Victoria Scholar, interactive investor's head of investment, runs through today's big stories and how financial markets are reacting.
European markets are attempting to regain some ground after Monday’s drop with technology, which was hit hardest yesterday, leading the gains. The DAX and the CAC are up by more than 1%, while the FTSE 100 is staging more tempered gains, heading up towards 7,300 as the key intraday resistance level to watch.
The market sell-off intensified overnight, with the Nasdaq shedding over 4%, while the S&P 500 slumped to more than one-year lows in an extension of the negativity late last week. Tech was hit particularly hard with Tesla Inc (NASDAQ:TSLA) shedding more than 9% and Uber Technologies Inc (NYSE:UBER) declining by over 11.5%.
Wednesday’s post-Fed bullish glow proved to be short-lived and was quickly overpowered by the forceful anxious market mood, which propelled this three-day decline, resulting in a $220 billion market cap loss for Apple Inc (NASDAQ:AAPL) and for Tesla to push back below the psychological $1 trillion valuation mark. This sense of bearishness is preventing opportunistic investors from scooping up discounted stocks at cheaper prices on the expectation that there is likely to be more pain to come. However, this morning it looks like there could be some relief for the markets, suggesting yesterday’s sell-off was somewhat overdone.
The fact that inflation is marching higher, the cheap money era is ending, China is facing an economic slowdown and the war in Ukraine endures, are all coming together to provide a daunting reality check that has contributed to the more than 100% surge in the VIX volatility index since the January low.
Oil prices continue to fall, extending declines after yesterday’s near 6% slide as the US dollar hit a fresh 20-year high and as China’s draconian zero-Covid tolerance approach raises concerns about the outlook for demand from the world’s second-largest economy. The sell-off in the oil market went hand in hand with the declines in equities as fears about rising interest rates and the prospect of a global recession sparked a cross-asset sell-off. However, while equities are attempting to claw back some of Monday’s lost ground, oil continues its descent dragging the commodity currencies down with it.
Morrisons has confirmed that it will rescue the insolvent convenience store chain McColl’sMcColl's Retail Group (LSE:MCLS), beating EG Group after final offers were submitted on Sunday. Morrisons will take on all 1,160 McColl’s shops and its 2000-member pension scheme, alleviating fears about store closures and job cuts. Morrisons will also pay off its debts worth £170 million. Shares in McColl’s were suspended on Friday having lost almost all of their value since the start of the year.
Given that Morrisons already works closely with McColl’s as a key wholesale supplier, this deal is a strategic fit that will provide Morrisons with access to more than a thousand convenience stories in attractive locations. There has been a major shift in supermarket customer behaviour over the last decade from the once-a-week big family shop to several mini top-up shops throughout the week, a shift that McColl’s shop locations will help Morrisons to seize upon. Despite the shift towards convenience store shopping, McColl’s has been struggling lately with problems updating its food range as well as post-pandemic supply chain issues and cost inflation pressures that so many businesses are dealing with.
Heathrow has raised its full-year passenger forecast by 16% from 45.5 million to 53 million. However, it warned that the war in Ukraine, higher fuel costs and restrictions for key markets like the US are creating uncertainty going forward. As a result, the London airport said it expects to remain loss-making throughout this year with travel demand forecasts to reach 65% of pre-pandemic levels for the year.
Although Heathrow has raised its forecasts for the full-year, it is clear that travel demand remains subdued with business travel in particular unlikely to ever get back up to its pre-Covid peak. After an unprecedented period of difficulty for the whole sector, 2022 was meant to see a surge in pent-up demand and a sharp acceleration of international travel. However, with the cost-of-living crisis, the new era of online business meetings, the war in Ukraine and cost inflation, Heathrow is facing yet another difficult year that will delay its first post-pandemic period of profitability.
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