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Markets Take A Breather As Snap Launches Out Of The Traps

Published 03/03/2017, 05:24
Updated 03/08/2021, 16:15

Europe

Markets in Europe have taken a bit of a breather today after yesterday’s record breaking session, though we have put in new intraday record highs on the FTSE100 and FTSE250.

As with most of the recent moves higher, investors appear to be taking a time out, adjusting to the new altitude, before assessing where to go to next. Is this the new base camp for the next leg higher, or will bad weather force a modest retreat, appears to be the main question for investors right now?

Expectations around the prospect of an increase in US rates have continued to affect bond markets with yields edging higher, the US 2 year up above 1.3% for the first time since 2009, after the normally dovish Lael Brainard joined the chorus of Fed policymakers who suggested a move on rates was likely to come sooner rather than later.

It’s been a trifecta of woe for Capita today with the company announcing a 33% decline in profits in 2016, losing its place in the FTSE100 and its CEO Andy Parker announcing his departure after 16 years at the company. Capita had already been in the headlines for all the wrong reasons this week as a result of its behaviour in carrying out its TV licensing contract details with the BBC, and pursuing late payers.

The owner of Alton Towers, Merlin Entertainments is also down sharply despite reporting an 11.7% rise in revenues and an increase in footfall in its theme parks through 2016.

International medical products company Convatec, which only IPO’d last October is amongst the best performers after reporting an improvement in full year revenues to $1.7bn.

US

US markets opened slightly lower after yesterday’s record breaking session. Most of the focus today will be on the opening trading session of Snap, which is set to launch at $17 a share, valuing the business at around $22bn.

Opinion is divided on a company which trades at a higher valuation than Facebook (NASDAQ:FB) did when it IPO’d. With no sign of the company making a profit, no voting rights and some investors choosing to lock themselves in for 12 months there is a sense that this is not so much an investment than it’s a punt. Investors don’t seem too concerned given that the issue is oversubscribed, and initial projections expect it to open near $24 a share, but then again Facebook was oversubscribed and even though it’s much higher now the shares still fell from $42 to $19 first.

Anheuser Busch In Bev disappointed the markets after reporting a decline in annual profits, owing largely to a downturn in beer sales in its second largest market, Brazil.

On the data front weekly jobless claims dropped to their lowest levels since 1973 at 223k.

FX

The turnaround in expectations around a US rate move in March has continued after the previously dovish Fed Permanent member Lael Brainard also suggested that the time was coming closer to the time for another rise in interest rates.

This change in the market view from a 36% possibility a week ago to 88% now would suggest that the stars are aligning for a 0.25% move on rates in just under two weeks’ time.

While it is sensible to ask what’s prompted this sudden turnaround in expectations, given that not much has changed, one thing is certain, any dialling back by Fed officials now would be enormously counterproductive in terms of how the market perceives any future market guidance this year.

Rising prices has seen EU inflation rise to the 2% level and the ECB’s target rate for the first time since January 2013, and in the process raised the prospect of further division on the governing council about stimulus tapering, ahead of next week’s ECB rate meeting.

The Australian dollar has also dropped sharply after some weak trade data overnight prompted speculation that the RBA may well keep rates at their current levels or even cut them in the coming months.

Commodities

Crude oil prices have come under pressure again after data showed that Iraqi exports rose in February, confirming previous data that OPEC production increased for that month, and casting doubt on the compliance narrative of near 90% that we’ve been hearing from OPEC secretary general Barkindo over the past few days. With US stockpiles still at record levels and the US dollar looking strong the failure to push above recent highs has seen oil prices hit their lowest levels in two weeks.

Gold prices have also retreated to their lowest levels in a week as speculation about a March rate rise dilutes the attraction of the yellow metal.

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