European markets ended the week on a very steep decline as yesterday’s big sell off in the US spilled over into today’s price action, dragging markets into negative territory for the week, the DAX expected to end lower for the fifth week in a row.
the FTSE100 also had a disappointing week, slipping to a one-week low as the energy sector spared it a worse fate with the two BP and Shell end the week on the right foot, after their good numbers earlier this week.
Rate hike talk has dominated this week, with the Fed raising rates by 50 basis points, with more to come, the Bank of England raising rates by 25 basis points, and now several policymakers the ECB began to hint at the possibility of doing the same in July, in comments made today. in response to concerns about rising prices to help anchor future inflation expectations. These comments appear to have accelerated the current weakness as the economic outlook begins to darken.
Today’s price action was dominated by weakness in consumer discretionary on concerns over weak demand as higher prices lead to lower consumer spending. Travel and leisure has also been caught up in the current weakness with AGI the worst faller on the FTSE100.
Recent updates from US airlines have painted a much more optimistic picture for US travel with Delta, United Airlines and American Airlines indicating that they expect to return to profit this year as travel business and leisure travel have started to return to more normal levels of activity.
Of course, IAG faces slightly different challenges in that its home market is more fragmented in the form of its various brands. Nevertheless, when the airline announced a loss of 2.9 billion euros at the end of last year, it said that although it did not expect to be profitable in the first quarter, it should recover profits from the second quarter, assuming no more restrictions.
Of course, the Russian invasion of Ukraine put a damper on the works, various computer problems, which damaged the appeal of its brand, as well as the various blockages and restrictions which affected its routes to Asia and China.
Today’s first quarter figures saw passenger capacity in line with expectations at 65%, with an expectation of 80% for the second quarter, 85% for the third quarter and 90% for the fourth quarter, routes North Atlantic should be close to full capacity in the third quarter.
First-quarter revenue was 3.44 billion euros, slightly above expectations, but lower than the 3.5 billion euros in the fourth quarter, while operating losses narrowed to 754 million euros , which was higher than expected and appears to be weighing on the stock price today, although the airline held it steady. expects to return to operating profit from now on. The number of passengers carried was 14.38 million, above estimates of 14 million.
On a similar leisure theme, the owner of Holiday Inn IHG said revenue per room (RevPAR) increased 61% from last year and is now back to 82% of 2019 levels. The Greater China region proved to be a drag in March in due to lockdown restrictions.
By region, occupancy rates were 60% in the US, 50% in EMEAA and 36% in Greater China, while the US outlook looks most promising in terms of increased pricing power, with rates in the US activity of 4% before 2019. levels.
Adidas Shares fell sharply after the sportswear company slashed full-year operating margins from 10.5% to 9.4%, due to a slowdown in its China business. For the first quarter, operating profit fell 38% year-on-year to €437m, although this figure was above expectations, while revenue came in at €5.3bn. euros. The company also lowered its expectations for the rest of the year. This caused the weakness of people like JD Sports.
Dutch lender ING saw its shares pull back after incurring significant costs on its exposure to Russian loans. The bank said it was taking 987 million euros in loan loss provisions as it posted a net profit for the first quarter of 429 million euros. Turnover amounted to 4.6 billion euros, slightly above expectations.
US markets continued where they left off yesterday, opening lower despite a fairly strong Nonfarm Payrolls report, with the Nasdaq 100 and S&P500 both dropping below key support levels of 12,700 and 4,100 respectively, raising the prospect of further heavy losses in the short to medium term.
428,000 new jobs were added in April, while the March figure was revised down to 428,000, so a nice symmetry. The unemployment rate remained stable at 3.6%, while the participation rate unexpectedly fell to 62.2%, which is a bit surprising. Average hourly wages were flat at 5.5%, suggesting that despite all the worries about a tight labor market and 11.2 million job vacancies, wage inflation remains subdued.
On the earnings front under protection continued the theme of sportswear makers warning of the outlook, following Adidas’ warning this morning, saying it expects to see lower-than-expected full-year profit due to higher costs and supply chain disruptions. The company also posted a first-quarter loss of 1 cent per share.
Galactic Virgo The shares are also down after reporting that it would have to delay the launch of its commercial spaceflight until the first quarter of 2023, due to staff shortages and supply chain issues.
Sports betting agency DraftKings on the other hand, enjoys a boost after its latest quarterly results after revenues were better than expected, while raising its outlook for the full year.
Today’s US payrolls report did nothing to tip the US dollar one way or the other, although it is still near 20-year highs. The euro got a bit of a break as several ECB policymakers broke ranks to say rates need to rise. Germany’s Nagel, France’s Villeroy, Slovenia’s Vasle and board member Eldersen all signaled rates are likely to rise as they attempt to lift the euro higher from its recent lows.
The fall in the euro exacerbates the inflationary impulse throughout the euro zone, making it much more persistent.
The pound continued to look weak, with Bank of England chief economist Huw Pill doing little to allay market concerns over Britain’s economy, which he said is set to stagnate in the second quarter on the day extra platinum jubilee holiday doing little to stimulate the economy. This seems rather odd, as we are likely to see a surge in consumer spending as people go out and celebrate what should be a momentous day for the UK. It’s really a case of “hoax” on the part of the Bank of England seems to me: it should come out more!
Crude oil prices have continued to climb this week, putting aside concerns about Chinese demand and focusing on the EU’s announcement this week of an embargo on imports of Russian oil by the end of this year, although it looks like special exclusions need to be created for countries like Hungary, Slovakia and the Czech Republic.
The continued rise in US Treasury yields continues to dampen the rise in gold prices, with the yellow metal languishing just above two-month lows.
The twin onslaught of growing recession fears and further interest rate hikes in the UK and US appear to dominate the agenda as the week draws to a close. Tech stocks were particularly hard hit, leading to high levels of price action in many areas. Germany’s Tech 30 index saw daily volume rise 43% versus a weekly print of 34%, while the NDAQ contract posted a similar trend of 39% versus 32%.
On a more esoteric level, shares of Boohoo continued to show heightened levels of movement on Thursday, following Wednesday’s disappointing results. The trend is up, however, with bargain hunters likely looking at the long-term potential here, rather than these immediate headwinds. The company certainly has a significant level of scale to build on, the underlying added 5.85% while the daily flight printed 258% versus 130% on the month.
In fiat currencies, the Kiwi dollar continued to lose ground against the greenback after the brief but notable gains following the Fed’s rate call. The daily theft is here at 21.94% against 12.22% over the month.
Finally, to complete with the cryptos, the class seems relatively moderate, although Tron is again outstanding. Earnings early in the week looked a bit overdone, leading to some profit taking in Thursday’s session. It looks like a slight blow though and overnight the uptrend is back in play. The daily vol is showing 131% vs. 84% on the month.