It’s been another positive week for markets in Europe, with investors taking comfort from earnings numbers that have by and large been better than expected, despite concerns about the growth outlook.
The gains seen this month have offered a welcome respite, while the belief that central banks may have to pare back the number of rate hikes they can deliver is also helping, pushing yields sharply lower, and improving the attractiveness of stocks in general.
The FTSE 100 has seen a strong end to the week, pushing above the 7,400 for the first time since early June, helped by a strong performance from the banks and the mining sector.
NatWest Group offered a positive pick me up for the banks today, as well as the taxpayer as it announced an interim dividend of 3.5p, as well as a 16.8p special dividend, after reporting a solid set of H1 numbers.
With the government still owning a 48.1% stake in the bank, today's announcement is likely to be very welcome. Attributable profit to shareholders rose to just over £1bn, pushing H1 profits up to £1.89bn, as net interest margins improved from 2.46% in Q1 to 2.72% in Q2, taking H1 NIM to 2.59%.
With other banks starting to add back into their impairment funds due to the rising cost of living NatWest appears to be running counter to this, adding back £54m during the first half.
It was notable that the retail side of the business did see H1 impairments of £26m, however this was more than offset by addbacks in other parts of the business. Net loans to customers rose to £188.7bn, from £184.7bn in Q1, and up by £6.5bn in the first half of the year. £5.9bn of this was by way of mortgages, with lending evenly split between Q1 and Q2, with the remaining £600m being made up of credit card and loan balances. Customer deposits increased to £190.5bn.
Despite all the various travel problems being encountered across the world, British Airways owner IAG managed to see a return to profit in Q2, helping briefly to push the shares to a six week high, as rising travel numbers helped to push the airline back into the black.
A modest €293m profit, helped to take a bite out of an H1 operating loss of €438m. This is welcome news at a time when a lot of questions have been asked about the sustainability of the airline’s finances after 2 years of losses that have been in the billions.
IAG said it has access to over €9bn in cash, up by €1.2bn since December last year, while net debt was down €688m to €10.98bn. H1 total revenue came in at €9.35bn, with IAG saying that it hopes that Q3 capacity to be 80% in Q3 and 85% in Q4, a reduction of 5% from previous guidance, due to the challenges at Heathrow which has caused the airline to cancel hundreds of flights.
AstraZeneca shares have slipped back despite raising its forecasts for 2022 on the back of rising sales of its various Covid treatments. H1 revenues rose 48% to $22.16bn, with the main boost being the integration of Alexion helping to boost the numbers. Guidance for total revenue for the year was raised to a low 20% increase, up from a high teen’s denominator, while core EPS was left unchanged, largely due to higher R&D spend.
Intertek shares are also lower after announcing a 9.5% increase in H1 revenues, and a 4% rise in adjusted operating profit of £217.3m. The company however said that its full year target margin was expected to be slightly below 2021 levels. The company also announced the acquisition of Clean Energy Associates for an undisclosed sum, and which provides assurance services to solar energy markets.
US markets have continued to push higher after yesterday’s strong finish, and on course for their best month since November 2020, when the announcement of a covid vaccine turbocharged markets. This shift in sentiment has not only been helped by what markets perceive as a dovish Fed pivot, but also a positive response to the numbers from Amazon and Apple which both beat expectations after hours.
While a lot of people have pushed back on the narrative of a Fed pivot, the fact that so many people hate this rally suggests it might have some legs. The big test will come over the weekend, or next week, when Fed policymakers will be allowed to have their say. On Tuesday we get to hear from St. Louis Fed President James Bullard, as well as Charles Evans of the Chicago Fed.
When Amazon reported its Q1 numbers, it posted a $3.8bn net loss due to a $7.6bn write down on its stake in Rivian, while also guiding lower on Q2 revenues.
