X

Select the account you'd like to open

News

Mixed session for European markets, as UK inflation slips back in July

Mixed day for London stocks

It’s been a mixed day for markets in Europe with little in the way of a significant driver one way or the other, despite a positive hand-off from Asia. The latest inflation numbers from the UK and EU didn’t provide much in the way of direction, while today’s Fed minutes probably won’t add much either.

Europe

The biggest drag on the FTSE100 today has been BHP Group as its decision to scrap its London dual listing has relegated it to the bottom of the index, prompting any index trackers to start the process of offloading some of their holdings. The rest of the sector is also lower on the back of weaker copper prices which appear to be heading back towards their June lows.

Burberry shares are also lower as concerns about the recovery in Asia weigh further on the share price. Comments from Chinese state media that suggested that China was looking at forms of wealth distribution also weighed on sentiment.  

Having seen slow declines in its share price for most of this year the last two days appear to be marking a turning point for the Just Eat share price as we see another day of gains after yesterday’s H1 numbers. There appears to be some early signs that shareholders are buying into management optimism that profitability will improve in the coming weeks and months, with the shares up around 9% since Monday.

UK housebuilders are also on the up on the back of the latest house price growth numbers, with Barratt Developments and Taylor Wimpey up on the day.

Persimmon, on the other hand, are lagging despite its latest H1 numbers painting a picture of a resilient housing market and decent revenues and profits, which makes today’s brief sharp spike lower in the share price even more inexplicable.

H1 revenues came in as expected at £1.84bn, a decent increase from last year’s £1.19bn, however this comparative was affected by some end of year disruption because of the first lockdown. H1 profits after tax rose to £391.2m, putting the business well on course to surpass last year’s profit number. Despite this the shares have struggled for gains despite UK house price growth rising by 13% year on year. 

Balfour Beatty shares have nosedived despite reporting H1 pre-tax profits of £55m on revenues of £4.15bn. The dividend was also increased to 3p per share. The company has had to write down the value of some projects in central London because of the pandemic, however this appears to have been more than offset by the raising of margins in support services from 3-5% to 6-8%.  

The order book has shrunk slightly from £17.5bn a year ago to £16.1bn, with the company reiterating its full year guidance of profits in line with 2019 levels.   

US

US markets continued where they left off yesterday, opening lower as US investors take some profits ahead of the release of today’s FOMC minutes.

Despite both beating expectations yesterday, Walmart and Home Depot shares struggled to make much in the way of progress, with Home Depot shares falling sharply.

Today’s Q2 numbers from Target had a much higher bar given the gains in the share price so far year to date, up over 40% year to date due to its position in the middle of the US retail pack which has seen it gain lots of new customers at the lower and upper end of the income stream in the US, as consumers spend their stimulus benefits.

Target has struggled to clear this bar despite net sales coming in at an impressive $25.16bn, with same store sales rising 8.7%, both above expectations, but well down from the 22.9% seen in Q1. It was never likely that they could get anywhere near to repeating this trick. For a start, Q4 last year and Q1 this year were boosted by seasonal factors, and US stimulus payments at the start of the year.

Profits came in better at $3.64c a share, beating forecasts of $3.40c. The company also announced a new $15bn share buyback program, however this doesn’t appear to be enough to stop some weakness in the share price, as investors take some profits. The reality is that while sales growth has slowed it was never going to be sustained at the levels of 20%+ seen in previous quarters, which appears to be raising questions as to the future strength and resilience of the US consumer.

Tilray shares have popped higher after the company bought convertible notes in US company MedMen Enterprise which the US company was selling to stave off bankruptcy. The move higher appears to be predicated on Tilray being able to secure a toehold in the US market as and when it becomes legal at a Federal level to sell cannabis in what could well be a very lucrative US market.

Both Moderna and BioNTech have been chopping sharply between positive and negative territory ahead of the confirmation that the US government has recommended the giving of a booster shot of the Moderna and Pfizer/BioNTech vaccine starting 20th September.

After the bell we have the latest numbers from Nvidia and Robinhood Markets.

FX

The recent weakness in the pound may well have found a base despite a slightly softer read from the latest UK CPI numbers for July, which slipped back to 2%.

Before we celebrate too prematurely, in a sign that inflationary pressures are some way short from abating PPI prices jumped from 9.1% to 9.9%, suggesting that what we’ve seen is merely a July lull, before a sharp rise into year end, with the Bank of England predicting a move that could see the headline right double to 4%. It is becoming increasingly apparent that the headline CPI number is becoming increasingly unfit for purpose, at a time when everyday items are already starting to get more expensive.  

The New Zealand dollar has been the worst performer after the Reserve Bank of New Zealand left rates unchanged in response to the latest government restrictions, locking down the economy due to a community Covid outbreak.

The US dollar is mixed ahead of the release of the latest Fed minutes, however its hard to envisage there being anything in the minutes that would be that much of a surprise.    

Commodities

Brent crude prices have spent the last couple of days chopping aimlessly around, caught in a no man’s land of indecision between increase in supply, against the headwind of demand concerns as rising delta cases prompt disproportionate clampdowns by governments. If the recent decision by the New Zealand government is indicative of a direction of travel when it comes to isolated outbreaks of covid then the upcoming winter is likely to be a difficult one for company earnings, and economies more generally. The latest inventory data showed a draw of 3.23m barrels, however a surprise gasoline build appears to have negated

Gold is treading water below $1,800 an ounce, and while all the talk has been of tapering in recent days, its unlikely that today’s FOMC minutes will be instructive in this regard.


Sign up for market update emails