European Stocks Falter, Yen Rallies, Oil Jumps on Novak

Stocks Hit by Rising Yields  

Stocks tripped up as rising yields knocked sentiment, with European shares heading for the first decline in four sessions. Declines at the open were modest though as we continue to chop around looking for direction. Wall Street slid for a second day, with the S&P 500 now down 2% over the last two sessions. The Nasdaq also slid another 1%, led by a further decline for Alphabet amid concerns about AI, notching a 4% on top of Wednesday’s 8% loss. Yields rose and investors bet the Fed will stay a bit higher for a bit longer, but they hardly took fright at anything in particular. Asia provided a weak handover to Europe, with broad losses amid spiking Treasury yields. China’s PPI -0.8% against -0.5% expected while CPI accelerated from 1.8% in December to 2.1% vs 2.2% expected. The UK economy was flatlining in the fourth quarter, data today shows, but we just about avoided a recession. Oil moved up strongly off its 50-day line support with Brent futures up $2 to $86.50 as Russia’s deputy prime minister Novak said the country will cut output by 500,000 barrels from March to boost a ‘recovery in market relations’…whatever that means. 

Chop Sessions  

For all the chatter, it’s been a chop session, cutting bulls and bears alike. In the last 10 sessions, the S&P 500 has registered 4 days of +1% or more and 3 of –1% or more, plus yesterday’s -0.88% decline. It’s been hard to see any meaningful direction – even the FTSE is only really making incremental gains. We are dealing with very challenging markets without clear conviction as to what the macro looks like or what the central banks are going to do next. US inflation data is the major event of next week on Tuesday with markets looking for further signs of disinflation. CPI declined to 6.5% from 7.1% a month ago, fuelling hopes that the Federal Reserve can look to slow and stop rate hikes. Many will be looking at the month-on-month core inflation level, which was still running at +0.3%.  

FTSE Notches Fresh Record  

The FTSE 100 traded around 0.4% lower in early trading on Friday, easing back from another record high struck on Thursday. The blue chips added 25.98 points, or 0.3 per cent, to 7,911.15, with a fresh intraday peak at a whisker below 7,950. As we’ve detailed a few times, there are all sorts of reasons for the FTSE 100 doing well – undervalued companies that have been relatively cheap to global equities, old economy stalwarts that outperform in recessions and during inflationary periods; by which we mean a heavy weighting towards energy, commodities and financials; and some good defensive exposure in consumer staples and healthcare. A cheap pound plays a role too – in dollar terms the UK market is not an all-time high. China’s reopening has clearly been an essential ingredient, whilst markets still toy hopefully with the idea the Fed will engineer a soft landing. And this year, we have seen healthy broadening in terms of the types of stocks driving the rally with more of those domestically-oriented stocks getting in on the action in the year to date – housebuilders like Persimmon, Barratt, Taylor Wimpey, plus the likes of Auto Trader, Kingfisher, Sainsbury’s, Whitbread, Rightmove.   

Lyft – Utter Trash  

Shares in Lyft tanked 30% after-hours as its weak guidance sent investors fleeing. The company lost $588m on $1.2bn in revenue (+21% year-on-year) but management touted the ‘record revenue’ as a good thing. For the quarter, its net loss more than doubled to $588.1 million, or $1.61 a share. Net loss for the year was $1.58bn with a notably huge R&D spend of $857m – about a quarter of what Tesla does...for a taxi firm? And the guidance is appalling with management expecting just $975mn in revenue in the fiscal first quarter of 2023. And the usual adjusted EBITDA trick of masking huge stock based compensation...terrible.  

Yen Rallies on Kuroda Replacement  

The yen rose after a report said Kazuo Ueda, a former policymaker and academic, will become the Bank of Japan’s next governor, replacing Haruhiko Kuroda, whose term will end in April. It's believed he might be more likely to take a more fundamental view of the economics, suggesting a willingness to normalise, though is not some arch hawk. The announcement is due on Tuesday. So far not a major reaction – supposedly a bit more hawkish but it’s going to be a tough process to normalise, as we have talked about before. But normalise they must.  

USDJPY – retreat to the middle of the Bollinger range as it pulls back from the 50-day line. 

GBPUSD – after touching a month low earlier this week it’s bumped into the 50-day line resistance and pulled back. 

Meanwhile rising yields has knocked the stuffing a bit out of gold – just testing its 50-day SMA here. 

Oil – spot when the Russian output cut news flashed