Proactive Investors -
- FTSE 100 remains below day's peak of 7,698.15
- Dow Jones gains, but Nasdaq Composite easier
- Oil prices soar after Opec+ agrees production cut
April not the cruelest month
Saxo’s market strategist, Jessica Amir has pointed out that April is historically the best month for equities, although money flows currently suggest clients are cautious
She commented: "April historical brings hope to markets, but clients are playing the defensive game, topping up their bond exposure in case of a recession. Across the entire industry $304 billion has flown in money market bonds over the last three weeks. This week’s economic data could be a catalyst for Q1 market darlings, such as high PE semiconductor stocks, to take a haircut. And why consumer spending stocks will be in focus."
Amir noted: "In Q1, the Economic Surprise Index hit a new high with data coming out better than expected, with inflation continuing to slow. So, we’ve seen the risk-on trade amplify. The Nasdaq 100 gained about 19% the quarter. While in Commodities, iron ore rose the most, 10%, outpacing gold, with as China’s reopening narrative gained pace with the Chinese government introducing more stimulus.
"In FX markets, the most talked about trade in Q1 was the Euro against the USD, with stubbornly high EU inflation giving the European Central Bank more room to hike than the Fed. In terms of the major equity themes, semiconductors have been driving markets higher, and are up 23% YTD. Nvidia shares are up 90% in three months."
Reflecting on the most transacted upon instruments by Saxo clients, the market strategist said Tesla has garnered the most buys on the Saxo platform. She noted: "The EV giant has been selling more EVs than expected and is coming up with new ways to save cost, such as building a battery plant in the US with China’s battery leader, CATL which can build lithium iron phosphate batteries cheaper, than traditional prior nickel-based batteries. Tesla’s also deploying $22 billion in cash to crank up production."
Oil gains lift Dow
The FTSE 100 headed back towards the day's high just short of the 7,700 level even as Wall Street made mixed early progress on the first session of the new week, month, and quarter.
Around 15 minutes after the New York open, the Dow Jones Industrial Average (DJIA) was up 223 points, or 0.7% at 33,497, while the broader S&P 500 index added 0.1%, but the tech-laden Nasdaq Composite shed 0.4%.
The DJIA was boosted as energy stocks tracked oil prices higher after OPEC+ surprised the market by cutting oil output, with Exxon Mobil (NYSE:XOM) up 4.4% and Chevron (NYSE:CVX) up 4.3% early on.
But FOREX.com market analyst Fiona Cincotta noted the tech-heavy Nasdaq was leading the declines as the move is seen as hurting Fed pivot bets.
“With oil prices up 6% so far, Goldman Sachs (NYSE:GS) forecast Brent (crude) will be $95 per barrel by the end of the year, as the momentum for global oil is positive amid a strong recovery in China,” Cincotta noted.
As a result, she added, it could mean that inflation will take longer to bring back to the target level and will require more rate hikes from the Federal Reserve to cool.
“The markets are now reassessing the chances of a 25-basis point rate hike in May, with a 58% probability of the hike being priced in, up from 48% on Friday,” Cincotta said. “A dovish pivot, which the market was optimistically pricing in before the OPEC+ decision, with two rate cuts by the end of the year, is now looking even more unlikely.”
Glencore (LON:GLEN) rebuffed
Canada’s Teck Resources, the country’s largest diversified miner, has rejected an unsolicited acquisition proposal from the FTSE 100-listed commodity trader and mining company, Glencore PLC.
The all-share bid contemplated Glencore offering 7.78 shares for each Teck Class B subordinate voting share, and 12.73 Glencore shares for each Teck Class A common share. The proposal represented a 20% premium as of March 26, according to Teck, and would be worth about $23.2 billion at Friday’s closing prices.
Teck said its board's rejection of the offer was unanimous. It noted that Glencore’s bid was to acquire the company and subsequently create two businesses, which would expose Teck shareholders to a large thermal coal and oil trading.
The Vancouver-based miner announced in February it was switching its name to Teck Metals Corp and spinning off its multibillion-dollar steelmaking coal unit into a new company - Elk Valley Resources Ltd. Teck had been weighing options for its metallurgical coal division for over a year, as the commodity is used in steelmaking, one of the most polluting industries.
