Oil Stocks Skip Windfall Tax, Retail Gets Boost

EEuropean markets spent most of the day advancing cautiously, with the FTSE100 ignoring the UK government’s decision to impose a one-off 25% tax on the oil and gas sector.

Europe

In another government U-turn, Chancellor of the Exchequer Rishi Sunak announced a £5billion tax raid on the oil and gas sector in the form of an Energy Profits Levy, which is just one another name for an exceptional tax.

While this was not good news for shareholders, it still removed uncertainty as to whether a decision would be imposed, with BP, Shell and Harbor Energy shrugging the shoulders. It’s not such good news for people like SSE and Centric with the Chancellor saying he would seek to recoup some of their profits later in the year when more action may well be needed. On the positive side, there is a December 2025 sunset clause.

Also getting a boost from the Chancellors tax package, retail stocks in the UK are higher, on the basis that as consumers get help with their energy costs they will have a corresponding high disposable income and greater ability to spend. Next, B&M European Retail, Ocado and owner of Primark Related British Foods reap most of this increase.

GIC is also doing well after reporting a strong rise in full-year revenue to £982.1m. Much of this was due to a sharp rise in commission income from £331.2m to £434m, while full year profit jumped to £525.1m, up from £461m a year ago.

LV Group Shares are under pressure after the UK government announced it would review Altice’s recent increase in the company’s stake. Altice originally bought a 12.1% stake in BT in June last year, which it then increased to 18% in December. BT said the increased stake was being reviewed due to national security concerns, although Patrick Drahi said he had no intention of taking over the company . Of course, if the government sees nothing wrong, Drahi’s intentions could change and signal that BT is in play for a bid.

United Public Services Shares fell sharply after adjusted pre-tax profits fell short of expectations, falling to £301.9m, from £460m last year and below forecast of £310m. The company also said it expects higher operating costs to the tune of $100m, while funding costs are also expected to be £150m higher due to higher inflation. high. .

WE

US markets opened slightly higher after US Q1 GDP was adjusted to -1.5%, although on a positive note consumption was revised to 3.1% from 2.7%.

Core PCE on a quarterly basis also came in below expectations at 5.1% from 5.2%, raising hopes that inflation could peak. Weekly jobless claims also fell from 215,000 to 210,000

In another sign of concern over slowing demand Apple Shares fell after the company announced that its iPhone production plans will remain unchanged this year at 220 million. This is below market expectations given that Apple expected to produce 240 million iPhones. It could be a canary in the coal mine in terms of how this year might unfold and a slowdown in demand. With the various supply chain issues showing little sign of resolution given the problems in China, production numbers could drop, while Apple’s costs are expected to rise.

Nvidia Shares also fell after the chip company lowered its forecast for the second quarter. Its first-quarter numbers were still strong with revenue beating expectations at $8.29 billion, but second-quarter revenue was down to between $7.94 billion and $8.26 billion from an estimate consensus of $8.45 billion. Nvidia said events in China, as well as the situation in Russia, played a role in the worsening outlook. These two factors are expected to cost around $500 million.

Snowflake The shares fell after posting a bigger-than-expected first-quarter loss of $166 million, or C$0.53, although revenue beat expectations at $422.37 million. Its revenue forecast for the second quarter was in line with expectations, between $435 million and $440 million, but a deterioration in operating margins appears to be weighing on profits.

Twitter shares jumped on reports that Elon Musk had increased his financial commitment in the deal to $33.5 billion.

Broadcom has confirmed it will pay a $61 billion contract for cloud services company VMWare

Effects

It was a fairly quiet day in the currency markets, with the US dollar showing little to no reaction to the Fed’s latest minutes. With few surprises, there was little catalyst to push the greenback forward today.

There was also little reaction from the pound to today’s announcement of a windfall tax in the UK, which is somewhat surprising given that it gives the Bank of England more flexibility in its ability to raise interest rates in the coming months. By easing some of the burden on UK consumers with its windfall tax, the Bank of England now has more freedom to raise rates at its next meeting.

Goods

Crude oil prices continue to rise, despite Chinese Premier Li saying the Chinese economy is in bad shape. A larger-than-expected inventory drawdown yesterday is helping to support prices in the near term, along with an expectation that we are likely to see some sort of rigged deal next week by the EU to impose an embargo on Russian oil.

Gold prices look set for a second straight daily decline, on the heels of yesterday’s Fed minutes as it continues to give up some of last week’s gains.

Volatility

Talk of windfall taxes on energy companies in the UK led to increased levels of price action for the sector, with Drax and SSE ending up on our radar yesterday. That was following a rebound from Tuesday’s lows, but daily theft on Drax was up 282% from 105% on the month, while Scottish & Southern printed 199% from 71%.

Social media stocks have also seen high levels of interest as the market tries to stabilize after being rattled by this shock earnings warning from Snap. This in turn led to increased interest in CMC’s proprietary social media share basket, where daily volume of 265% was more than double the monthly impression of 123%. The underlying tumbled more than 10% at the start of the week although it has now recouped nearly half of its losses.

Wheat prices remain in focus, but have trended lower in recent trading, with levels not seen in nearly two weeks tested in yesterday’s session. An upbeat US harvest report could slow the market here, with daily volume on the US Wheat Cash Contract hitting 59.47% from 54.22% on the month.

Cryptos also continue their decline from the peak of activity, with daily theft on Bitcoin below 44%, against 81.18% on the month while Ethereum is at 52.54% against 96.78%. It is arguably the extent of the slowdown in price action here that is most notable.

And finally, along with fiat currencies, the Turkish lira remains in focus ahead of today’s monetary policy meeting. The market is already betting on a dovish outlook here, with the currency continuing to tumble against currencies like the greenback. The daily theft on USD/TRY was 18.9% versus 13.49% for the month.

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Felix J. Dixon