What a difference a day makes

Good morning everyone and welcome to Julius Bears' movie market podcast. It's Thursday the 22nd of October and my name is Mike Rawer. I'll be talking first this morning to my colleague Bernadette Anderko about what has been moving markets over the last 24 hours but also what the day ahead may bring. And then I'll be joined by Norbert Rucker to discuss oil energy. Brent is holding stubbornly above 100 dollars per barrel but also European natural gas prices are at their highest since 2022. So that's coming up in a few minutes but let's start. There's always a wrap up of the market news. Good morning Bernadette. Good morning Mike. That's why don't we start with what went well yesterday. European stocks markets staged a rally didn't they? Yeah that's right Mike and it was pretty broad base to be honest. The pan-European stocks 600 client just over 0.9% recovering nearly all of the losses from the weekend turmoil in France. The Euro stocks 50 lead the charge gained 1.4%. The DAX was up 1.35%. Even France's CAC Caron was up over more than 1% by the end of the day. And it seems like strong corporate earnings were really the primary catalyst. We saw the Dutch staffing and recruitment company Randstad jumping 20% after their management to struggle pretty cheerful tone for 2027 following quarterly sales and profit beats. And the maker of Rayban sunglasses SLL Auxotica leapt more than 15% after posting its earnings. It wasn't all good news though. Car 4 dropped 13.8% after the French supermarket chain cut its annual earnings forecast saying that riots, looting and these curfews that have been incurred recently have raised costs and disrupted trading at the stores. And of course lingering concerns over French political unrest and these rising French bond yields, the 10 year OAT hit 5% for the first time since 2002 yesterday remain in overhang for France's markets. And we had some data out of the UK too didn't we? Yeah that's right inflation. So UK inflation rose more than expected in the latest reading to 3.5% in September versus a 3.4% expectation. That was the highest level for headline CPI in nearly a year and is of course now boosting expectations that the Bank of England may well raise interest rates at its November meeting. This slightly weighed on the FTSE 100 which underperformed its mainland European peers with just a 0.19% gain. And also signed a news that government websites across Europe including those in the Netherlands, France, Denmark and Finland went offline. After AI discovered vulnerabilities in their programming language were disclosed. Yes that's right Mike. So Dutch, Finnish and French government portals were taken down as a precaution with experts warning of a potential mass compromise of every vulnerable web server on the internet. Teams no days go by without the cyber incident indeed. But let's stay with market action. The positive tone in Europe carried over into the US session. We've also had a lot of earnings out. Perhaps you could just give us a quick rundown Bernadette. Yeah I'll try and be brief. Stocks rose in the US yesterday across the indices. The Nasdaq composite added over 1% the S&P 500 was up 0.58%. And the Dow Jones industrial average climbed roughly 0.7%. On the company front shares a SpaceX surge 7% after the company said its revenue grew 161% in the third quarter. Shares of advance micro devices gained more than 3% while Nvidia micro technology and Marvel technology were all up around 2%. Netflix bought the party somewhat their shares tumbled more than 5% after their full year revenue forecast came in below analysts expectations. And the company also cut its ad revenue guidance for the full year. Meta though reported better than expected revenue in its third quarter earnings forecast and fourth quarter revenue was above estimates. And it also reported strong growth of its new consumer AI agent app news. The company also introduced new non voting shares to help fund its costly AI expansion. They're going to be issued in January 2027 and Meta stock rose more than 2% in after hours trading. And then of course we had Tesla they surpassed expectations in the third quarter across key parameters. But the core business still seems to be continuing to struggle and the company's cut back on spending plans for the full year. So we saw Tesla shares dropping 3.3% in post market trading. Interesting Bernadette and the mood seems to have shifted overnight with Asian stocks trading down this morning. Can you give us some more color there please? Yeah, well those US earnings after the close don't seem to have satisfied investors when it comes to the AI trade. And we've got geopolitical tensions in the Middle East seeing oil prices bouncing back this morning. When I last looked, Brent crude was trading around a five month high of $110 and 70 cents. So yes, the different picture in Asia Mike China's benchmark CSI 300 index seems to be entering bear market territory having fallen 20% from its June peak. The index has declined for 10 weeks in a row now and and is down more than 1.5% today or was the last time I looked and Chinese firms have clearly been suffering from declining profit growth amid intense competition. And in September China posted its weakest growth in industrial profits this year. It also posted its slowest growth in over three years in the second quarter. Another Asian market seem to be catching the Chinese flu and following suit this morning. Again, when I last looked, the cost be was off around three and a half percent, Nikkei 225 off over 2% and the hang saying down more than 3%. And well apart from keeping an eye on what's going on in Asia, what should investors be watching in the day ahead? Well, Nestle has already reported and they had better than expected organic sales growth for the third quarter. They also said they've deconsolidated their Russian business after Moscow sees control of their Russian assets last month. Nestle maintained the outlook for 2026 of fully organic sales in the range of three to four percent and it recorded a four percent uptick in quarterly organic sales. Looking ahead, well, the deluge of