FTSE 100 retreats as oil stocks drag

EEuropean markets were mixed today, with an underperformance in the FTSE 100 weighed down by weakness in the energy sector, despite continued resilience in the price of oil today.

Europe

We could see an element of profit taking in stocks like Royal Dutch Shell and BP after a decent run of gains and a good start to the year. Even with today’s declines, BP is still up over 17% YTD and Shell is up 12%. The Lloyds and NatWest groups are also more flexible.

GlaxoSmithKline is also weighing on the UK benchmark after Unilever said it would not increase its £50bn bid for the company’s consumer healthcare division.

Unilever shares initially rebounded after confirming they would not increase their bid for GlaxoSmithKline’s consumer business, drawing a sigh of relief from their shareholders fearing they had been struggling with high debt levels, or being diluted by eventual fundraising.

Even so, early gains this morning were short-lived, with shareholders rightly wondering how an attempt to try to increase profitability for a company struggling to increase margins, led to the Shares fall to their worst weekly decline since last July. year.

Primark owner Associated British Foods saw its shares decline after reporting a 16% increase in the group’s revenue from a year ago. For the group’s retail business, sales were up 36% from a year ago when all stores were closed. UK sales were down 10% from pre-pandemic levels, with management confirming footfall in December was hit by Plan B restrictions imposed just before Christmas. In Europe, the retailer said it expects a loss in sales of £30million due to store closures in Austria and the Netherlands. The US business showed the biggest improvement with overall sales up 37% from pre-pandemic levels. Primark’s total sales were still 5% lower than pre-Covid.

All other businesses improved their revenue performance compared to a year ago, with the exception of groceries, which recorded revenue of £1.2 billion, compared to £1.22 billion. pound sterling. Sugar saw its revenue increase by 12%, agriculture by 7% and ingredients by 6%. In today’s market, costs have risen, and some of these are being offset by price increases if needed, while expectations for Primark’s second quarter sales are expected to be well above last year’s levels, full year revenue and earnings outlook unchanged.

Deliveroo’s share price managed a decent rebound from record lows after announcing a better-than-expected performance in the fourth quarter and confirming a pro forma GTV of 70% for the full year to 6.63 billion. sterling, at the upper end of its updated third-quarter forecast. from 60% to 70%.

Shares of Entain, owner of Ladbrokes and Corals, were a disappointment despite improving its full-year earnings outlook after a decent performance in the fourth quarter. Full-year net gaming revenue increased 7%, with the BetMGM business reporting an NGR of $850 million. FY21 EBITDA is now expected to be between £875m and £885m

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US markets opened higher, with the Nasdaq 100 leading the rebound higher as it rebounds off its 200-day MA, after closing at three-month lows yesterday.

US weekly jobless claims unexpectedly hit a three-month high of 286,000 last week, while continuing claims also rose to 1.63 million, after hitting their lowest levels since 1973 .

On the profit front, American Airlines’ fourth quarter figures saw the airline report a loss of $931 million due to the disruption to travel in the quarter caused by the Omicron variant and other disruptions. trips. For the first quarter, the outlook looks better, but total revenue is still expected to be more than 20% lower than pre-pandemic levels

Netflix is ​​expected to release fourth quarter numbers after the close, as revenue is expected to rise to $7.7 billion, amid slowing user growth and a reduced margins from 23.5% to 6.5% due to increased content spend. . Earnings are expected to fall back to C$0.80 per share.

Effects

The US dollar came under pressure again against the commodity currencies, although the Australian dollar’s strength may well have more to do with the jobless rate falling sharply from 4.6% to 4.2% in December, with strong increases in both full-time and part-time employment. The strength of the rebound, along with rising inflation expectations, could mean the RBA may well have to change its time horizon for rate hikes.

The euro underperformed after ECB President Christine Lagarde rejected calls for the central bank to act more quickly against rising inflation, after December’s CPI was down. confirmed at a record level of 5%. She continued to peddle the line that the recovery in the EU was lagging behind that in the US and that as such there was no rush. It rather ignores the fact that the Fed is heavily criticized for being behind the curve, and this morning’s PPI figures from Germany which saw the PPI rise 5% on a monthly basis and 24.2 % on an annualized basis. Unfortunately, the ECB is in a trap of its own making when it comes to rates, fearful of limiting borrowing costs for heavily indebted governments that can ill afford higher yields.

Merchandise

Oil prices continue to look supported, as expectations of a move towards $100 a barrel in the coming weeks grow stronger. As the UK has moved away from recent covid restrictions, expectations for demand as spring approaches have continued to rise, while supply chain constraints serve to limit the decline.

After three days of strong gains, silver prices are closing in the 200-day MA which has capped gains since August of last year with an upside breakout potentially targeting a move towards $26. Platinum prices are also acting in the same way, threatening to end the downtrend that has been in place since last year’s highs in February 2021.

Gold prices rose above the $1,830 level, helped by the pullback in US 10-year yields over the past two days and a slightly weaker US dollar.

Steve R. Hansen