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Having seen a weak lead from Asia markets, European markets have seen another negative session, dragged lower by further weakness in the US, whose losses have been driven by the surprise decision by FedEx to bring forward their Q1 earnings numbers from next week.
The company cited a warning over a significant business slowdown, missing on revenues and profits and pulling their guidance for the whole year, prompting investors to take fright that this could be the proverbial “canary in the coalmine” for a raft of downgrades, when US earnings gets underway at the beginning of October.
These increasing concerns over a global recession, as well as rising US yields are prompting a flight into the US dollar and not much else, with the DAX set to post its lowest weekly close since November 2020.
The FTSE100 has also come under pressure, although the rise in yields this week has helped the likes of Lloyds Banking Group and NatWest Group outperform, although that’s not been enough to stop the UK benchmark from closing at a one week low.
Risk sentiment here wasn’t helped by UK retail sales falling off a cliff in August, declining by -1.6% sending the pound to its lowest levels against the US dollar since 1985.
Retailers have also slipped back as a result of those retail sales numbers, with the likes of B&M European Retail, Frasers Group, JD Sports and other consumer discretionary taking a hit.
The FedEx effect has clobbered the price of Royal Mail, sending the shares to their lowest levels in two years, and opening the trapdoor in a sector that is bellwether for the wider global economy.
It’s doubly bad news for Royal Mail given its own inefficient working practices, as well as the threat of further strikes, the last thing the sector needed was a profits warning from one of the sector leaders when it comes to logistics. With Royal Mail already losing £1m a day the road back is likely to be a long and arduous one.
On a more positive note, AstraZeneca shares are performing well after getting approval from the EU for its Evusheld drug for treating Covid-19, while Nirsevimab has been recommended for approval and is used for the treatment of respiratory tract infection in babies and young infants.
US
US markets have opened sharply lower, and on course for their worst week since June, with the narrative now shifting to what could be coming down the pipe with respect to earnings downgrades, after yesterday’s unexpected decision by FedEx to bring forward the publication of its latest quarterly numbers from next week and issuing a profits warning.
Companies like FedEx, which have huge logistics operations are generally considered a decent bellwether of the global and domestic economy, as the flow of goods and services acts as a good measure of global supply and demand.
Having only raised its full year profits guidance in June insisting that it could manage the increase in operating costs by raising prices, yesterday’s decision to pull it, along with big misses on revenue and profits has seen the shares plunge, with the company blaming a slowdown across all of its businesses.
Q1 revenues came in at $23.2bn, below expectations, with the company saying it expects Q2 revenues to come in 4% lower at $23.75bn. Profits for Q1 also came in below expectations of $5.14c a share, at $3.44c.
Yesterday’s downgrade has in turn prompted a number of analyst downgrades, with falls in the likes of UPS and Amazon as well.
Uber shares are lower after a hacker claimed to have penetrated a number of the company’s key databases.
FX
With the UK currently in a period of mourning, the pound’s performance this week appears to be matching the national mood, sliding to a fresh 37 year low against the US dollar, and an 18-month low against the euro.
This morning’s sharp decline in August retail sales of -1.6% speaks to an economy that is probably already in recession, having already seen a -0.1% GDP contraction in Q2, and likely to see a similarly weak performance across Q3.
While the pound has had a disappointing week it hasn’t come close to being the worst performer, that honour goes to the Norwegian Krone, with the falls in oil and gas prices weighing on that.
Commodities
Oil prices are seeing a modest rebound as we close out the week, however they have struggled to rally meaningfully against a backdrop of a weakening demand outlook. More interestingly Brent crude prices having slipped below the 200-week SMA are showing little sign of moving back above it, suggesting the potential for further declines.
The rise in US yields and global yields more broadly is continuing to exert more downward pressure on gold prices which hit 2-year lows yesterday.
Natural gas prices are also lower, with UK prices sliding back to levels last seen in mid-July as the emphasis starts to shift to measures to conserve or cut back on demand.
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