Victoria Scholar, interactive investor's head of investment, runs through today's big stories and how financial markets are reacting.
European markets are under pressure, taking their cues from the declines on Wall Street as the market awaits key inflation data stateside. Trading updates and economic data are setting the agenda in the UK, with the FTSE 100 under pressure inching towards support at 7,600. Rolls-Royce Holdings (LSE:RR.) and the London Stock Exchange Group (LSE:LSEG) are languishing at the bottom of the index, while the miners and oil companies like BP (LSE:BP.), Glencore (LSE:GLEN), Fresnillo (LSE:FRES) and Endeavour Mining (LSE:EDV) eke out modest gains. In Germany focus is on the banks with Deutsche Bank AG (XETRA:DBK) and Commerzbank AG (XETRA:CBK) selling off sharply on a report that a key investor is offloading a major stake in both.
Oil prices are rallying more than 3%, with Brent trading just above $100 a barrel after China relaxed some of its COVID-19 restrictions in Shanghai, easing investor nervousness about the possibility of a slowdown in demand from the world’s second-biggest economy. On the supply side, despite Western efforts to substitute supply from Russia with alternative oil sources by tapping emergency reserves and US rigs, OPEC warned that the estimated 7 million barrels per day from Russian exports that would be lost through retaliatory sanctions would be impossible to replace.
Despite today’s pick-up, Brent crude is still trading in a three-week decline with the possibility for it to test the March lows and push below $98.49. Brent crude has shed around 27% since the 2022 peak just over a month ago, with a sustained break below $100 potentially paving the way for an extension of the downtrend and a move back down towards $90 a barrel.
The number of people employed in the UK rose by 10,000 in the three months to February to 32,485, falling short of expectations for a 50,000 rise. However the number of payroll employees is now well above pre-pandemic levels. The headline unemployment figure improved to 3.8% while average earnings excluding bonuses rose by 4% improving versus last period both of which are in line with expectations.
This morning’s data saw a drop in the headline unemployment rate, a pick-up in wages and the number of people unemployed for up to 12 months hitting a record low, all underscoring the strength in the UK labour market. Once again job vacancies hit a new record high, highlighting the difficulty facing employers to attract and retain staff. While this tightness has meant that workers can demand higher wages, with average earnings on the rise, unfortunately this has not been enough to offset inflation with real wages on the decline.
The Bank of England will be eyeing today’s figures with the UK jobs market approaching full employment and rising wages providing support for speedier monetary policy tightening in an everchanging economic puzzle.
UK retail sales in March rose by 3.1% dropping from 6.7% growth in February, according to the British Retail Consortium. Like-for-like retail sales fell 0.4% year-on-year versus growth of 2.7% in the previous month. According to the data, consumer confidence has slumped to the lowest level since the financial crisis in 2008.
As the cost-of-living crisis deepens, consumer confidence and retail sales are struggling. While the total value of overall retail sales grew, this reflects the inflating price of goods rather than a pick-up in demand. With pressure on personal finances from higher energy bills, food prices, and taxes, discretionary spending is unsurprisingly taking a hit as families focus on trying to afford the essentials. Plus the war in Ukraine is weighing on confidence and is deepening the inflationary backdrop. While there was a pick-up in spending in the run up to Mother’s Day, this was offset by a drop in food spending, possibly because of a later Easter this year versus last, with a rise possibly materialising in next month’s data.
This is the first set of interim results since its transition from AIM to the main market on the London Stock Exchange. ASOS (LSE:ASC) reported an 87% drop in first half profit to £14.8 million versus £112.9 million year-on-year while revenue rose 4% to £2 billion as problems with the global supply chain and rising cost inflation bite.
Investors have lost confidence in ASOS, with the stock down more than 70% in just over a year. This marks a major turnaround from during the pandemic when it was a key beneficiary of demand for stay-at-home stocks. Since life has reopened and restrictions have ended, companies like ASOS, Deliveroo and Zoom have all struggled.
This year, pulling out of Russia and Ukraine accounted for around a 4% drop in revenues and £20 million in profit. The broader tech sell-off also dragged ASOS lower amid concerns about what the prospect of higher interest rates could meet for some of the more debt-laden companies in the sector. On top of that, rising cost inflation for ASOS, a highly price sensitive business, is eating away at margins as it is unable to materially increase its prices. All of this in combination with the global supply chain woes suggests that ASOS could continue its downtrend.
easyJet (LSE:EZJ) says it is expecting third quarter capacity to reach 90% of its Q3 2019 levels and said its first-half losses fell year-on-year, beating analysts’ expectations. It is forecasting a headline loss before tax in the range of £535 million and £565 million for the six months to the end of March.
2022 was meant to be the comeback year for airlines like easyJet which were devastated during the pandemic when most flights were grounded. But this year the sector is facing fresh headwinds from the war in Ukraine, rising oil prices and a sharp jump in COVID cases in the UK affecting staff sick leave and inbound travel to the UK. While the war sent easyJet’s share price sharply lower in February, since the beginning of March investors have been returning to the stock at its freshly discounted price, making it one of the most bought stocks on the interactive investor platform last month.
Today’s update suggests that easyJet is so far successfully navigating the storm, with 64% of its second-half fuel already hedged and with pent up demand for European holidays supporting the low-cost carrier’s plans to restore pre-pandemic capacity this summer.
Deliveroo (LSE:ROO) kept its full-year 2022 guidance maintained. The food delivery business said it processed 82.4 million orders in the first three months compared with 69.6 million in the same period last year, despite tough comparables when lockdown restrictions were in place in 2021.
Since its disastrous IPO just over a year ago, in which its sky-high valuation did not pare up with 2021 post lockdown levels of demand, shares have had a torrid time, shedding more than 70% since the peak in August. The company has struggled with the easing and eventual lifting of COVID-19 restrictions alongside other stay-at-home stocks like ASOS and Zoom. On top of that, the delivery business has been grappling with stiff competition in the crowded q-commerce space as well as high profile criticism towards the treatment of its drivers. Despite keeping its guidance unchanged, investors are struggling to get on board with its business model given the low barriers to entry and high competition, with shares on track to reach fresh lows.
Stablecoins like bitcoin and ether are under pressure, with BTCUSD trading within a whisper of psychological round number support at $40,000. Similarly, ETHUSD is hovering close to its next test on the downside at $3000. The notoriously volatile asset class had been enjoying an upswing with bitcoin rallying 45% from trough to peak in the first quarter. However April has seen a shift in sentiment with bitcoin under pressure once again staging some sharp intraday moves.
This week’s Bitcoin 2022 conference in Miami which enjoys an estimated 25,000 attendees per day has failed to impress investors. There was speculation which didn’t materialise that Apple could announce plans to incorporate bitcoin into its Apple Pay services or that another country would adopt bitcoin as legal tender. Yesterday’s sell-off on Wall Street with the tech-heavy Nasdaq bearing the brunt of the declines also weighed on the crypto complex with investors exchanging riskier assets like tech stocks and cryptos for safe havens instead.
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