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London Quick Take - 5 Things to Know in Markets Today - 22 Oct
Note: This is marketing material. This article is not investment advice, capital is at risk.
5 things to know in markets today
1.French bond yield blowout rattles markets
From the floor...never mind the Franco-German spread (170bps today!) the Gilts-to-OATs spread is now just 29bps having stood at 150bps just over a year ago. The move in the last few weeks from 100bps to where we are now has been precipitous. When this hits parity do we get to flip the 'moron premium' moniker across the channel? After a mild relief bounce yesterday stocks in Europe are under renewed selling pressure this morning as French bond yields rose to fresh 24-year highs, while US futures were down as the markets digested earnings from Meta and Tesla.
The CAC 40 is bearing the brunt of selling as the French OAT 10yr yield rose ~11bps to 5.11% for its highest since 2002, having broken 5% for the first time since July 2002 yesterday. Franco-German spreads have widened further to 170bps, its highest ever. No one wants to be picking up dimes in front of this steamroller until it starts to turn. As stated before, this French story is not going away and risks to OAT yields and spread remain skewed to the upside.
Yesterday European equities rallied, with the Stoxx 600 rising 0.9%. the DAX gaining 1.3%, the CAC 40 advancing 1.1% and the FTSE 100 edging up 0.2%. This morning the CAC is down –1.4%, the DAX off –1% and the FTSE 100 down –0.7%, with stocks related to the AI trade taking some of the most heat with ASML, Infineon both –3%.
Yesterday European equities rallied, with the Stoxx 600 rising 0.9%. the DAX gaining 1.3%, the CAC 40 advancing 1.1% and the FTSE 100 edging up 0.2%. This morning the CAC is down –1.4%, the DAX off –1% and the FTSE 100 down –0.7%, with stocks related to the AI trade taking some of the most heat with ASML, Infineon both –3%.
2.FTSE winners and losers
On the FTSE 100, miners and banks are dragging the index down on a kind of stagflation trade with Brent at a 5-month around $112 and copper down another –2% to its lowest in over a month, prices –7% from the peak a month ago. Silver trades down –3.5% looking to retest the cycle lows and gold trades down –1.2%, testing key recent horizontal support from 7 October at $4.066. Gold breaking down at this level despite softer Treasury yields and a weaker dollar indicates a broad sell-all mentality with bid coming through for safety in US Treasuries and Swissy where the euro is breaking down at its 200-day moving average. GBPUSD trades firmer above 1.34 as Treasury yields declined on a haven-bid with risk sentiment turning sour.
This picture of weakness across metals is weighing on Anglo American, Antofagasta, Fresnillo, Rio Tinto, Glencore et al. NDX futs off by –1.7% and weakness in Asian tech overnight meant the likes of Scottish Mortgage and Polar Capital were towards the bottom of the FSTE 100 also. HSBC and Standard Chartered were weaker than UK-focused lenders but banks and financials are feeling some strain.
Risers were the oil stocks, defensives, and software (AI being soft is good for software plus some strong numbers from LSEG, which posted record Q3 performance with total income +8.8%, subscription growth +6.6%, and hikes to revenue, margin and cash flow guidance. Shares in LSEG rallied almost 4%. Rentokil was the leader of the pack though as it jumped +9% after its Q3 update ratted out some worries about the North American business that have been a drag on the stock and announced a £200mn share buyback after posting organic growth of +3.4%. Also what's helped were the soft numbers from US rival Rollins, where shares were down -8% after disappointing Q3 numbers.
This picture of weakness across metals is weighing on Anglo American, Antofagasta, Fresnillo, Rio Tinto, Glencore et al. NDX futs off by –1.7% and weakness in Asian tech overnight meant the likes of Scottish Mortgage and Polar Capital were towards the bottom of the FSTE 100 also. HSBC and Standard Chartered were weaker than UK-focused lenders but banks and financials are feeling some strain.
Risers were the oil stocks, defensives, and software (AI being soft is good for software plus some strong numbers from LSEG, which posted record Q3 performance with total income +8.8%, subscription growth +6.6%, and hikes to revenue, margin and cash flow guidance. Shares in LSEG rallied almost 4%. Rentokil was the leader of the pack though as it jumped +9% after its Q3 update ratted out some worries about the North American business that have been a drag on the stock and announced a £200mn share buyback after posting organic growth of +3.4%. Also what's helped were the soft numbers from US rival Rollins, where shares were down -8% after disappointing Q3 numbers.
3.Barclays profits raises Budget risk
Having opened down, shares in Barclays started to tick up as of send time as investors digested some pretty good results. The investment bank was a mixed report card – equities trading +47% to £1bn, while fixed income trading –19% to just over £1bn... follows the pattern of Wall Street. The weak performance in fixed income meant the 125 rise in profits across the bank to £2.3bn missed expectations, while revenue growth of +3% was also a little light. Nevertheless, bumper profits like these only make it easier for the Chancellor to raid banks in the Budget by raising the surcharge from 3%.
4.What goes up...US futures slide
SpaceX led the Nasdaq rally yesterday, rallying nearly 8% post-earnings to help send the Nasdaq-100 up more than 1% for the session. But NDX futures are down more than 500pts, or 1.7%, this morning as risk turns sour despite some positive numbers out of Meta as stocks across the Asian and now European semiconductor supply chain retreated. The Kospi dropped –3.5% with SK Hynix –5.5% and Samsung Electronics –4%, while the Hang Seng fell –3.3% with Alibaba down –6%. China's CSI 300 benchmark fell –1.84% to enter a bear market, down 20% from its June peak. In pre-market it's the highest beta AI getting hit - Lam Research, Bloom, IBM, Teradyne, Coherent, Marvell, Applied Materials, Intel...and Tesla.
5.Meta and Tesla earnings beat, but don't help the index
Meta posted a beat-and-raise quarter which ought to be supportive for the wider AI story but it's not looking that way. Revenues rose 26% on last year and the firm raised its current quarter guidance....this looked a solid quarter but a new class of share structure being rolled out raises concerns about dilution.
Tesla isn't a car company: Tesla also reported better-than-expected Q3 results with overall revenues rising despite a 3% in core automotive sales as the domestic market remains tough following the end of EV tax credits. Energy revenue fell also 16% but Tesla’s services and other revenue climbed 33% from a year ago to $4.61 billion with FSD subscriptions up 67% YoY. Spending on the Optimus humanoid robot and other AI efforts meant capital spending more than doubled from a year earlier to $3.73bn, so free cash flow was down -62% year over year to $1.53bn and net income fell -29% to $787 million from $1.11 billion a year ago. Shares are down about -5% in pre-market.
Tesla isn't a car company: Tesla also reported better-than-expected Q3 results with overall revenues rising despite a 3% in core automotive sales as the domestic market remains tough following the end of EV tax credits. Energy revenue fell also 16% but Tesla’s services and other revenue climbed 33% from a year ago to $4.61 billion with FSD subscriptions up 67% YoY. Spending on the Optimus humanoid robot and other AI efforts meant capital spending more than doubled from a year earlier to $3.73bn, so free cash flow was down -62% year over year to $1.53bn and net income fell -29% to $787 million from $1.11 billion a year ago. Shares are down about -5% in pre-market.