About us 
Europe
Having seen some strong gains yesterday, we’ve slipped back on the back of a loss of momentum after Fed chair Jay Powell’s comments last night that the Federal Reserve is determined to regain the initiative when it comes to reining in inflation.
A record high for UK inflation hasn’t helped the mood with retailers suffering the worst effects of a 9% CPI print, with Ocado, JD Sports, Tesco and B&M European Retail all slipping back.
The energy sector is helping to underpin the London market, with BP and Shell outperforming.
Rolls-Royce shares have come back into favour suddenly, having slipped to 18-month lows earlier this month, the shares have risen back to their highest levels this month.
Commercial real estate British Land has seen its shares rise after reporting a significant improvement in its portfolio valuation and performance, as the return to the office gathers pace, and consumers get out and shop more. Occupancy rates rose to 96.5% from 94.1% Underlying profits rose to £251m.
Fresh from returning £3.5bn to shareholders earlier this week, Aviva shares have edged higher after reporting a decent Q1 update. UK and Ireland sales rose 2%, to £8.4bn, with general insurance sales rising 5% to £2bn. The company said it was on target to deliver on its full year targets and dividends for the next two years.
Burberry shares have slipped back despite reporting a 23% increase in full year revenue of £2.8bn, while adjusted operating profits rose by 38% to £523m. However, the company warned that its outlook for 2023 was highly dependent on a recovery in its Chinese markets which have suffered because of Covid restrictions and lockdowns.
Pub chain and All Bar One owner Mitchells and Butlers have slipped back a touch despite announcing it had returned to profit in its H1 numbers. Total revenues came in at £1.16bn while profits before tax came in at £57m. Management expressed some caution about the outlook citing rising costs related to wages, food, and utilities.
Darktrace shares have plunged after Chief Strategy Officer Nicole Egan was named in a fraud ruling relating to her role when she worked at Autonomy with Mike Lynch, who is currently fighting extradition to the US.
Premier Foods, who make a range of products including Mr Kipling Cakes, Lyons, and McDougall’s flour products has seen its shares jump to the top of the FTSE250 after adjusted pre-tax profits come in ahead of expectations, at £128.5m, up on both 2020 and 2019 levels. This improvement came despite a fall in revenues of 3.6% to £900.5m. The dividend was also increased from 1p to 1.2p per share. The company kept full year guidance unchanged, while warning of the risks of higher input cost inflation.
US
US markets opened sharply lower after yesterday’s comments from Fed chairman Jay Powell that the Federal Reserve won’t hesitate to tighten the rates ratchet beyond neutral, until there is clear evidence that inflation is under control. Powell’s tone appears to suggest that the Fed will run the risk of pushing the US economy into a recession given the buffer of an unemployment rate which is at multi year lows. Tech stocks are once again leading the way lower, acting as a drag on the Nasdaq 100.
In a sign that US consumers are already prioritising their spending, yesterday we saw Walmart’s share price drop sharply after the retailer missed on profits, as well as cutting its Q2 profits guidance, largely due to the effect higher costs were having on its margins.
Today it’s been the turn of Target, as they also posted a set of numbers which missed expectations. Q1 revenues were decent at $25.2bn, while comparable sales rose by 3.3%. On profits the picture was somewhat different, coming in below expectations at $2.19c a share. The consensus was $3.07c a share. Target said it expected operating margins for the year to slip back to 6%, down sharply from the previous 8% or higher, due to unexpectedly higher costs of fuel and freight, higher inventory costs, as well as higher wage costs.
Netflix shares have also slipped back after the streaming company announced the loss of 150 jobs, after the last quarter’s surprise loss of 200k subscribers.
FX
The pound has slipped back after UK inflation on the CPI measure rose to a record high of 9% in April, which was slightly below expectations. The CPI first came in to being in 1989, changing over the years, before being officially published in 1997, and then going on to become the official inflation targeting measure of the Bank of England in December 2003, replacing RPIX. On the RPIX measure, inflation is at its highest level in 40 years.
Nonetheless, a decent chunk of the rise in prices, just under half, was down to the rise in gas and electricity prices, along with the sharp increases seen in petrol prices, equating to a combined rise of 4.2% on an annual basis, which leaves another 4.8% from other factors, including food.
While today’s 9% reading is a sharp rise from the 7% seen in March, there is no reason to suppose that these numbers will slow anytime soon, after output prices on the PPI measure rose by 14% year on year.
Given that PPI tends to be a leading indicator we can expect the headline CPI number to keep moving higher, given that businesses will probably have to pass some of these higher costs on. It’s simply not good enough for the Chancellor of the Exchequer to simply wring his hands and claim that the spike in inflation is being caused by global factors when he has raised taxes on both business and taxpayers at a time when inflation is exerting further pressure on consumer incomes.
The Japanese yen is outperforming, along with the US dollar in classic risk off fashion.
Commodities
Crude oil prices have slipped back a little today, although US prices briefly rose above Brent crude for the first time since 2016, after the latest API data showed a surprise draw of 2.445m barrels, despite the Department of Energy releasing 5m barrels in the week ending 13th May. Expectations had been for an inventory build.
Reports from China that the city of Shanghai is seeing a slow loosening of restrictions has helped fuel this week’s move higher, although reports out of Beijing suggest the opposite is happening in that city as infections rise.
With US 10-year yields looking to retest the 3% level, gold prices are struggling to get back above the 200-day MA having hit three-month lows earlier this week. Powell’s comments knocked the yellow metal back down from yesterday’s peaks at $1,836.
Volatility
Earnings from Chinese ecommerce group JD.com released yesterday may have come in ahead of expectations but it was the slowest quarterly revenue growth posted by the company on record and the CEO expressed his caution over the handling of COVID outbreaks in the country as damaging for the wider retail industry. Price action across the wider sector moved higher as a result with JD’s daily vol hitting 246% against a monthly print of 170%, but peer Country Garden saw even more pronounced moves, with daily vol of 292% against 171% on the month.
Wheat prices remain turbulent after the weekend’s news that India is to block exports of the commodity. The US cash contract traded in a range of around 7% yesterday and ultimately finished the session slightly lower, but US crop condition reports are adding to woes here amidst fears that this summer’s American harvest could be downgraded, too.
Having printed 124% on Monday, daily vol was slightly lower at 102%, up from 51% on the month.
In fiat currencies, the US Dollar/Turkish Lira trade is yet again standing out, with the greenback testing fresh highs for the year during Tuesday’s trade. Technical indicators may be suggesting that the Lira is now oversold, but fundamentals are offering little cause for optimism. The Turkish Central Bank is due to meet next week however so this may be sufficient to offer some short-lived respite. Daily vol sat at 16.84% against 10.98% on the month.
And finally, activity in crypto markets continues to ease, with Bitcoin posting daily vol below the monthly print, whilst price action in other digital assets continues to ease, too. Stellar Lumens posted 128% on the day versus 109% on the month, whilst Solana came in at 194% against 176%..
previous
