European markets have struggled for gains today, with the DAX languishing at 6-month lows, while the FTSE100 has struggled slipping back towards this week’s lows. 

Europe

As we come to the end of the week, the month and the quarter there remains a great deal of uncertainty as to what sort of economy we will see in Q4, and whether the determination of central banks to keep rates high will change if we see further deterioration in the economic outlook over the next few months.

For most of this year there has been this belief that the current spate of rate hikes would quickly reverse once central banks had finished hiking, and headline inflation had started to slow. That outcome is now in doubt given the sharp rise we’ve seen in energy prices since June, and the penny is dropping that rates may well have to stay at current levels for much longer than thought, with all the consequences that might have for consumer disposable income and company earnings in the months ahead.    

The FTSE100 has fluctuated between positive and negative territory with the worst performers in commercial real estate while Ocado is also sharply lower on reports that AQR Capital Management became the latest to take out a short position against the business. 

British Land and Land Securities are under pressure are lower on the back of a broker downgrade from Jefferies, with the broker citing a 20% contraction in London office usage due to hybrid working since Covid.

It’s been a good day for UK oil and gas small cap Ithaca Energy after the UK government approved the development of the Rosebank oil field in Shetland. The approval will give Norwegian oil and gas giant Equinor to start the process of extracting up to 300m barrels of oil with both companies expecting to invest up to $3.8bn in the 1st phase of a development which should help to improve the energy security of the UK.

Unsurprisingly the approval has drawn the usual criticism from the green lobby, as if somehow, we can magically keep energy prices low by renewables alone. Today’s detractors appear to be conveniently overlooking the fact that rising oil prices are causing real pain for the consumer as the likes of Saudi Arabia and Russia squeeze the market and will likely continue to do so as global demand continues to rise, and geopolitical uncertainty remains. Sadly, we don’t live in a perfect world and the sooner the green lobby step outside their middle-class bunkers and realise that the better.  

On the other side of the ledger Centrica shares are sharply lower after Morgan Stanley cut their rating to equal weight, after gains of over 60% year to date. 

Swedish clothing retailer H&M shares have moved higher despite reporting that September sales had slowed due to the unseasonably warm weather. In terms of their Q3 results operating profits came in at 4.74m SEK slightly above expectations. The retailer also made progress in reducing inventory levels which were down 21%, while also announcing that it was going ahead with a share buyback program.

Saga shares have slipped back after initially opening higher after reporting a 15% rise in H1 revenues of £355.3m, narrowing losses to £77.8m, most of which was down to a £68.1m impairment in respect insurance broking goodwill. The improvement in revenues primarily came about due to an increase in cruise bookings which saw this area of the business return to operational profit. Ocean cruise saw underlying profits of £12.9m after losses of £6.9m a year ago, while river cruise saw underlying profits of £1.5m. Load factors improved to above 80%. The travel business was still loss making however, reporting a small underlying deficit of £2.6m.

Saga also said that it had decided to put the sale of its underwriting business on hold. 

UBS shares have dropped sharply on reports that the US Department of Justice is investigating sanctions breaches by Credit Suisse in allowing Russian clients to evade sanctions.

US

After closing at a 3-month low, US markets have seen a modestly positive open helped in some part by a pullback in treasury yields from their recent peaks. Reports that a bi-partisan agreement to avert a government shutdown is in the works may also have improved sentiment slightly, although any deal will still need to get through the house, and this is tempering some of the upside momentum.

An unexpected improvement in August durable goods has also helped on the margin, with a 0.4% increase excluding transports.

Electric car maker Lucid opened higher after commencing production at its Jeddah facility in Saudi Arabia of the Lucid Air electric car. 

FX

The US dollar has continued to make gains against the likes of the euro and the pound with the euro sinking to its lowest levels since January, while the pound has slipped to its lowest level in 6 months. The Japanese yen has continued to come under pressure and remains the worst performer this year, down over 12% and seemingly intent on revisiting the levels seen in October last year when we briefly popped up towards the 152.00 level.

Commodities

Crude oil prices have continued their relentless move higher with the $100 a barrel level coming ever closer into view, after Brent prices moved back above $95 a barrel as traders focus on the tightness of the market, as well as low inventory levels. The latest API data showed another decline at Cushing, although nationally stockpiles rose modestly.

The resilience of the US dollar along with higher yields continues to weigh on the gold price, slipping below the $1,900 level for the first time in over a month, with the next key support at the August lows close to the $1,880 level. 

Volatility.

Liberty Media Corp’s stock has seen some elevated levels of interest in recent days. This is the result of a proposed corporate action to simplify ownership structures, but the outcome was a 10% uptick after Monday’s close, before around two thirds of those gains were given back on Tuesday. One day vol on the stock printed 106.53% against 56.15% for the month.

Wheat prices are in focus, reversing at least some of last week’s losses. Once again, it’s concerns of a supply deficit that are taking a toll, with a spell of hot, dry weather in Australia during a key point of the growing cycle being the latest hurdle. One day vol on Wheat sat at 35.27% against 32.28% for the month.

Copper prices tested four-month lows on Tuesday with building inventories continuing to weigh on sentiment. The metal has been comparatively rangebound over the summer but concerns over the near-term outlook for the Chinese economy will be doing little to help here, either. One day vol printed 19.49% against 17.07% on the month.

One other asset class worthy of note today is cryptocurrencies, but that’s because price action is looking abnormally limited right now. The one-day print on Bitcoin sat at just 14.98% compared to 28.25% for the month, with the pattern being repeated across other coins and tokens, too. Given the limits applied to the FTX liquidation sale, it seems unlikely that any extra liquidity this is providing is sufficient to drag volatility down quite so far.  

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.