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Confidence shaken – EU consumer confidence has tumbled due to the war in Ukraine, while clearly inflation is the big kitchen table worry. PMIs this morning point to surging input cost inflation and this being passed onto consumers. The German private sector saw the steepest rise in overall input costs on record for the series (since Jan 1998).Incidentally, the PMIs show activity is holding up pretty well, in part it seems because for now they can pass the costs on, and demand is not a problem. However, the business confidence reading from the French PMI fell to its lowest since January 2021. In Germany, businesses’ expectations worsened considerably, falling to their lowest since June 2020. German manufacturer confidence turned negative, suggesting more firms expect a fall in output in the year ahead, for the first time since May 2020.

In the UK, escalating fuel, energy and staff costs resulted in the steepest rise in prices charged since this index began in November 1999. Escalating inflationary pressures and concerns related to Russia’s invasion of Ukraine meanwhile led to a slump in business optimism to its lowest since October 2020, Markit/CIPS said.

Confidence has been shaken by the war in Ukraine, a natural reaction, but also very much by the subsequent expected rise in inflation, which was already high, and supply disruption, which was already bad. Meanwhile fertilizer prices have exceeded their 2008 high and US farmers are asking to plant on protected land to make up for lost grain and oils from Ukraine. Runaway inflation is bad for confidence and bad for business.

European stock markets are attempting to rally this morning, after Wednesday’s declines. US stocks dropped more than 1% amid rising oil prices and some more tough talking from the Kremlin over Ukraine. Yields have stalled with the US 10yr around 2.34% this morning. Biden is in Brussels for the NATO summit/meet with EU leaders/G7…looking to see if the US and Europeans strike some kind of energy deal.

We did get some volatility in EURUSD around the PMI releases this morning, but overall the picture remains fairly steady with the cross trading under 1.10, with a bearish bias. Sterling is also weaker against the US dollar, cable retreating to the old line of support at 1.3160, having been beaten back at 1.33. Not much movement around the Spring Statement to talk about really except to say it ain’t the poorest who are thinking about installing heat pumps and solar panels…

Oil continues to advance, with Brent front month at $122, WTI above $115 in what’s still a volatile market marked by low liquidity and tight physical supplies. Outages at the Caspian Pipeline Consortium may last for weeks and could remove about 1m bpd from the market, whilst EIA data showed a surprise 2.5m barrel draw on US inventories, which are 12% below their average for this time of year. Trafigura says oil could hit $150 or even $200, a belief shared by top trader Pierre Andurand. Russia said unfriendly nations would need to make payments for gas in roubles, a move that has sparked a sharp bounce back for the Russian currency and spike in European gas prices.

Russia’s stock market resumed partially today under heavy restrictions, including bans on foreigners selling stock and short selling. The MOEX rallied over 8% in early trade, but that is what happens if lots of people can’t sell. Russia’s sovereign wealth fund undoubtedly stepping in to buy shares – big public morale boost for the Russians. In London, this morning shares in Polymetal rose 10%, and Petropavlosk rallied 16%.

Selling in the US market yesterday was broad-based with only Energy and Utilities finding bid. Apple held up tech all by itself, rallying 0.8% against the trend for growth names, which gave back some of the recent rally. I’m not convinced by this recent show of strength we’ve seen in growth; it runs counter to rising rates, persistently high inflation and slowing growth. A lot of the action will be driven by oil prices. I remain of the belief that the bottom is not yet in.

Nickel trading remains chaotic, with the LME cancelling trades yesterday and the market again hitting limit up at +15% today.

Next shares declined 3% as the company lowered guidance – rising costs again, who can continue to mark up? The company said that following the closure of its websites in Ukraine and Russia, and after moderating growth expectations in some other overseas territories, it lowered sales guidance for 2022/23 by £85m (-2.0%) and profit guidance by £10m (-1.2%). But there is good news at home – an improved outlook for UK Retail sales has mitigated the anticipated loss of lower margin sales overseas and the associated cost of increased markdown. Central scenario for the year ahead is that full price sales will increase by +5.0% and that Group profits will increase by +3.3% to £850m. Just 16 mentions for ‘inflation’ in the full-year report.

Games Workshop shares jumped 11% as the company declared a 70p special dividend.

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