European markets have been in a much more ebullient mood today despite further economic data from China that points to a weakening economy, after headline CPI fell into deflationary territory for the first time since early 2020.
Europe
While this comes across as encouraging for inflation trends in Europe, as well as the US, in that it could prompt the end to further rate hikes from central banks here, it does little to paint a positive outlook for a broader China recovery.
Nonetheless markets appear to be trading on the basis that price pressures are likely to ease further, although the best performing sectors are basic resources and energy, with oil prices rising to 9-month highs, and European natural gas prices rising sharply on the back of supply concerns and the prospect of worker strikes at Australian LNG facilities.
We’ve also seen a modest rebound in the European banking sector after the Italian government clarified the details around its windfall tax bombshell from yesterday. The finance ministry said that any levy wouldn’t exceed 0.1% of a bank’s assets, and that banks that have already raised deposit rates won’t suffer a significant impact as a result. Consequently, we’ve seen the likes of UniCredit and Intesa rebound, along with the rest of the sector.
Amongst the biggest fallers today has been Flutter Entertainment, the shares falling to a 4-month low, despite reporting H1 revenue of £4.81bn, a 42% increase year on year, with sports revenue the main driver of the improvement. All areas of the business posted strong revenue gains, except for Australia which saw a revenue decline of 1.8%. Today’s numbers appear to have been overshadowed by today’s reports that ESPN is moving into the sports betting business signing a deal with Penn Entertainment, putting it in direct competition with FanDuel, which Flutter owns.
Flutter went on to confirm that it was working towards a US listing in later Q4 or Q1 of next year, and that H2 trading was in line with expectations.
UK insurer Hiscox shares are also getting a caning despite reporting H1 pre-tax profits of $264.8m and saying that management expect to see full year headline growth to be in line with half year trends.
Holiday Inn owner Intercontinental Hotels Group shares have picked up where they left off yesterday, the shares pushing up to new record highs, as the momentum from yesterday’s strong H1 trading results continued into a second session.
US
After finishing well off their lows yesterday, US markets initially took their cues from the more positive tone from European markets, opening higher however we’ve drifted off the highs with the focus on tomorrow July CPI, and the hope that it will provide further evidence for the idea of a Fed pause when the central bank next meets in September.
There’s been some significant moves in the gambling sector after Disney’s ESPN signed a deal with Penn Entertainment to move into the online gambling business, putting it into competition with DraftKings and UK based Flutter Entertainment.
With Disney shares just above the lows from last year, shareholders will be hoping for some respite after a poor set of Q2 numbers saw the shares slide sharply in May. After the bell we get their Q3 numbers where it is expected that revenues for the quarter will come in at $22.5bn. On the streaming side Disney+ is expected to lose another 3.2m subscribers, and profits are expected to come in at $0.99c a share. It will be interesting to see how a move into sports betting fits into the traditional family and child friendly image that Disney has amongst consumers.
The last few weeks have seen a significant run up in the Rivian share price after the electric car company announced that it was starting deliveries to Amazon for its European operations in Germany. At the end of last year Rivian said it expects to double output to 50k, and yesterday adjusted that number higher to 52k, although it said it still expects to see heavy losses of $4.2bn, a minor adjustment from the $4.3bn it expected at the start of the year. Last month Rivian produced 13,992 vehicles, delivering 12,640 of them. Losses for Q2 came in at $1.08c a share on revenue of $1.12bn. Q3 revenue expectations are for $1.27bn.
Given the recent release of a series of big movie releases hopes were high that AMC Entertainment would reap the benefit of that, and yesterday’s Q2 numbers appear to have reflected that as the cinema chain generated Q2 revenue of $1.35bn. Overall attendance also saw a significant improvement rising 12.2% to 66.4m. That momentum looks set to spill over into Q3 as viewers turn out to view Mission Impossible, Dead Reckoning. Barbie and Oppenheimer. AMC also managed to break even on the quarter, however challenges remain not least the company’s eye-watering debt levels, and the fact that despite a record July the cinema chain is no nearer to returning to long term profitability.
Lyft shares have fallen sharply despite seeing a 3% increase in Q2 sales to $1.02bn, on the back of an 8% increase in active riders to 21.5m. Despite the improvement year over year, and the increase in active riders, revenues for this quarter were well below the levels from Q4 last year.
The ride sharing company did say that despite the lacklustre nature of its revenue growth it still expects to improve its earnings for Q3 to between $75m and $85m, up from the $41m seen during the last quarter.
When WeWork. returned to market by way of a SPAC back in 2021 with a $9bn valuation the hope was that the lessons of the 2019 IPO would be learnt, however yesterday’s profit warning suggests that the company is yet again facing a fight for its future. While Q2 revenue came in as expected at $844m, losses came in at -$0.21c a share, or $349m. The company said it was struggling to remain a going concern. The company is haemorrhaging cash and clients are cancelling in droves while its operating expenses rose to $1.2bn.
Roblox shares are also under pressure after the video game streaming company posted a bigger then expected loss of $0.46c a share in Q2, and lower than expected average bookings per daily active users.
FX
The pound is amongst one of the weaker performers today ahead of this weeks Q2 GDP numbers, while the NIESR gave a bleak assessment of the challenges facing the UK economy over the next 5 years. The think-tank said that the UK is headed for 5 years of lost economic growth, with GDP not expected to return to its pre-pandemic levels before 2024, and that inflation would remain above the Bank of England’s until at least December 2025, while wage growth would struggle to keep up.
Commodities
European natural gas prices have surged today on concerns over supply pinches, against a backdrop of concerns over worker strikes at LNG plants in Australia. With concerns over gas supplies in Europe rising due to maintenance shutdowns in Norway the timing isn’t great, however with inventory levels at relatively high levels there is some hope that the current spike in prices could well be temporary.
Crude oil prices have also continued to edge higher as rising tension between Russia and Ukraine, prompts concern that Ukraine might target Russian infrastructure and disrupt supply in the Black Sea. With US inventory levels also seeing large declines in recent weeks, the outlook for prices appears to be tilted more to the upside, unless fresh supply comes to market.
Volatility
Disappointing earnings news from Siemens Energy at the start of the week has left the company’s stock struggling. There’s concern that the race to net zero is being pursued at a rate that is exposing the firm to commercial risks as has been seen with a series of wind turbine failures, although the stock does appear to be finding some support following that big sell off around six weeks ago. One day vol stood at 146.68% against 59.91% for the month.
CMC’s proprietary basket of Cannabis growing stocks saw elevated levels of price action on Tuesday. Heavyweight constituent Tilray added more than 30% off the back of news it had acquired a series of beer brands from AB InBev. That was sufficient to drive the price of the basket to five-week highs and leave one day vol standing at 140.26% against 99.11% for the month.
A surprise move by the Italian government to levy a windfall tax on banks took a toll at both a sector and regional level on Tuesday. The FTSE MIB lost as much as 800 points in early trade before recovering around half of the downside, with one day vol printing 25.99% against 15.86% for the month, whilst CMC’s proprietary basket of EU Banks also saw elevated levels of activity. Early losses for the underlying here were up to 4%, with one day vol reading 41.69% against 28.65% for the month.
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