1.30pm: A quick look at some of today’s movers in London
Fallers
D4t4 Solutions - down 14% to 177p: The AIM-listed data solutions company warned that full-year results are expected to be lower than management expectations due to project delays.
Risers
Burford Capital -up 31% to 991p: Shares in the London-based litigation firm soared after a US District Court found Argentina liable for failing to make a tender offer for their shares in majority state-owned Argentinian energy company, YPF. The court decided that Argentina is liable to Petersen Energia Inversora SA and Eton Park Capital Management for not making a tender offer for their shares in YPF in 2012 and that YPF was not liable for not enforcing bylaws against Argentina.
Industrials REIT - up 37% to 162p: Shares surged after it said it reached an agreement with Blackstone (NYSE:BX) on the key financial terms of a final cash offer for the company. Under the terms, Industrials REIT shareholders will receive 168p per ordinary share in cash, representing a 42% premium to the closing share price on 31 March 2023, and a 40% premium to the one-month volume weighted average
Mixed start seen across the pond
The FTSE has come off its highs but remains comfortably higher, up 46 points, ahead of the restart in New York.
Wall Street looks set to open mixed as second-quarter trading gets underway, with investors digesting the decision by members of Opec+ to cut production in a week that culminates with the key non-farm payroll data for March.
Futures for the Dow Jones Industrial Average (DJIA) rose 0.4% in Monday pre-market trading, while those for the broader S&P 500 index were flat and contracts for the Nasdaq-100 shed 0.6%.
Oil prices jumped the most in nearly a year after a surprise announcement on Sunday by Opec+, which includes Russia, of an additional production cut of about 1.16 million barrels per day (bpd) of oil, on top of an earlier output cut of 2 million bpd. Benchmark Brent crude was up 5.5% early Monday to $84.28.
The Nasdaq Composite led gains on Friday, jumping 1.7% to 12,222 to take the tech-heavy index’s gains for the first quarter to 17%. The S&P 500 rose 1.4% to 4,109 for a quarterly gain of 7% while the DJIA added 1.3% to 33,274, ending the quarter flat.
“Markets finished a tough opening quarter on a positive note, boosted by signs of slowing inflation and in the absence of any further shocks from the banking sector,” commented Richard Hunter, head of markets at interactive investor.
“In the US, the Federal Reserve’s preferred inflation indicator, the Personal Consumption Expenditures index, rose by 0.3% in February, marginally less than the 0.4% expected. However, US markets have not yet been able to react to a subsequent announcement from oil producers that output cuts could be on the way," he added. This could reignite inflationary concerns and the oil price surged by some 5% on the news, although remaining down by 2.5% in the year to date.”
Ahead of the release of March’s non-farm payrolls report on Friday, today’s data dockets provide further manufacturing updates from the US, the UK, the Eurozone and China, said TickMill Group market analyst Patrick Munnelly.
“Today’s US ISM manufacturing report will likely remain sub 50 as with other major economies factory production remains short of the output seen in the services sector,” he added.
EY faces German audit ban - reports
EY has been banned from taking on listed companies as new audit clients in Germany for two years over flawed work for payments company Wirecard (ETR:WDI), according to reports in German business daily Handelsblatt and the Financial Times.
The ruling is set to be announced today by the country’s audit watchdog, Apas.
Citing people familiar with the matter, the FT said the Big Four firm and five current and former employees have also been fined up to €500,000 each.
The regulator did not come to any formal decision over whether EY acted with intent or with negligence, dodging a contentious question over the firm’s criminal and civil liabilities.
Wirecard (ETR:WDI) collapsed into insolvency in June 2020 in one of Europe’s largest postwar accounting scandals, after disclosing that half of its revenue and €1.9bn in corporate cash did not exist.
The Munich-based company had received unqualified audits from EY for more than a decade.
EY has lost several large audit clients in the wake of the scandal, including Commerzbank (ETR:CBKG), DWS and KfW, and has not won any significant new mandates since then.