It’s been another negative day for European markets, as they continue to trade in the range they’ve broadly been in for the past few months.
Europe
While the DAX, and Stoxx 600 have managed to put in marginal new record highs in recent days there has been a distinct lack of follow-through, which appears to speak to uncertainty about a trifecta of factors, a continued increase in virus cases, the pace of recovery which appears to be slowing, and the transitory nature or otherwise, of inflationary pressures.
The energy sector is acting as the largest drag, with BP and Royal Dutch Shell lower on weaker oil prices, dragging the FTSE 100 back towards the 7,000 level.
The travel and leisure sector is continuing to leak losses with easyJet and IAG both trading at their lowest levels since February, while Jet2 has hit another 9-month low, as uncertainty over travel rules and restrictions continues.
Cineworld has also continued to leak losses, down another 10% and wiping out all its gains this year. While next week’s reopening likely to see an uplift in its fortunes, the reality is given the size of its debt mountain, it is likely to struggle for quite a while yet unless the economic picture improves markedly in the coming months. The wearing of masks in theatres is still likely to be a barrier for a lot of people in terms of a return to the cinema.
Avast, the company behind the AVG security and antivirus software, has seen its shares surge after confirming that it is in talks with Norton Lifelock about a possible merger. The deal which would appear to value the Czech based company at $8bn appears to be an attempt by Norton, which has been the object of takeover interest itself, to safeguard its position as one of the market leaders in cybersecurity. Along with McAfee, Norton it is one of the market leaders in the sector, along with Sophos, which was taken private in 2020 by private equity firm Thoma Bravo. Norton now has until August 11th to firm up any bid.
Experian is also outperforming after releasing a positive Q1 trading update, total revenue seeing a 31% increase wit h all regions adding to the bottom line. The company also upgraded its guidance for the year in the region of 13-15%, with North America contributing 65% of total revenue.
Darktrace shares have put in another record high after upgrading its revenue growth forecasts in its first update since listing back in April. Full year revenue is expected to come in at $278m, a rise of almost 40%. The company said it had increased its client base by 42% to around 5,600 customers. The company also said it was upgrading its forecasts for 2022 for annualised recurring revenue (ARR) from 26.5%-29.5% to between 32% and 34%. Since the IPO in April the shares have more than doubled, with little sign that investor enthusiasm for the company is dimming.
ASOS shares have slid to their lowest levels this year after their latest trading update, despite showing a 26% rise in total retail sales, with the UK accounting for a 60% rise. Total revenue rose by 27% to just shy of £1.3bn.
Caution around the outlook would appear to be behind today’s falls with management citing continued COVID uncertainty and inclement weather, particularly in the UK, in impacting market demand.
The last few months have seen ASOS share price trade sideways despite ongoing optimism that having acquired the brands of Topshop, Topman, Miss Selfridge and HIIT brands revenues would also increase sharply. This lack of upside alongside caution about the outlook as we head towards the end of the year appears to have prompted some investors to cash out, although profits were kept in line with expectations. Boohoo.com shares have also fallen back in sympathy.
Just Eat Takeaway is the worst performer, slipping back towards its May lows, despite seeing a 61% rise in orders in the first half, with GrubHub accounting for 10% of that number, with a GTV (Gross Total Value) of €14.1bn. The company was upbeat about its prospects of returning a profit in the second half of the year, with full year order growth raised to above 45%, from above 42%, and GTV expected to be as high as €30bn.
US
US markets look set for a mixed open, after yesterday’s mixed finish, with the latest weekly jobless claims falling from an adjusted 386k to 360k. Empire manufacturing came in at a record high along with the prices received number, in another blow to the transitory narrative.
Morgan Stanley is the latest US bank to see a slowing of trading revenue in Q2, as FICC revenue came in at $1.68bn, well below consensus of $1.91bn, sending the shares lower on the day. Total revenues were still good, coming in at $14.8bn, above expectations of $14bn, while profits came in at $1.85c a share, well above consensus of $1.64c. The weakness in fixed income has been offset by better performance in equities trading, as well as wealth management, both of which beat expectations. Wealth management saw $6.1bn in revenues with margins rising by 26.8%, helped in no small part by the E*TRADE acquisition, while equities came in at $2.83bn. The bank has already indicated it will double the quarterly dividend to $0.70c a share and buy back $12bn of its shares.
Netflix shares are also rising after the streaming company said it was looking at adding video games to its platform. The company has also hired an ex Electronic Arts executive, Mike Verdu as VP of Game Development. The company looks to be leaning towards the mobile game market, rather than console games. GameStop shares don’t like the news so much sliding back over concern that Netflix could cannibalise its business.
FX
The pound has outperformed today and not because of the latest unemployment numbers, which showed another drop in monthly jobless claims to 5.8%. The ILO unemployment rate was adjusted upwards to 4.8%, however it was a change in tone around monetary stimulus from the Bank of England that turned the pound around, firstly from Deputy Governor Dave Ramsden, and then external MPC member Michael Saunders, who both said that the case for considering the paring back of some stimulus measures was rising. These comments put next month’s August meeting in focus as we look for further signs that the BOE may look at starting to consider tapering in the autumn.
The US dollar is slightly firmer despite sagging yields, with the weakness in equity markets helping to give it support, with the worst performers being the Australian dollar and Norwegian Krone.
Commodities
Gold prices have slipped lower from one-month highs, with the stronger US dollar acting as a bit of a drag.
The prospect of seeing extra supply being released to market as OPEC+ members coalesce around a deal has seen Brent crude prices slide back. Rising gasoline inventories in the US also appear to raise concerns about the resilience of demand there, prompting weakness in WTI prices.
