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Europe
It looks set to be another positive week for markets in Europe, however most of this week’s price action has been confined to a fairly modest range in what looks increasingly like a period of consolidation.
The FTSE100 had yet another look above the 7,400 level and once again was unable to sustain the momentum.
Amongst the gainers today, retail has done well, with Frasers Group higher after being rated as a buy by Numis, while JD Sports has got a lift after US counterpart Foot Locker upgraded its outlook for the year after beating on Q3 results.
Legal & General is higher after reiterating its full year guidance while welcoming the announcement from the Chancellor of the Exchequer to overhaul Solvency II with a view to making it easier for domestic insurers to invest in home grown infrastructure projects. The insurer also stated it has taken a limited hit due to the recent LDI volatility on the UK gilt market, estimating an impact of about £10m.
Royal Mail owner International Distribution Services was on the receiving end of more bad news today as the CWU union announced further strike days in the lead-up to Christmas, although the shares still managed to edge higher. Earlier this week the company announced it had slipped to a H1 loss of £127m. For the full year management said that full year operating losses are expected to remain between £350m and £450m, which includes the recent and current strike day losses, but not the new ones. The union said it would not allow bosses to destroy the livelihoods of postal workers, however the reality is that the strike action is making matters worse, and potentially hastening the loss of further jobs given the current scale of losses.
BP and Shell are acting as the biggest drag on the back of today’s sharp declines in oil prices.
US
After a slightly negative finish yesterday US markets shrugged off yesterday’s comments from St. Louis Fed President James Bullard about a 5% to 7% terminal rate and opened higher today. Yields have continued to edge higher, and while the prospect of a 5-7% terminal rate is not an unrealistic prospect, it's somewhat of an outlier at this point, and markets appear to be treating it as such.
When US retailer Williams-Sonoma reported its Q2 numbers there was little sign of a slowdown in consumer spending with the owner of Pottery Barn reporting record revenues of $2.14bn, a rise of 11.3%, on the previous year. Yesterday’s Q3 numbers saw revenues come in at $2.19bn, also beating forecasts, however profits fell slightly short, although they were still up from a year ago at $3.72c a share. All so far so good however the retailer declined to reiterate its previous full year guidance of mid to high single digital annual net revenue growth, due to high levels of “macro uncertainty” and elevated inventories, sending the shares sharply lower. Inventory levels are expected to come down in Q4, however they are still 33% above the levels they were a year ago.
Alibaba shares are in focus after missing on revenues in its recent Q2 numbers, and sinking to a surprise loss of $2.9bn, after marking down the value of some of its assets. Despite this the company announced an increase to its buyback program, as well as extending it into 2025. Alibaba said its Single’s Day sales were in line with last year's numbers, lagging behind its peer JD.Com.
Gap shares are higher after Q3 sales came in better than expected. The company managed to report a 1% gain against an expectation of a 3.4% decline. Inventories were also manageable. The Old Navy brand underperformed while Gap and Banana Republic came in better than expected.
FX
The US dollar has undergone a week of consolidation after the losses of last week, as markets look to determine the next move. Bullard’s comments yesterday briefly gave the greenback a lift along with yields, but the jury remains out as to whether we are set for further declines. The euro has spent most of the week trying to punch through the 200-day SMA with little success, making it susceptible to a pullback.
The pound has looked slightly more resilient today after the modest weakness from yesterday’s budget. A modest rebound in consumer confidence in November, and retail sales in October appears to have given it a lift in the short term, as it looks to close higher for the second week in a row.
Commodities
Crude oil prices are continuing to drift lower on concerns about winter demand in China as covid cases continue to rise. This would also be the second successive weekly decline in prices with some suggestions that China may well look to slow oil imports, due to rising inventories, while concerns about a 2023 European recession are also exerting downward pressure on prices.
The modest rise seen in yields over the past few days has seen gold prices slip back from the highs of the week, and could see it slip back towards $1,740.
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