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BP lifts the FTSE 100 to a three-week high

BP lifts the FTSE100

European markets have struggled for direction today, with the DAX underperforming largely due to weakness in automakers led by BMW, who warned on the outlook due to supply chain concerns and chip shortages. German chipmaker Infineon doubled down on this by saying that recent production outages in the US and Malaysia meant that chip shortages are at their worst levels in 30 years.  

Europe

The FTSE 100 has fared slightly better largely due to a decent performance from BP, and the banks after some decent earnings numbers, this time from Standard Chartered.

The FTSE250 has once again made another record high, helped by decent numbers from Direct Line, as lower motor vehicle claims pushed half year profits before tax up by 10.5%, sending the shares to their best levels since April.  

BP shares have been given a lift today after the company raised its dividend as well announcing a $1.4bn share buyback from its H1 surplus cash flow. This is welcome news for shareholders with BP also saying with oil prices at $60 there was scope to deliver buybacks of $1bn a quarter, and to have capacity to increase the dividend by 4% until 2025.

This is all well and good, but also heavily reliant on OPEC+ keeping prices at their current levels, which given recent volatility in prices is by no means a slam dunk. You also have to question whether this is the best use of the surplus capital for BP to transition to a much greener footprint.  

Standard Chartered Bank is also getting a buyback boost after underlying pre-tax profits in the first half rose to $1.24bn, helped by a release of loan loss provisions. The bank will buy back $250m shares as well as paying an interim dividend of $0.03c share. As far as the outlook is concerned the bank was slightly more downbeat, saying it would take longer to reach its 10% return on equity target.

Smiths Group has finally offloaded its medical devices division, selling it for $2.3bn, having suspended the sale just over a year ago due to the pandemic. The deal to TA Associates finally draws a line under a process that some thought might not happen given recent outperformance in this area over the past 12 months.

The performance of Smiths Medical has stood out given it has been at the forefront of the forefront of the coronavirus outbreak, due to it being a specialist in the production of medical ventilators, as the NHS scrambled to boost the number of breathing aids it needed to help save lives. Today’s sale doesn’t appear to have been universally welcomed with the shares sharply lower, possibly due to some dissatisfaction with the sale price.

Domino’s Pizza UK shareholders have been feasting today as the company’s share price hit new record highs after reporting a 19.6% rise in sales for the 26 weeks to the end of June. This helped drive profits after tax up to £41.3m, a rise of 117.4% with Euro 2020 helping to drive a lot of that increase. While the game between England and Scotland may have been forgettable for most of us, for Dominos it marked their best trading day this year.   

US

US markets opened higher, helped to some extent by the modestly positive mood in Europe, although there is concern about rising Delta variant cases in the US. The reinstatement of mask mandates across a number of US states, as well as various US companies announcing the mandating of masks is raising concerns that we could see a modest slowdown in the narrative behind the US recovery story. Bond markets already appear to be pricing a weaker economy given the recent slide in yields.

The latest US factory orders for June saw a modest slow down to 1.5% from 1.7% in May, underscoring to some extent the reasons that the latest US Q2 GDP numbers were somewhat on the weak side.

Chinese gaming companies saw a sell-off in Asia trading earlier today, over concerns that Chinese regulators could crack down on the gaming sector, and this has continued into US trading today as the US listings of Tencent, Bilibili, Alibaba and NetEase have all slid back.

Pepsico shares are in focus on reports it is looking to sell its Tropicana and Naked juice brands to private equity firm PAI Partners for $3.3bn, as well as retaining a 39% stake in the business. It seems the rationale behind the deal is a focus away from sugary drinks towards the more low-calorie drinks market, as well as healthier snacks.

FX

The Canadian dollar is amongst the worst performers today, while the Japanese yen is gaining ground against the US dollar.

The Australian dollar has broken higher after the Reserve Bank of Australia unexpectedly decided to keep the option of a November taper on the table, despite rising infection rates acting as a possible drag on the Australian economy. The central bank did keep its options open in the event economic conditions were to deteriorate further, but for now it’s adopting a “wait and see” approach on the economy. The Kiwi is also higher after the RBNZ said it may have to look at ways of tightening lending standards on New Zealand’s housing market.    

Commodities

Crude oil prices are undergoing another decline today, as concerns over a slowdown in Asia prompt some weakness for the second day in succession. Not only are we hearing about more cases in China, but we are also getting an acceleration of cases across Indonesia and Thailand, as the virus hunts out parts of the global economy with low vaccination rates.

Gold prices are slightly softer, after failing to get back above $1,830 an ounce at the end of last week. It seems unlikely we’ll get a big move this side of Friday’s US payrolls report, although some in the markets are looking towards a speech by Fed vice chairman Richard Clarida tomorrow for clues as to where he leans in the taper debate, after comments from Fed board member Christopher Waller that indicated he was in favour of an early move.

Given recent comments that the FOMC’s main focus is on the labour market, and the low participation rate, any comments that Clarida makes tomorrow may not survive first contact with Friday’s payrolls report, especially if it misses to the downside.


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