earnings continues, Michael, I won't list all the names and investors will also obviously be paying attention to the economic calendar. We've got US weekly initial job claims today and in Europe, the European Commission's preliminary consumer confidence indicator for the Euro area in October. And yeah, we're following that sell off in Asia this morning. I guess it's no surprise we're currently heading for a lower open in the markets today. That's it from me, Mike. Thanks a lot for this very interesting roundup. Thanks to having me. And now as promised, let's spend some minutes on the energy markets. Good morning, Norbert. Good morning, Mike. You recently remarked on how difficult this has become to explain movement in oil prices. What is making the market so hard to read these days? Well, we've seen in our views on oil that we had in some of which has been really quite inaccurate. So, if you look at the trade of hormones, it's wide open. It's not closed. Experts out of the Middle East have recovered to pre-crisis levels. If you look at Saudi Arabia, there's swiftly resumed operations of this pipeline attack. And it's really this shuttling of oil through the trade of hormones. A safeguarded by the US military, which is really strong for us in the market. So, instead of that this conflict tilt that the oil market into a deficit, all it did was basically erase the surplus that had built last year back in 2025. So, this supply disruption proved much less significant than estimated even by someone like us. And the international energy agency recently warned about lasting oil product is specifically diesel supply deficit. How does this fit into the picture? Yeah, instead of looking at the tightness that's really not there on the crude oil side, the focus is more on the oil products. And it's true, if you look back, there's been some warnings, but that said, even if we have some of the spheres that we may be remembering on summer about carers in a diesel, these supplies of these oil products never run dry. And yes, oil product storage are low. They seem to be a bit lower in Europe, but that said, the data that the international energy agency based observations on actually stops in summer. And the thing is, since then, if you look at all the storage levels, the situation really has not deteriorated. For example, in the United States, storage levels are diesel are low, but they are low in summer. But we have an ion is basically the rising exports of oil products out of Asia, because we talked about how the crude oil supplies, the picture supply plates are really improved. So this oil that makes it to Asia is their partial transformed into oil products and return back to the market. So maybe it just needs some time until this rebalancing also appears in the oil product market. Taking a step back, I guess this begs the question. How do you explain today's stubbornly high oil prices? Well, if you start with storage, which is not in deficit, oil should trade somewhere around the 70s. Then there's this one element that should be caused. They are quite high, because there's some scarcity of ships, because there's a frenzy of buying ships and partially also, because these longer routes that they all takes, these ads may be around $10 or $20 on top of the 70, which then, today's compared to today's oil price, leaves roughly estimated risk premium somewhere around $25 USD. But if you look at these two dynamics, the risk premium and the shipping cost, usually such dynamics, they never been lasting. It always has been a bit of a temporary thing. So that's why we believe that this oil price spike should be short-lived. It's more driven by these emotions. And maybe you could also say that the oil price in fact, simply expects a serious, I mean a really serious assumption of the conflict in the near term, but that's not something that we can bank on. We look at the fundamentals and that's why we stick to our cautious view. And yesterday on this podcast, we looked at the investment environment in Europe with our equity and fixed income research colleagues, Dario Messian, Matieu, Archite. So to nicely compliment their view, let's talk about European natural gas prices. They are their highest since the 2022 energy shocks. Are we entering another gas supply crisis? No, this seems really quite unlikely and can give you two observations to arguments. First, if you look at storage, yes, storage indeed is tight, but you also need to acknowledge that demand incrementally has declined in Europe. So adjusting for these lower demand levels, storage, measured in days of surprise. So to speak, no longer looks tight in this, in fact, within kind of reasonable ranges. And the second observation is, yes, there's hardly any gas coming out of the Middle East. So this is opposite to oil, where we have a full recovery of flows. Gas still is not coming out. But if you look at the supply trends in Europe's seem to outbreak of this conflict, so if we go all the way back to March, we have not seen any really varying tightening of the supply situation. So this means that this conflict, yes, it's there, but it's being observed. And this really hints at the flexibility of the gas market, where once prices increase a bit, demand a trust, and these adjustments we have throughout the year. So if you look at the gas market, it seems like with the oil market, there are lots of emotions in this market today. There's also very size of a risk premium. And with some sarcasm, we could really say that the gas market seems to be even hoping for crisis. So we stick to our view there also, these prices seem to be lofty and they should come down. That's it from energy markets. Thank you very much, Norbert, for these very timely views. Thanks for having me. So that is all for today. Thank you again to my guests and of course, thank you all for tuning in. Please don't forget to subscribe to the show if you haven't already and do join us again tomorrow to hear from more of our colleagues about what's moving markets. Have a great day, everyone, and bye for now. Please refer to www.dueliusbarr.com/legal/podcasts for further other important legal information.