Stock markets recover from lows as US CPI hits new 40-year high

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EEuropean markets were negatively biased for most of the day after getting a weak transfer from Asia after Chinese Premier Li Keqiang issued another warning about the effect covid lockdowns would have on the Chinese economy, casting doubt on China’s ability to deliver its 2022 GDP target of 5.5%.

Europe

We recovered from the lows of the day, largely thanks to the more positive tone coming from Wall Street and the rebound in US markets.

The European banking sector has seen a big drop on reports that a major European mutual fund, or funds, cashed in on its stakes in Germany’s two largest banks, German Bank and Commerzbank. Both stake sales took place at a significant discount to Monday’s closing price, with Deutsche Bank the market’s worst performer. DAX today.

This appears to have passed through to weakness in UK banks, although weakness in HSBC and Standard charter may well be due to Chinese Premier Li’s growth warning about the Chinese economy, than any ripple effect from weakness in Europe.

Astra Zeneca stocks are also under pressure due to profit taking after stocks hit record highs late last week.

On the FTSE100, Rolls Royce The shares are the worst performer after being on the receptive side of a downgraded broker JPMorgan due to skepticism about the profitability prospects of its New Markets unit which includes the production of new modular nuclear reactors.

Online clothing retailer ASOS Shares initially slid to their lowest level in two years, after posting a pre-tax first-half loss of £15.8m, compared with a profit of £106.4m a year ago. This is despite an increase in revenue to just over £2billion.

The decline in equities turned out to be quite short-lived, rebounding strongly, in large part because the rise in costs was not totally unexpected, and equities are already down more than 30% since the start of the year and by more than 68% year on year.

The first half losses appear to be due to a sharp decline in profit margins from 5.6% to -0.2%, which was driven by high freight costs, as well as higher wages, not to mention the suspension of its activities in Russia. .

As for the outlook, the retailer wasn’t much more optimistic, although the full-year forecast remained unchanged, despite downside risks to the forecast.

easyJet said it expects to see a first-half pre-tax loss of between £535m and £565m as the airline’s load factor fell from 68% in January to 81% in February and March, as capacity increased. The capacity increase in March saw the number of flights rise to 80% of 2019 levels, taking the group’s total first-half revenue to £1.5bn, with costs of just over £2 billion.

To free up an additional £120m of cash, easyJet has sold and leased 10 more A319s.

For the outlook, while losses are expected to decline, Q3 capacity is expected to reach 90% of 2019 levels, while Q4 capacity for sale remains close to Q4 2019. Fuel costs are 64% covered for 2022 and to 42% 2023.

Deliveroo Shares were also under pressure after reporting an 11% rise in first-quarter GTV value to £1.79bn, a decent performance given strong lockdown comparisons from 12 months ago. Unfortunately, investors had higher expectations of £1.86 billion, which caused some disappointment and sent shares back to recent lows. It has been estimated that recent deals with Amazon and Waitrose could lead to better performance and help bring UK and Ireland’s GTV closer to the £1bn mark. For 2022, Deliveroo has kept its GTV guidance at between 15% and 25%, with management expecting H2 to deliver the improvement that has so far been lacking since the start of the year. This appears to be a big ask given that the cost of living crisis has only just begun, suggesting the prospect of downside risk to the company’s forecast.

On the positive side BP and Shell Stocks are higher on a rebound in crude oil prices, which recovered from yesterday’s three-week lows, as concerns over supply versus demand continue to generate chops, versus new discussions on a Russian oil embargo by the EU.

WE

US markets opened slightly higher at the start of trade after the latest US CPI data raised hopes that the surge in price pressures we have seen over the past 6 months may begin to show. ceiling signs. A slightly weaker-than-expected core reading of 6.5%, versus a stronger-than-expected overall reading of 8.5%, appears to have caused some weakness in US yields, but that doesn’t change the fact that inflation US is still at its highest level since 1982. .

Although the numbers were encouraging, it was widely expected that they could have been much worse, leading to lower US yields, which in turn supported a stock market rebound.

Today’s rebound was largely led by the Nasdaq 100, as well as the Russell 2000, although with energy and food price inflation still looking strong, it still seems too early to make any assumptions. , especially considering what oil prices are doing today.

Effects

The US Dollar lost ground after the latest US CPI data for March came in more or less in line with expectations. Headline CPI rose 8.5%, slightly above expectations, while underlying prices rose 6.5%, slightly below expectations, a sign that inflationary pressures may well be on the point of diminishing. That certainly seems to be how the markets are reacting to today’s numbers, but we’re only talking about one month’s data and that could well change if tomorrow’s US PPI shows little sign of slowing down.

The pound continued to struggle, after the latest BRC retail sales figures showed a slowdown in March, compared to a year ago. On the unemployment front, the news is more positive as the rate fell back to 3.8% for the 3 months ending in February, while wages including bonuses increased by 5.4%, against 4.8% . While this is good news, it still means that in real terms, workers are facing the biggest income squeeze since 2013, with regular wages rising just 4%, excluding bonuses.

The best performers today were the commodity currencies Australian Dollar and Norwegian Krone, while we also lost against the Japanese Yen.

Merchandise

Brent crude oil prices rebounded strongly today after hitting three-week lows yesterday as talk of an EU oil embargo on Russian supply begins to circle again. While IEA members plan to release up to 240 million barrels of additional supply over the next six months, there are still concerns that may not be enough to alleviate a shortage, especially if China starts to relax its covid restrictions over the next few weeks.

Gold prices rose sharply to 4-week highs, on the heels of this afternoon’s US CPI, which hit its highest level in over 40 years at 8.5%. Falling US yields may seem counter-intuitive, but given last week’s rate hike, we were expecting some pullback.

Volatility

AT&T was thrust into the spotlight in terms of price action yesterday, following the completion of a spinoff of its WarnerMedia business, with the parent company receiving support from analysts. Shares jumped noticeably on the open as momentum continued to build during the session, taking the daily vol to 751%, well ahead of the monthly reading of 165%. Soc Gen also saw a marked uptick in activity following its decision to exit Russia, with the move helping to reverse some of the early April losses, pushing daily volume to 222%, from 92% on the month.

Lumber prices are again in focus after reports that demand had been hit hard by rising interest rates, which reduced home improvement projects in North America. The underlying traded in a range up to 13% on Monday, settling near two-and-a-half-month lows. The daily theft stood at 361% against 212% over the month.

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