Yesterday we saw yet another Q2 loss, this time due to a $3.9bn write down, and primarily for the same reason, however sales beat expectations, coming in at $121.1bn, with the decision to raise prices on Prime not having a negative effect. Revenues here rose 14% to $8.7bn.
Despite the second quarterly loss in a row the shares rallied strongly after hours after Amazon guided higher for Q3, with estimates for sales of between $125bn to $130bn.
There were also other bright spots in the Q2 numbers, as AWS posted another record quarter of $19.74bn, while operating margins came in at 2.7%, well above expectations of 1.65%.
For Q3 Amazon said that operating income was likely to be affected unfavourably because of a strong US dollar.
There is also evidence that costs are starting to level out as operating expenses came in at $117.9bn which was below expectations, with Amazon shedding over 100k employees during the quarter, mainly through attrition in its warehouse network.
Apple’s Q3 numbers were eagerly awaited after they took the decision to offer discounts in China on its highest spec iPhone 13 which raised more than a few eyebrows a few days ago and raised the prospect that more discounting could be coming in markets that are starting to struggle.
On the numbers themselves Q3 revenues came in at $83bn, pretty much on the money, while profits came in at $1.20c a share, a slight beat.
When broken down the picture was mixed, with only the iPhone and iPad products beating expectations on revenues, and only the iPhone showing any revenue growth from last year. iPhone revenues came in at $40.67bn, while the iPad saw $7.22bn.
Mac revenue fell over $1bn short at $7.38bn, as did wearables and home accessories, which came in at just under $8.1bn. Services revenue did show strong gains from last year but came in below expectations at $19.6bn.
By region both Greater China and Japan saw a decline in sales, which raises the question as to whether we could also see discounting extended to Japan having seen Apple already do it for China. Apple didn’t offer any guidance in line continuing a trend that has been in place for the last two years.
US oil giants ExxonMobil and Chevron have followed in the footsteps of Shell in reporting record profits due to the sharp increases in oil and gas prices.
In a sign that the streaming space is becoming ever more challenging as the cost of everything goes up, US streaming company Roku shares have slumped sharply after missing on Q2 revenues and downgrading their estimates for Q3. This revenue downgrade only serves to sharpen the focus on the likes of Netflix, Paramount Global and Disney, and their scrap for market share. Talk about being between a Roku and a hard place!
Intel shares have also come under pressure after the company slashed its sales and profits guidance on the back of a slowdown in PC sales. Delays in the rollout of a server product appears to have hurt the business as Q2 revenues fell 22% to $15.3bn.
We’ve seen some decent moves on FX today with the Japanese yen hitting a one month high against the US dollar before losing ground as the greenback rebounded on the back of this afternoon's better than expected US economic data.
The euro was unable to benefit from the better-than-expected Q2 GDP numbers from France, Italy and Spain, while the German economy stagnated. It’s entirely possible that the former three benefitted from a tourism boost, suggesting that Q3 could also be resilient, however its hard to escape the conclusion that this is probably as good as it gets for all of them as we head into the autumn. EU CPI presented a fresh headache for the ECB after rising to another record high for July to 8.9%, with core prices rising to 4%.
The pound has also slipped back after June mortgage approvals slowed to their weakest in two years at 63.7k, while consumer credit jumped sharply to £1.8bn, raising concerns that consumers are going into debt in order to get by as monthly bills increase in size.
Crude oil prices have continued to gain ground with Brent prices hitting a three-week high above $110 a barrel and on course for their second successive weekly gain. With an OPEC+ meeting next week there must be a concern amongst members of the cartel that at current prices we could start to see demand destruction, even with the various disruptions caused by the war in Ukraine.
Gold prices hit three-week highs today, before retreating after the latest US PCE inflation data came in above expectations at 4.8%. The stronger than expected number, which marked a new 40 year high, along with a higher-than-expected Employment Cost index for Q2 which came in at 1.3%, have given the US dollar a slightly firmer bias as we head into the weekend and month end.