Market movers: oil, UK GDP, Twitter, French election, SocGen, Chinese inflation

Victoria Scholar, interactive investor's head of investment, runs through today's big stories and how financial markets are reacting. 

EUROPEAN MARKETS

It is a weaker start to the European session with the CAC, FTSE 100 and DAX all trading in the red. A jump in China’s inflation data overnight has dampened risk appetite and oil prices, while France’s first round presidential election result makes another Macron landslide less likely than in 2017. The markets are setting up for a busy week ahead with a slew of economic data releases and with US second-quarter earnings season kicking off with the banks.

OIL 

Brent crude and WTI are down by more than 2% each, with the global benchmark within a whisper of the psychological $100 a barrel support level, setting the stage for a possible continuation of the previous fortnightly drop.

The market is being dragged down by the prospect of softer demand from China after Shanghai continues its COVID-19 lockdown as Beijing focuses on its aggressive zero tolerance policy to the detriment of its economy. There are fears that lockdowns and economic restrictions could deepen if cases spread to other cities. Meanwhile, on the supply side, the US and other countries are starting to find ways to reduce their energy dependence on Russia, plugging the shortfall by adding to rig counts and by planning reserve releases.

UK GDP

UK February GDP rose 0.1% month-on-month, with monthly GDP now 1.5% above its pre-pandemic levels. However, growth fell short of analysts’ expectations for 0.3% and slowed month-on-month versus the 0.8% growth that the UK economy enjoyed in January.

February’s modest increase was driven mostly by services which expanded by 0.2%, thanks to tourism-related activities like travel agency and tour operator services as well as demand for accommodation as COVID-19 restrictions subsided, allowing many individuals and families to enjoy their first trip away in many months or even years. However, this gain was partly offset by manufacturing, which suffered a notable drop as automakers and computer goods makers continues to struggle with supply chain issues that have led to a deficit of parts in the UK.

Following the bounce at the start of the year, headwinds have emerged for the UK’s economy, with the deepening cost-of-living crisis exacerbated by the Ukraine war which has worsened the inflationary energy price backdrop. With interest rates on the rise, taxes going up and inflation spiralling, January’s pick-up appears to be short-lived with more economic uncertainty to come.

TWITTER

Twitter's (NYSE:TWTR) CEO Parag Agrawal has tweeted that Elon Musk will not in fact be joining the company’s board after all. It comes after last week’s announcement that Musk had acquired a 9.2% stake in the social media company, sending shares soaring and that he would be appointed to the board. Over the weekend Musk suggested some potential changes to Twitter’s premium subscription service Twitter Blue such as allowing users to pay with dogecoin and cutting the price of the service.

This is an abrupt U-turn from Twitter and Elon Musk and could reflect anxiety among Twitter employees about what his addition to the board could mean for content moderation. Musk describes himself as a free-speech absolutist. This mentality could stand in the way of Twitter’s focus on removing trolls, fake news and conspiracy spreading while simultaneously encouraging healthy content sharing on its platform.

Although shares initially gained nearly 40% last Monday when Musk’s shareholding was revealed, Twitter is now up a more moderate 17%, perhaps reflecting some nervousness among shareholders about the unpredictability of Elon Musk and his absolute determination to prioritise free speech over moderating and deplatforming.

FRENCH ELECTION

Incumbent leader Emmanuel Macron will face far-right candidate Marine Le Pen in the presidential run-off later this month in what is setting up to be a nail-biting race between the two. Macron won the first round of the French election with 27.6% of the vote versus Marine Le Pen with 23.41%, with 97% of votes counted. However voter turnout fell sharply versus 2017 to 65% with high abstention rates suggesting many have lost faith in Macron, paving the way for a much tighter vote in the second round.

In her third presidential campaign, Le Pen has successfully pivoted away from some of the more extreme anti-European Union, anti-immigration rhetoric and instead has been focusing on rising inflation and the cost-of-living crisis for families which has widened her appeal and attracted more voters. Macron, meanwhile, has been extremely busy with diplomatic efforts to tackle the war in Ukraine, leaving less time than normal for campaigning in the election run-up.

In terms of the markets, Macron is clearly the most market friendly candidate thanks to his passion for European unity and his determination to help bring the war in Ukraine to an end. Meanwhile, Le Pen’s extreme right views and some shady ties to Moscow would create uncertainty that would deeply unnerve financial markets if she were to prevail in the second round.

SOCIETE GENERALE

Shares in Societe Generale SA (EURONEXT:GLE) have surged more than 7% after it announced plans to exit Russia and signed an agreement to sell its stake in Rosbank to Interros Capital. The French lender is among the foreign banks with the largest exposure to Russia through its retail bank. The announcement follows similar decisions from its domestic rivals BNP Paribas (EURONEXT:BNP) and Credit Agricole SA (EURONEXT:ACA) which closed all operations in Russia last month in light of the war in Ukraine.

Today’s jump in the share price exemplifies the size of the discount that holding Russian assets now creates for Western corporate share prices. It also highlights the challenging environment facing companies trying to find a buyer for unwanted Russian assets which despite being heavily on sale, remain deeply undesired.

HEATHROW

Heathrow said its passenger numbers in March hit the highest levels since the start of the pandemic. The airport said it is planning to increase resources with 12,000 planned new hires to keep up with rising demand.

The abandonment of all COVID restrictions in the UK has provided a major tailwind for international travel, with many families finally able to enjoy their first trip abroad since before the pandemic. Pent-up demand from UK travellers is boosting demand for services at Heathrow and other airports. However this is partly being offset by below-normal inbound travel with many international tourists and business travellers put off by the high levels of COVID cases that linger in the UK. Looking further ahead there is still much uncertainty for Heathrow with rising fuel prices, the war in Ukraine and the possibility of slowing growth.

CHINA INFLATION

China’s annual inflation rate hit 1.5% in March, hitting a three-month high and topping analysts’ expectations, sending shares across Asia lower amid fears about rising price levels. Producer prices were also higher than expected surging 8.3% year-on-year above estimates for 7.9% as raw material costs surge on the back of supply chain bottlenecks and the war in Ukraine.

The Hang Seng shed more than 3%, while the Shanghai Composite declined almost as much spooked by the prospect of slowing growth as China continues to pursue its dramatic zero-COVID policy as well as rising price levels that are hitting both producers and consumers. This has prompted nervousness about the response from People’s Bank of China which has been going against the global grain by focusing on looser monetary policy. Rising inflation makes sticking to that path more challenging as food and energy prices push higher.