European markets have chopped between positive and negative territory today, as investors continue to absorb the messaging from last night's Fed minutes and the outlined plans to reduce the size of the balance sheet, by $95bn a month, and a potential start date in May.
Europe
Peace talks between Russia and Ukraine don’t appear to be going anywhere in the short term with the Kremlin complaining that the US sending weapons to Ukraine wasn’t helping the talks to progress. Another view might be that increasing evidence of Russian troops murdering Ukrainian civilians might have something to do with the lack of progress.
The FTSE100 has underperformed with the biggest fallers being ex-div stocks of Aviva (LON:AV) and Barratt Developments (LON:BDEV), while basic resources and energy have also lagged with Shell being a notable decliner.
Back in March, Shell (LON:RDSa) announced that it would be pulling back from its involvement in all Russian hydrocarbons, including its 27.5% stake in the LNG Sakhalin gas field. Today the oil company set out the costs of taking that action, which it expected to be in the region of between $4bn to $5bn, across all its businesses, a significant sum, but well below sector peer BP’s $25bn hit from its Rosneft stake.
As far as its various businesses are concerned integrated gas earnings for Q1, which includes renewables are expected to be between $100m and $600m. For the group cash flow in Q1 is expected to be adversely affected to the tune of around $7bn, by margin calls caused by higher prices on forward delivery contracts.
While Shell has slipped back, it is still one of the best performers on the FTSE100 year to date, up over 25%, while almost under the radar AstraZeneca (NASDAQ:AZN) shares have risen to a new record high, up over 20% year to date, with most of that gain coming since the 7th March. This is largely down to a much more defensive posture being adopted by investors over the past few weeks.
Entain (LON:ENT) shares have slipped back despite reporting a strong start to its financial year, with a 31% increase in NGR (net gaming revenue), helped by a rebound in retail as physical shops reopened. Online NGR slowed by 8% compared to one year ago when most of the world was facing varying degrees of restrictions. Its US operation BetMGM is also firmly established as the number two operator with 41% of the market and on course to EBITDA positive in 2023.
One of the best performers
888 Holdings (LON:888) shares have jumped sharply after the company cut the value of its acquisition of William Hill’s US assets by £250m. The lower price also means that the betting operator will only have to pay £584.9m on completion of the deal instead of £834.9m. It also intends to issue 70.8m new shares to help finance the deal.
On current trading, Q1 revenue is expected to be in the range of $222m-226m, a modest increase in Q4. Full-year revenues for 2021 saw an increase of 7.3% on 2020
US
US markets opened modestly lower as weekly jobless claims fell last week to 166k, from an adjusted 171k, and to their lowest level since 1968. While this was the eye-catching number, continuing claims jumped from 1.3m to 1.5m.
Hewlett Packard (NYSE:HPE) shares have jumped sharply higher after Warren Buffet’s Berkshire Hathaway (NYSE:BRKa) paid $4.2bn for a stake in the business. Berkshire Hathaway has been on an acquisition streak of late putting aside ESG concerns when it bought up a stake in Occidental Petroleum (NYSE:OXY).
Levi Strauss (NYSE:LEVI) shares are also higher after its Q1 earnings numbers saw profits of $0.46c a share, beating expectations of $0.41c a share. Revenues also beat forecasts as demand for its jeans held up despite supply chain challenges.
FX
The US dollar initially pushed to its highest levels since May 2020 in the wake of the publication of last night’s hawkish Fed minutes, however, it has since slipped back from those peaks after the ECB published its latest account of their own recent policy meeting.
These turned out to be somewhat of a damp squib, even though the accounts did acknowledge the risk of a technical recession in Q2 and Q3, due to persistently higher prices. The minutes also seemed to highlight a divergence of opinions when it came to how the central bank should respond to events in Ukraine, with opinion split on how durable the current rise in prices was likely to be, and a reluctance to think that the war could have a stagflationary impact.
All in all, the minutes were much ado about nothing, however with another ECB meeting next week some of those doves from March may be starting to doubt their convictions that energy prices could start to fall back in due course. The euro rebounded off its lows of the day in the wake of the minutes given the lack of any clearer guidance as to the ECB’s intentions over the rest of this year.
Commodities
While it's welcome that we’re seeing the IEA add another 60m barrels to last week’s 180m barrel release by the US, the picture for oil prices will continue to be driven by geopolitical events.
While prices have edged back up today, the lockdowns in China could offer short-term relief to high prices if consumption there declines, and more supply is freed up for use elsewhere. It is notable that recent rebounds have been shallow, suggesting that perhaps the near-term risk may well be towards the downside and a retest of the March lows in the short term.
Gold prices have spent the last few days treading water above the $1,910 area and the 50-day MA despite the sharp increases being seen in US yields and increasing bets that rates could well rise sharply in the months ahead.
Volatility
Shares in microchip makers have been back in focus, with NVIDIA (NASDAQ:NVDA) something of a standout The underlying price has lost something in the region of 15% over the last week, with policy tightening in the US weighing on growth stocks, whilst this sector has been hit further off suggestions demand for end-use markets may be slowing, too. Daily vol on NVIDIA pushed out to 141% against 110% on the month.
In terms of commodities, livestock is once again in focus. After prices retreated from recent highs at the end of March, some are evidently seeing buying opportunities on the basis that supply will remain constrained going into the summer. Lean Hogs, where prices have fallen for nine of the last ten sessions, now appear to be reversing that trend, elevating daily vol to 85% from 70% on the month.
The news from the Fed over the pace of monetary policy tapering is rattling fortunes amongst growth and technology stocks, so perhaps no surprise then that the NASDAQ is very much in focus, with the index down more than 4% since the start of the week. CMC’s NDAQ cash contract as a result saw daily vol accelerate to 31.3%, up from 28.7% on the month.
The Aussie Dollar is still seeing elevated levels of price action, following its jump higher against the greenback earlier in the week. Those gains have however been reversed off the back of that Fed policy tightening news, the pair is trading back where it started the week and daily vol sits at 12.71% against 10.73% on the month.
Finally, Dogecoin remains active and has now given back most of those arguably irrational gains off the back of Elon Musk’s investment in Twitter (NYSE:TWTR). Daily vol moved to 160%, almost double the 83% recorded on a monthly basis.
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