Europe
This week’s calmer tone is helping to keep European markets moving higher after last week’s volatility, with the FTSE100 poking above the 7,000 level for the first time since October 7. Today’s gains were broadly based as sentiment eased after the routs of the past two weeks, with decent gains for the likes of Smurfit Kappa, Rolls Royce and DS Smith.
Rio Tinto underperformed after publishing third-quarter production figures that saw a 1% and 2% decline in aluminum and bauxite. The Australian miner also cautioned on the outlook as it comes against the prospect of rising costs and slowing demand from China. Rio Tinto said it expected annual iron ore shipments to come in at the lower end of expectations, although it kept its full-year guidance unchanged.
888 Holdings shares fell after reporting a 7% drop in third-quarter revenue to £449m. the weakness was mainly driven by the closure of the Dutch business, and new security measures on online gaming in the UK. The integration of the non-US business of William Hill business continued apace with the income of the UK retail stores remaining stable.
The UK online business saw revenue fall 14% to £125m as a result of these new measures with the company saying it expected Q4 revenue to be similar to the levels they were in the same quarter last year.
USA
US markets opened strongly higher, after Goldman Sachs became the latest US bank to issue a decent set of Q3 numbers.
In the third quarter, revenue beat expectations to $11.98 billion, with most areas of the business outperforming. Retail was an area that stood out with third-quarter revenue coming in at $6.2 billion, well above forecasts of $5.69 billion. FICC sales were the main performer in this area, generating $3.53 billion of that total, well above forecasts of $3.04 billion. Investment banking fell short at $1.54 billion. Goldman set aside another $515 million in credit losses, while costs also increased. Earnings also beat expectations, with $8.25ca a share.
The Nasdaq 100 led the market higher with decent gains for the likes of Tesla, Microsoft, Apple, Amazon and Nvidia.
After the bell, Netflix reported its Q3 numbers with high expectations that it will avoid another quarter of subscriber losses. The shares have seen a decent recovery in recent weeks, fueled by an expectation that the new ad-based model will stop the bleeding in subscribers. The new ad-based model is expected to launch on November 3 and cost up to $7 per month, but the fear is that this model could cannibalize its more premium offering as some customers switch off. For Q3, Netflix said it hopes to start adding subscribers back, hoping to see growth of 1 million, reversing the decline in Q2. For the third quarter, revenue estimates were lower than expected at $7.84 billion, though still a 4.7% increase over the same quarter a year ago.
FX
The pound’s recent recovery faced some resistance today on reports that the Bank of England may push back its timeline for selling parts of its bond portfolio. This has become inevitable given the recent volatility in the UK bond market. Some Bank of England officials pushed back, saying that no such decision had been made, but to go ahead now would be foolish in the extreme as sentiment remains fragile. That said, never underestimate the ability of the Bank of England to issue confused communications. This has become their specialty in recent years. Nevertheless, the prospect of a hefty rate hike in November has not dampened the market’s anticipation of a possible 100bps move.
The euro pulled off another disappointing German ZEW survey, after the current situation index fell to -72.2. However, the expectations index edged higher, avoiding a record low in the process, recovering from -61.9 to -59.7.
Commodities
Crude oil prices tumbled shortly after US markets opened to their lowest levels in two weeks, despite OPEC+ reiterating their consensus to cut production earlier this month. The slide appears to have been exacerbated by the announcement of another SPR release as the US looks to push back on production cuts announced by OPEC+.
Concerns about the demand outlook also remain a factor as markets analyze yesterday’s decision by Chinese authorities to delay their September economic data. The delay does not speak to an economy that is performing well, and perhaps they have something to hide because the data is even worse than feared.
Gold continues to recover, but the rally feels a bit fragile despite the continued decline in yields, and a somewhat weaker US dollar.
UK natural gas prices have also continued to fall and are now close to their lowest levels since July, on the back of continued mild weather. The UK government will be hoping this trend continues with a drop below £200 potentially leading to further losses towards £185.
Volatility
Muted session sees full focus on China and Hong Kong stocks
US-listed DouYu stock added more than 10% at one point during yesterday’s session as it continued its rally from last week’s all-time lows. Some of the gains were given back at the end of the close, but the underlying trend appears to be up, at least for now. One-day volatility came in at 200.34% versus 152.04% on the month.
Hong Kong’s Hang Seng index was among the more active in the asset class on Monday as traders worked through a series of mixed messages. After testing 11-year lows late last week, the market is picking up a bit, but recession fears are weighing in and the fact that the Hong Kong dollar remains pegged to USD is also taking a toll. One day full on the Hong Kong 50 sat at 35.75% versus 32.95% on the month.
Elsewhere it was a rather subdued start to the week. All currencies – both fiat and crypto – showed one-day volatility levels below the one-month equivalents, while there was little of interest across commodities as well. Energy prices remain volatile and this was particularly played out in the Gasoline contract, which tested two-week lows during Monday’s session. One day vol came in at 48.07%, just a shade above the monthly pressure of 47.46%.
