A slow start to trading on Monday with little in the way of data or earnings, but European stock markets picked up some momentum through the session and posted some decent gains in the end. Meanwhile the dollar retreated from a six-week high hit Friday as risk sentiment improved and Treasury yields ticked down.
This morning, European markets are in a bit of giveback mode with the Dax down more than 1.4 per cent with Merck and Airbus both off 9 per cent in hefty falls; the Cac in Paris off by about half that and the FTSE 100 flat with crude at its highest level in almost two months giving a boost to the oil majors.
There is the obvious political risk overhanging this all right now – round one from France is on Sunday so watch for some moves on Monday morning. Meanwhile, markets should start to pay a lot more attention to Donald Trump’s potential peace strategy for Ukraine. We’re also seeing some moves in aerospace and defence stocks with Airbus plunging 9 per cent on a cut to guidance; Rolls Royce and engine component maker Melrose both down ~4 per cent in sympathy, while Merck fell hard as it announced it has stopped trials for a head and neck cancer treatment.
Airbus cut its 2024 delivery target from 800 to 770, and delayed increasing output of the A320 to 2027, citing ‘persistent’ supply chain challenges. It also took a €900m charge at its Space Systems. It might not have much impact on airlines, who have already indicated that Airbus has reduced scheduled deliveries. But aircraft manufacturing is proving tricky – just ask Boeing. Demand is not the problem; quite the reverse. But if supply can’t keep pace and competition so constrained, it ought to mean airline capacity doesn’t increase too much, which could keep fares higher for longer.
Breadth – we have touched on this from time to time – the declining number of stocks above their 200-day simple moving average. The Nasday 100 is up 17 per cent year to date, versus a 5 per cent gain for the equal weight S&P 500, which shows just how much a few big tech names are doing all the lifting. But yesterday we saw some rotation as Nvidia led tech shares south while the Dow rallied. Nasdaq finished down more than 1 per cent and the Nasdaq Composite had its biggest fall for two months as investors rotated out of tech and snapped up banks and energy. Nvidia dropped 7 per cent to add to its 4 per cent drop last week amid signs that the momentum-hype trade is probably over, and we need to look at further consolidation, which will make it materially harder for the broader market to keep making fresh highs over the summer. Nvidia down 13 per cent in three sessions – a correction was always going to happen it was simply a question of when.
The Trader is written by Neil Wilson, chief market analyst at Finalto
