Victoria Scholar, interactive investor's head of investment, runs through today's big stories and how financial markets are reacting.
Positive momentum in the US after the Federal Reserve hiked interest rates, combined with easing Covid restrictions in China’s tech hub Shenzen and optimism towards a possible ceasefire in Ukraine, have all contributed to a sense of ebullience within European equities as the FTSE 100 continues to march higher extending yesterday’s gains.
Oil prices are staging gains with Brent crude back above the psychological $100 a barrel mark, as risk-on sentiment drives optimism towards the global demand outlook. Plus, a stark assessment from the International Energy Agency which concluded that the market is set to lose three million barrels a day of Russian oil from April prompted further supply concerns adding to today’s upward pricing pressure. If the Ukraine war continues to show tentative signs of easing, the dizzy heights of almost $140 for oil, driven by last week’s geopolitical risk premium, are unlikely to be repeated in the immediate term.
BANK OF ENGLAND
The Bank of England is extremely likely to raise interest rates for the third time in a row at today’s meeting, lifting its Bank Rate to 0.75%.
With inflation running hot and the latest GDP figures for January also coming in strong, higher interest rates were a no-brainer, until the Ukraine war broke out which significantly complicates the picture. Tensions between Russia and Ukraine and the resultant energy price shock have exacerbated the inflationary backdrop but have also dampened the economic outlook.
While we are yet to see the GDP figures reflecting the period since the onset of war, consumer confidence is already deteriorating and will lead to slower growth down the line, while inflation is likely to push higher for longer, possibly peaking later this year rather than next quarter.
While the Bank of England is ahead of the pack as the first mover, it is still behind the curve, prompting serious concerns about the prospect of a recession or stagflation. The central bank has the unenviable task of attempting to control supply side inflation with demand side tools, without inadvertently creating a recession.
Shares in Deliveroo (LSE:ROO) have jumped more than 4% after the food delivery business suggested that core earnings could breakeven in around two years, despite its full-year adjusted core loss worsening to £131 million from £11 million in 2020 at the height of lockdowns during the pandemic.
Today’s price action provides some brief respite for investors, who have been plagued by a sharp slump in Deliveroo’s share price since its disastrous IPO just over a year ago, with the stock plunging almost 70% from 390p to 120p. In 2020, food delivery businesses like Deliveroo thrived amid the strict lockdowns and travel restrictions.
However, as life began to restore a sense of normality, the reopening trade has been a major headwind for the sector. While Deliveroo successfully branched out into a groceries, a key growth area for the sector, this was offset by the array of new competitors which have entered the market, attempting to capitalise on the Q-commerce trend.
Cineworld Group (LSE:CINE) shares are trading higher after posting a 112% jump in revenue in 2021 to nearly $1 billion, while its pre-tax loss narrowed year-on-year from $3 billion in 2020 to $708 million, partly thanks to demand for tickets of Spider-Man: No Way Home and James Bond, No Time To Die. Admissions also soared in 2021 by 75% versus the previous year to 95.3 million.
Part of these strong growth percentages reflect dismal base effects from 2020 when the industry was on its knees. However, there are some encouraging trends, including strong ticket sales for popular franchise movies and pent-up demand after Covid being released, with customers maximising the cinema experience after a long hiatus. While the stock has suffered a 70% slump since the peak 12 months ago, there has been some encouraging price action this month, suggesting that shares could be past the bottom.
The London Metal Exchange has upped its maximum allowed percentage move before trading halts kick in for nickel from 5% to 8% after the market reopened more than 8% lower, triggering a halt at Wednesday’s market open, when the metal made a short-lived attempt to play catch up after trading was postponed for a week amid the volatility.
Chaos and uncertainty prompted traders to steer clear of the market altogether when price action resumed in the afternoon, resulting in the thinnest volume day of trade for 16 years. This morning Nickel has opened down 8%, prompting a trading halt once again, suggesting that the market remains in disarray.
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