47 a share, which while a 32% decline from a year ago was still slightly ahead of consensus. The weakness has come from a disappointing outlook with UPS saying that for the new fiscal year it sees revenues of $92bn to $94.5bn which was modestly below expectations.
Nonetheless, despite the slide in the share price today’s numbers don’t exactly raise alarm bells when it comes to the outlook for the US economy, although the 12,000 job losses could be the canary in the coal mine when it comes to the labour market.
Super Micro Computer shares opened higher after beating on Q2 profits as well as raising their guidance. Q2 revenues came in at $3.66bn with profits coming in at $5.59. Q3 guidance was lifted to $5.20-$6.01 with Q3 sales expected to come in between $3.7bn and $4.1bn. The company also lifted its full year revenue outlook by almost 40% to $14.5bn.
This neatly shifts things towards AMD’s latest trading update after the close. The shares have hit record highs over the last month on optimism that demand for AI chips will drive future revenue and profits growth. Q4 revenues are expected to come in at $6.13bn and profits of 77c a share. Q1 revenue estimates have been set at $5.78bn.
We also have the latest earnings reports from Microsoft and Alphabet with the bar set very high if we are to avoid a sharp sell-off tomorrow, given the 8% gains in both seen so far year to date.
FX
The euro is slightly more resilient today after better-than-expected Spain and Italy GDP numbers for Q4 prevented the bloc falling into a technical recession with EU Q4 GDP coming in at 0% instead of -0.1%.
The pound has given some ground after a bigger than expected slowdown in the pace of shop price inflation, which came in at 2.9% from 4.3% in December. That said a similar survey from Kantar showed that supermarket price inflation was slightly stickier, slowing to 6.8% from 6.9% highlighting once and for all the difficulties in trying to predict what prices are doing from one month to the next. The mixed data certainly doesn’t make the Bank of England’s job any easier when it comes to rate policy, and the timing of when to ease back on the base rate.
Commodities
Despite briefly hitting a 2-and-a-half-month high yesterday, on the back of concerns over US escalation to weekend events which saw 3 US services personnel killed by a drone attack on the Jordanian border, oil prices have continued to look soft, after closing lower yesterday. Concerns remain over the demand side of the equation even as the IMF upgrades its growth forecast to the global economy. For now, the US is weighing any response carefully, however one thing seems certain there will be a response, and as such any dips are likely to be shallow.
Gold prices have also been edging higher rising for the second day in a row on haven demand and a slightly weaker US dollar ahead of the conclusion of tomorrow's Fed meeting.
Volatility
Airbnb’s stock started the week by extending the rally it kicked off on Friday following that news of a new cross-border fee being applied to all bookings. With over half the company’s revenues coming from non-US lettings, even a modest premium here will have the ability to improve returns for investors, whilst many also see the overseas market as being where future growth lies for the company. One day vol stood at 72.49% against 51.64% on the month.
UK bank stocks had a less than stellar start to the week. One contributing factor may have been a resurfacing of the story that the government plans to sell down its remaining stake in Nat West over the summer. Discounting here to get the sizable order away could weigh on broader sector valuations, whilst Close Brothers also struggled, with the lender being one who could particularly suffer in the wake of the car finance mis-selling story. One day vol on CMC’s proprietary basket of seven UK banks came in at 26.23% against 24.64% for the month.
Oil prices saw elevated levels of price action following Friday’s marked gains. Upbeat US economic growth, China’s stimulus moves and concerns over how the situation in the Middle East will impact supply all combined. There was however some easing as the new week got underway, with Brent Crude giving back around two thirds of its gains. One day vol stood at 31.74% against 30.18% on the month, with many distillate prices displaying slightly higher levels of activity.
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