It’s been another decent day for European markets today, with the Stoxx600 notching another new record high, along with the FTSE250, with the DAX also bouncing back after a poor day yesterday. The FTSE100 has continued to edge higher, notching another three-week high.
Europe
Today’s gainers have been led by Ladbrokes and Coral bookmakers’ owner Entain whose shares have also hit record highs on speculation that MGM Resorts might return with a renewed bid for the firm, having freed up $4.4bn in selling its Aria and Vdara resorts to Blackstone. Flutter Entertainment and 888 Holdings shares are also higher on a read across.
The UK housing market has been on fire this year and Taylor Wimpey’s H1 numbers appear to bear that out with the company upgrading its full year guidance and reinstating its dividend. Revenues came in just shy of £2.2bn, a big rise on the same period last year, however last year saw operations seriously disrupted as a result of the first lockdown. The house builder announced completions of 7,303 homes, a record number., while operating margins rose to 19.3%.
Pre-tax profits for the first half came in at £287.5m with the company announcing an interim dividend of 4.14p per share. In terms of the outlook the company has said it expects full year completions to be towards the upper end of 14k homes, with operating profits expected to be at £820m, above the top end of consensus
Legal and General first half numbers have been fairly well received, showing that operating profits rose by 14%, with profits after tax coming in just above £1bn. All of the main numbers beat forecast expectations as strong growth in its business segments of annuities, insurance and retail divisions grew by double digit percentages.
Rolls Royce appears to have finally drawn a line under the sale of Bergen Engines, signing a €63m deal with UK based Langley Holdings, which is due to complete by the end of the year. The firm had originally agreed a deal with Russian firm TMH for £130m at the beginning of the year, but it was blocked on national security grounds by the Norwegian government.
The deal which is part of Rolls Royce’s attempt to strengthen its balance sheet has taken a while to complete, and given the slow restart of civil aviation this year, the extra funds will certainly be welcome, however the very low-price tag rather makes you wonder why they are even bothering.
US
After yesterday’s strong session, US markets have drifted back down after the latest ADP payrolls report for July saw 330k new jobs added, missing expectations by quite some distance.
While there is little in the way of correlation to Friday’s jobs report, the low number today suggests that the US labour market is well short of the substantial progress required to raise the participation rate, currently at 61.6%. Consequently expectations that the Federal Reserve might be tempted to outline a strategy for a possible taper in the autumn could well be receding. The weak nature of the ADP payrolls report contrasts somewhat with a fairly decent ISM Services report, posting a record high headline number, along with a sharp rise in prices paid, as well as a decent improvement to the employment component.
It all rather speaks to a very lumpy recovery and uncertain picture of the US economy, and ergo the labour market. Friday’s payrolls numbers could go either way, however expectations have been dialled back from where they were a week ago.
Activision Blizzard, the company behind Call of Duty and World of Warcraft saw its latest quarterly revenues rise by 19% to $2.3bn in Q2, with the company also raising its guidance. The financial performance of the company has been overshadowed in recent weeks by allegations of bullying and sexual harassment with the President of the company’s Blizzard Entertainment Studio, J. Allen Brack leaving his position early on Tuesday. The company is also facing lawsuits over some of the allegations, with the current company management facing criticism for its response to recent events.
Robinhood Markets has also carried on from where it left off yesterday, with another huge surge, building on its 24% gain yesterday, with an 80% surge above $80 a share before sliding back below $70 a share. Last week Cathie Woods ARK Fintech Innovation loaded up on over 2.5m shares while adding another 90k yesterday, which may have prompted retail traders to pile in too given that retail volume surged soon afterwards. While correlation doesn’t equal causation it's hard to see what other explanation there could be as retail interest in it grows. Given that the company touted itself as a vehicle for democratising financial markets it was a little surprising how little enthusiasm there was for the IPO in the initial days after the float. That lack of enthusiasm appears to have gone away if the events of the last couple of days are any guide.
Nvidia shares are slightly higher despite reports that the UK government is looking at blocking the $40bn acquisition of UK chip designer ARM Holdings.
GM shares have slipped back after missing on Q2 earnings, despite raising its full year guidance to between $11.5bn and $13.5bn.
FX
The New Zealand dollar has continued to push higher, building on its gains from yesterday, while elsewhere it’s been pretty dull across the board.
The US dollar has swung in both directions today, both up and down albeit in a fairly tight range, as US yields swing in a similar fashion. Having seen the US 10-year trade as low as 1.13%, we subsequently rebounded at around the same time as remarks from Fed vice chairman Richard Clarida, and the latest ISM services report which showed prices paid at their highest level since 2005. Clarida’s remarks weren’t particularly hawkish, but neither were they dovish, which suggests that even at the top of the Federal Reserve it is difficult to get any sort of consensus view.
Other than that, it’s been dull, dull, dull.
Commodities
Crude oil prices have continued their slide lower, on course for their third successive daily decline over concern about demand from Asia, as reports out of China continue to point to rising infection rates, slowing economic activity. The latest inventory data hasn’t helped with a surprise 3.6m build, against an expectation of a 3.2m draw.
Gold prices moved higher after the latest ADP employment report came in at 330k for July. This was well below expectations of 683k, and appears to have punctured any optimism ahead of Friday’s payrolls report that we’ll see a significantly more positive report. They then went into full reverse, giving up their gains after a strong ISM services report, with a headline number at a record high, and an inflation component at a 16 year high.
While there is little or no correlation between ADP and non-farm payrolls, a poor Friday number could have the potential to push the prospect of the Fed even looking at a modest taper much less likely in the short term.
