Market nerves, eyes on the US and oil in focus

by | Aug 10, 2023

  • Nervy markets ahead of US consumer price data
  • Oil flirts with new highs
  • No Turkish Delight for Entain
  • Spirax Sarco sounds a cautious note on Biopharm

Steve Clayton, head of equity funds, Hargreaves Lansdown:

“Markets could be set for a nervy start this morning after weakness on Wall Street spread across Asia last night. Early indications from futures markets though are that investors are going to brush off the concerns that dragged the Nasdaq index down over 1% last night. The broader S&P 500 index capped its decline to 0.7%, whilst the Shanghai market has clawed back earlier losses to stand largely flat. Recent market favourite Nvidia, was hit by profit taking and its shares tumbled over 4% as investors took some of their AI bets off the table. Nvidia makes chips used in the data processing at the heart of generative AI and had seen its stock triple so far this year, taking it into the trillion dollar club. 

The latest US consumer price data is due out later, which will keep nerves on edge in early trading. With the path of US interest rates heavily dependent upon the course of inflation in the States this is an unusually important dataset. Whether the Fed, pauses, pivots or marches on upwards with rates is largely dependent on the data. Bloomberg reports that the consensus expectation is for a small increase in the headline rate, but crucially, a decline in the core inflation rate that strips out food and energy. The last readings were 3% for headline and 4.8% for the core inflation, which has proven more stubborn to date, reflecting a still-strong US jobs market. Expect euphoria if the core comes in below 4.5% but thunder and lightning if it prints above 5%.

Quietly, attracting a few headlines, oil has been on the move. It is now 25% above its early summer lows and challenging its high for the year. WTI crude oil futures are trading above $84, and spot brent crude is $88 per barrel. Expect pump prices to follow in short order. OPEC have been managing supplies to keep the oil markets tight. War continues in Ukraine, keeping pressure on Russian exports, not least the recent drone attack on a Russian crude tanker. Gas prices in the UK are far below their highs immediately after Russia invaded Ukraine, but the UK gas futures contract has risen by 60% since mid-July which could start attracting attention if it continues rising.

Entain, the gambling group formed from the combination of GVC, Ladbroke Coral, SportingBet, Party Poker and others has released interim results this morning. HL analysts will be commenting on those in detail elsewhere. Most eyes though will be on the company’s announcement that it is taking a provision of £585m, ahead of an expected settlement with the SFO following their investigation into the disposal of a Turkish subsidiary by GVC back in 2017. This is eye-watering stuff. The Turkish business was sold for €150m, so the provision, which likely closely matches an impending fine, is roughly 4x the value received in the sale. As Entain themselves point out, this is a transaction made a long time ago, by a different management team and much has changed since. But boardrooms up and down the country will be looking anxiously at the scale of punishment and wondering whether they have any skeletons in their own closets.

Spirax Sarco is a lot of fund manager’s favourite, because it has consistently ground out the numbers through thick and thin. Today though they have warned that weakness in their peristaltic pumping division is proving a bit more intractable than expected. Peristaltic pumping is not, to be fair, a standard dinner party conversation topic, so you can be forgiven a blank stare at this point. But it has been an extraordinary source of growth for Spirax over many years. It basically allows fluids to be moved around in a perfectly clean environment, so is important in pharmaceutical and biotechnology manufacturing and research processes. Spirax are basically suffering from a destocking trend already seen by other biopharma suppliers such as Germany’s Sartorius. It’s a rare blot in Spirax’s copybook and has knocked the stock back around 5%.”

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