Travel and leisure give a lift to European markets, miners drag

It’s been another positive session for European equity markets, with the FTSE100 once again lagging the wider market due to weakness in basic resources.

Europe

Anglo American and Antofagasta have followed Rio Tinto yesterday with disappointing Q1 production reports. A drought in Northern Chile affected production at Antofagasta’s copper mine there, while gold production fell 35%. The stock is also trading ex-dividend which isn’t helping either. Anglo American raised its costs guidance, as well as cutting its production guidance for iron ore, platinum, and coal.

A decent set of numbers from Nestle has helped boost wider sentiment after the food group confirmed its margin and sales growth targets for the current year.

On the upside Rentokil shares are higher after reporting a 1.8% rise in Q1 revenue, while ongoing revenues rose by 12.3%. The group said that the business was trading in line with expectations, and that the Terminix deal is expected to complete in the second half of 2022.

British Airways owner IAG is also higher after United Airlines, and American Airlines in the US followed in the footsteps of Delta last week by saying they expect to return to profit this year, as travel activity picks up as the world starts to learn to live with Covid. We’re also seeing decent gains from the likes of easyJet and Ryanair.

THG shares have popped higher after the company finally got around to releasing its FY 21 results, as well as its Q1 22 trading update, which contained little in the way of surprises.

Full year revenues for 2021, came in at £2.18bn, and is expected to improve by between 22% and 25% for 2022, both of which were in line with expectations. The company also reported Q1 revenues of £520.5m.

It wasn’t the numbers that caused the shares to open higher even if the business is trading in line with expectations. It was the news that the company had received indicative proposals for the business from a number of parties over the past few weeks, all of which had been deemed unacceptable.

Its perhaps not surprising that the company has received bid interest given that the shares have fallen over 80% since last September after the current management team fell out with investors over how the business was being run.

At the time THG said they might look to spin off the beauty business sometime this year in order to help maximise shareholder value, as well as starting the process of looking at the separation of its other trading divisions.

There has been little to no progress on this, with CEO Matthew Moulding playing down the prospect, and with the shares languishing just above record lows its clear there is little confidence in the current management team. It’s all very well CEO Moulding criticising the various bids as unacceptable, citing the 500p IPO valuation back in September 2020, the shares are over 80% below that now, and that’s on him. He, along with the board need to lay out a plan to boost the confidence of shareholders and to stop procrastinating.

US

After a mixed session yesterday, US markets have got off to a decent start, buoyed by a combination of upbeat earnings, as well as optimistic guidance from US airlines, which has seen the sector get off to a flier, while the Nasdaq is basking in the glow of decent set of numbers from Tesla. 

United Airlines is the latest US carrier, after Delta Airlines last week, to say that it was confident of returning to profit this year, when it released its latest Q1 trading update yesterday.

Last week, American Airlines lifted its outlook for Q1, and reported a similarly upbeat picture when it released its Q1 numbers today, despite posting a loss of $1.64bn. For Q2 the airline said it expects total revenue to be 6% to 8% above 2019 levels, with overall capacity between 92% and 94% of 2019 levels, as it expressed optimism that it would be able to pass on higher prices to passengers.

Tesla shares are also doing well, reversing all of yesterday’s losses after posting record revenues and profits in Q1. Having delivered over 310k vehicles, the electric car company posted revenues of $18.76bn and profits of $3.3bn, helped by a big improvement in gross margins to 32.9%, up from 30.6% in Q4.

On the data front the latest jobless claims came in at 184k, while continuing claims have continued to decline, falling to their lowest levels since 1970, at 1417k.

Still on Elon Musk, Twitter shares have barely reacted to the news that the Tesla CEO is exploring a potential tender offer for the company with $46.5bn in committed financing for a deal.

Netflix shares are still under pressure, down another 3% in the aftermath of yesterday’s 35% freefall.

FX

The euro has seen another run to the upside despite EU CPI for March, falling slightly to 7.4%, while core prices slipped below 3%, coming in at 2.9%. The uplift has come about after two more ECB governing council members broke ranks to signal a July rate rise might be on the cards. Belgium’s Pierre Wunsch and ECB vice president Luis De Guindos followed on from Latvia’s Martins Kazaks by arguing that a July rate rise was on the table.

This marks quite a shift from the narrative put forward by ECB President Lagarde at the most recent ECB press conference, with markets pricing the likelihood that the ECB will lift the policy rate, which is currently at -0.5%, back above 0% by the end of this year. Given today’s comments from her colleagues on the ECB governing council traders will be looking to see if she echoes those comments or offers a more nuanced take.

Commodities

Crude oil prices have rebounded from yesterday’s lows but are still below $110 a barrel, as the tug of war between demand and supply concerns pulls the price back and forth. 

Gold prices have continued to drift lower after hitting peaks just shy of $2,000 earlier this week, with the slightly firmer tone in equity markets these past few days, along with firmer yields removing some of the shine from the yellow metal.  

Volatility

With US earnings season underway and the market adjusting to a post-COVID world, this looks as if it could provide a rich seam of price action as a better picture emerges of which companies have managed to retain customers in the wake of the pandemic. Netflix was one such example after numbers released on Tuesday evening showed a marked fall in subscribers with the return to work and belt tightening leaving investors blindsided. The stock fell 35%, driving one day vol. out to 804%, up from 253% on the month.

No surprise then that CMC’s proprietary basket of streaming shares was also pushed into focus, with daily vol advancing to 151% against 68% on the month, whilst the remote lifestyle basket jumped from 68% to 101%. Netflix makes up around 10% and 5% of these portfolios, respectively.

The NDAQ remains a standout in terms of equity index volatility, topping the board despite a relatively measured decline in the underlying of just 1.5%. Again, Netflix will have contributed significantly here with daily vol advancing to 25.56% against a monthly figure of 23.31%.

As for fiat currencies, the Bank of Japan has once again intervened in the bond market, and this is leaving the Yen exposed to further weakness against the dollar. The pair has appreciated more than 5% since the start of April, driving daily vol to 7.26% against 3.25% on the month.