GBP on the back foot, weighed down by political uncertainties and gloomy consumer data

Equity market overview

Equity markets remain depressed, as investors are grappling with the prospect of rising interest rates to combat inflation.

Overnight APAC indices were mostly lower, following the lead of yesterday’s session in the US. In Japan, the consumer price index (CPI) rose by 3% in September year-on-year (YoY), as expected. Core consumer prices also increased by 3%, the most since September 2014, in line with forecasts, and above the Bank of Japan's (BoJ) 2% target for the sixth month in a row.

Despite this rise in Japanese CPI, the Bank of Japan has been in the bond market for a second consecutive day. This highlights the pressure that bonds are under, but also that the BoJ isn't about to give up on yield curve control.

In Europe, equity markets opened the session lower. In the UK, Gfk consumer confidence unexpectedly rose to -47 in October but remains close to September's record low of -49. Economists had expected the index to worsen to -52.

Joe Staton, client strategy director at GfK, said that all core measures remain severely depressed by historical standards. Inflation remains to be the top concern for consumers. Earlier this week, headline inflation rose back to double figures. Political and economic instability also weighed on sentiment.

UK retail sales missed expectations, falling by 1.4% month-on-month (MoM). Economists had expected a 0.5% fall. Year-on-year, retail sales dropped 6.9%.

This afternoon at 3pm, eurozone consumer confidence flash is expected to fall to -30 in October, from -28.8 the previous month, which was already the lowest reading since 1985.

Earnings

Elsewhere on the equity market, LSE group reported strong growth across all divisions. Total income excluding recoveries was up 16.2% on a reported basis, to £1.9 billion. The group says it is well positioned for further growth.

There were also reports from InterContinental Hotels Group, Deliveroo and Wickes.

Yesterday after European market close, Adidas warned that unsold goods are piling up as consumer demand weakens across China and western markets, prompting a fresh profit warning. It now expects an operating margin of 4% this fiscal year, down from a prior forecast of 7%. Its full-year (FY) revenues will grow at a mid-single-digit rather than mid- to high-single-digit rate.

L'Oréal said third quarter (Q3) sales grew 9.1% on a like-for-like basis, better than the 8.3% expected to €9.58 billion. Sales in the North Asia region, which includes China, rose 0.3 per cent in the third quarter to €2.41 billion, while all other regions saw double-digit increases on a like-for-like basis.

French luxury group Kering said sales in the third quarter increased by 14% to €5.14bn, better than an analyst consensus of a 12% rise. Sales at its Gucci unit, which accounts for the bulk of profits of the group, rose by 9%, below a consensus forecast for 11% growth.

In the US, Snap shares plunged 27% yesterday in extended hours despite beating expectations on both the top and bottom lines. The disappointment came as the group forecasted no revenue growth for the current quarter, a holiday quarter, typically the busiest quarter of the year. Wall Street had forecast a growth of 7%.

In a letter to investors, Snap said inflation caused some advertisers to cut their marketing budgets. "We expect that the operating environment will continue to be challenging in the months ahead," the company said. Earnings themselves weren't that bad. Adjusted earnings per share (EPS) came at 8 cents, beating expectations of breakeven. Revenue rose 6% to $1.13 billion.

Daily active users on Snapchat rose 19% year-over-year to 363 million, and Snap said it expects Snapchat daily active users to grow to 375 million in the current quarter. But that had little effect on a guidance that not only wiped $4bn off Snap market capitalisation, but also took down shares of other companies that sell digital advertising. Meta Platforms fell over 4% and Alphabet dropped 2.7%.

Twitter employees have been shaken up yesterday by a report from the Washington Post saying that Elon Musk told prospective investors in his deal to buy Twitter that he planned to get rid of nearly 75% of the company's 7,500 workers in the coming months. Later in the day, Twitter clarified to staff that there are no plans for company-wide layoffs since it signed a deal to be acquired by the Tesla boss.

American Express Co is expected to report third quarter earnings at lunch time. Analysts forecast earnings of $2.41 on revenue of $13.47bn. American Express is also likely to build loss provisions for loans that could go bad as consumer credit quality comes under pressure.

If analysts and investors are watching out for any signs of consumer spending slowing down in the country, cross border volumes are likely to jump, not only for American Express, but also for other US card companies, as business travel resume and people are planning vacations.

American Airlines, United Airlines Holdings and Delta Air Lines have also forecast strong profits for the rest of the year, in a sign that travel demand was offsetting concerns about expensive air fares.

Top oilfield services firm Schlumberger is expected to post a higher third quarter profit as oil and gas producers take advantage of higher energy prices to boost production. Analysts expect earnings of 55 cents per share on revenue of $7.10bn. The market will also look for comments on crude production growth as OPEC+ plans to cut production.