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FTSE 100 flutters up to a one-month high

It’s been another day of record highs for the Stoxx600 and FTSE 250, while the FTSE 100 has hit a one-month high, as cautious optimism continues to outweigh concern about rising Delta variant rates in Asia, and to a lesser extent the US.

Europe

It’s also been another day of mixed earnings announcements with winners and losers in equal measure. We’ve seen a solid set of interim results from Flutter Entertainment as it reaps the benefits of its Stars Group acquisition in the US, with group revenues rising 99% to just over £3bn. On a proforma basis this still translates into a rise of 28% year on year, with the company reaping the benefits of a sizeable increase in monthly players, and the wider footprint its US operation offers it. Profits before tax rose to £77m, with the company optimistic about the outlook assuming an uninterrupted sporting calendar. This has also led to a positive read across for Entain, with both companies leading the FTSE 100 gainers.

It’s not been such a positive day for M&G and Abrdn, with both companies propping up the FTSE 100 after disappointing H1 numbers. M&G slipped to an IFRS H1 loss after tax of £248m, compared to an £826m profit a year ago, while assets undermanagement fell short of expectations, rising £2.8bn to £370bn. The first set of results under the new branding for Aberdeen, or should I say Abrdn, has seen assets under management rise to £532bn, which was slightly below expectations, even as revenues beat forecasts, coming in at £755m.

Hotels have been another area hard hit by the pandemic, however Holiday Inn and Crowne Plaza owner IHG has managed to cope better than most. Its international footprint has helped it in ways that has seen localised hotel chains struggle, and today’s first half numbers have illustrated that quite well. Global RevPAR saw a rise of 20% compared to 2020, and while still down from 2019 levels it has improved from being down 50.6% in Q1 to down by 43% over the first half of the year. This has been driven by improvement in the US as well as China, with the company reporting an operating profit of $138m, however the shares have still struggled today.

US

US markets opened modestly higher today with the Dow and S&P 500 setting yet more record highs, as investors start to get comfortable with the idea that tapering is coming sometime in Q4.

AMC Entertainment shares popped higher on the open after the cinema chain managed to narrow losses in Q2 and grew revenues by more than expected to $444.7m. While the numbers were better than expected it continues to be hard to make a case for a valuation that is higher now than it was back in 2017 when its finances were in much better shape. Its finances may well be in better shape than the beginning of this year, but its still carrying a lot of debt, and while CEO Adam Aron may be confident of becoming cashflow positive by Q4, the task is unlikely to get any easier as the weather gets colder.

The rebound in the oil price is helping to boost Chevron and Exxon Mobil, while US banks are also higher, with Goldman leading the gainers.

FX

The euro has slid towards its lowest levels this year against the US dollar, after investor confidence in Germany plunged to a nine-month low, as concerns about economy activity increased against a backdrop of the flood disruption in July. Worries over global demand against a backdrop of rising Delta infection in China are also eroding confidence as we head into year end. You could also add uncertainty around the upcoming German elections, with Chancellor Angela Merkel set to depart and none of her possible replacements inspiring much in the way of confidence. The outcome is starting to turn into something of an ugly contest, with no single candidate standing out in the race to become Germany’s next leader.

The US dollar is also gaining ground against the Swiss franc and the Japanese yen as the greenback continues to benefit from the perception that US monetary policy is on different trajectory to everyone else. 

Commodities

Crude oil prices appear to have found a short-term base, after hitting a three-week low yesterday, and is currently down over 5% this month alone. With inventory data due out later tonight there appears to be some cautious position adjustments taking place, ahead of what could well be some significant draws in the latest weekly data. Last week crude inventories rose by 3.6m barrels, however this could well be a one off. 

Gold prices are still finding it difficult to make progress higher after this week’s flash crash lows. Tomorrow’s US CPI numbers could be the next catalyst to kick the stool away for gold bulls, and potentially open a retest of the lows this week. There appears to be an expectation that CPI may well slip back in July, however given the direction of travel of PPI in recent months, there is a significant risk of an upside surprise.


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