It’s been another subdued session for markets in Europe, with the FTSE 100 coming under pressure on the back of weakness among UK insurers and food retailers.
Europe
Among the worst performers are Admiral, along with Direct Line and Beazley, amid speculation that the FCA are set to investigate the practice of premium financing. This allows customers to pay their insurance premium by way of a loan with a high interest rate.
Food retailers are also sinking on the back of today’s Q3 trading update from Sainsbury’s which has seen the UK’s number 2 supermarket announce a solid set of numbers with grocery sales up 9.3% for the quarter, and the pre-Christmas period seeing an 8.6% increase.
Unsurprisingly, given the trends exhibited earlier this week in the BRC retail sales numbers, the weak spots were in clothing, general merchandising, and the Argos business, and it this that has dragged the shares lower, along with disappointment over the lack of an upgrade to its profit guidance. This was maintained at between £670m and £700m for adjusted pre-tax profit and free cash flow of £600m. Today’s weakness in Sainsbury share price has also been replicated in similar weakness in Tesco and Marks & Spencer ahead of their numbers tomorrow with investors fearing similar trends of weak clothing and general merchandise, as seen today.
UK baker Greggs is on a roll today, its shares rising to five-month highs after reporting a 13 7% increase in like-for-like sales for the full year, and a 9.4% increase in Q4. Total sales saw a 19.6% increase to £1.81bn, while keeping its full-year guidance unchanged.
UK housebuilders are slightly higher after Persimmon reported that it had completed 9,922 properties year to date, a 33% decline on the same period last year, however it was better than its previous guidance suggesting that perhaps the worst was behind the sector. Average selling prices were higher at £255.75k, while forward sales were 2% higher. Berkeley Group, Barratt Developments and Taylor Wimpey are all getting a lift on these numbers.
US
US markets are treading water ahead of tomorrow’s December CPI report which is expected to show that US inflation edged up to 3.2%, with core prices expected to slow to 3.8%. An upside surprise has the potential to undermine the narrative of an early Fed rate cut, as well as pushing yields back up again.
Crypto stocks have been early movers with last night’s events over bitcoin seeing some early weakness in this area of the market, with Coinbase, Marathon Digital and MicroStrategy all slipping back.
After two days of declines Boeing shares have remained in focus after CEO Dave Calhoun acknowledged the company had fallen short of quality control standards and that it “can never happen again” with the shares edging higher in early trade.
Nvidia shares pushed up to new record highs yesterday after initially slipping lower as the break above its peaks of last year continues to gain traction.
FX
Despite the admission by ECB vice-President Luis de Guindos that the eurozone may have entered a recession at the end of last year, the euro is slightly firmer after he said that interest rates would be maintained at current levels until inflation was back at 2%.
Similar comments from Bank of England governor Andrew Bailey that the central bank needs to return inflation to target have had little effect on the pound. Bailey’s comments that household incomes have risen in recent months could also add to caution about the likelihood that the central bank would be in a rush to cut rates given this mitigates some of the tightening effect.
Commodities
Bitcoin has settled down after the fireworks of last night that saw the X account of the SEC supposedly hacked when it tweeted that it had given approval for a Bitcoin ETF, a decision on which is expected later today, before subsequently claiming that no such decision had been made at this time.
The episode is particularly embarrassing for the SEC given they are usually the first to criticise businesses for failures in market administration and communications. It’s doubly embarrassing when it turns out that the SEC account didn’t even have basic 2-factor authentication turned on which would have probably prevented last night’s breach, and which you would expect as a bare minimum for an individual, let alone a regulator.
Crude oil prices have edged higher in the aftermath of reports from the Red Sea that saw US and UK forces shoot down 21 drones and missiles fired by Houthi based rebels in Yemen, and which could prompt a counter response from US and UK military assets in the area.
Volatility
Natural gas prices remain something of an outlier in terms of price action with concern over cold weather forecasts for North America continuing to be the main driver of support. The underlying tested the $3.40 mark on Tuesday, pointing to an advance of more than 50% over the last four weeks. Add to this the ongoing geopolitical situation and once again this has the scope to remain an active trade. One day vol stood at 103.68% against 64.95% for the month.
A gloomy data set for German’s industrial sector did little to help buoy sentiment on Tuesday, with CMC’s proprietary basket of European Banks struggling as a result. The underlying sold off by close on 2% at one point before recovering around half of those losses. It’s worth noting that the longer-term trend here is positive but with recession fears looming, this could see further action. One day vol stood at 28.91% against 21.2% for the month.
Renewed speculation that the SEC will soon make a call on those bitcoin ETFs is continuing to drive interest in the crypto asset class. Bitcoin again spent most of the day trading above the $47,000 mark before selling off in the latter part of the US session. One day vol on BTC/USD printed 83.02% against 50.15% for the month, with this pattern of activity repeated across many sector peers.
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