European markets have seen a broadly negative session, with the FTSE100 acting again as the outlier, however this time it is outperforming with BHP and Just Eat leading the gainers, along with some decent performances from the likes Fresnillo, while BP and Shell are also higher.
BHP this morning announced full year profits in line with expectations, but they were still the best numbers in a decade. Attributable profit to shareholders rose 42% to $11.3bn, with the company announcing a final dividend of $2 a share.
Today’s numbers were somewhat overshadowed by the announcements that it is investing $5.7bn in a new potash mine in Canada, as well as splitting off its oil and gas business. The company also said it was reviewing its dual listing structure. These changes have helped push the shares to the top of the FTSE100, as the main business pivots away from fossil fuels, and focusses more on its core operations of copper and iron ore.
The all-stock merger with Woodside Petroleum will combine their respective oil and gas divisions. On completion of the merger, Woodside would issue new shares to distribute to BHP shareholders, with Woodside shareholders owning 52% of the new company.
The Just Eat share price has been on a slow decline for most of this year, down over 35% from its October peaks, as it continues to absorb the costs of expanding the business and integrating GrubHub into its operations.
Today’s H1 numbers showed that revenues rose 52% to €2.6bn, largely due to the GrubHub acquisition while losses came in at €190m. The company said it was confident that it had reached peak losses, and that while it would still be investing in the business, profitability would start to improve, with the company reiterating its full year guidance. This has seen the shares push higher.
Travel and leisure stocks have underperformed today, largely due to similar declines in Asia based airlines which slid in the wake of New Zealand’s single case lockdown. This has seen IAG slip back, and with the weather only likely to get colder the fear is that further cases across Europe could well foster similar reactions as governments strive to keep cases manageable.
US markets, having hit new record highs for the S&P500 yesterday, opened lower today, after retail sales in July fell -1.1%, well below expectations of -0.3%, with motor vehicles sales accounting for 3.9% of the decline.
The decline in car sales is particularly instructive given recent sharp rises in prices over the last few months. The fall in sales may have more to do with the fact that prices have risen too much than a lack of demand. Let’s not forget the last two months has seen used car prices soar, and maybe consumers have decided enough is enough. It could merely be that prices have hit their tipping point. Also lower was clothes sales, as well as sales of building and garden materials.
Walmart beat on the top line with profits of $1.78c a share, while revenues came in at $141.05bn, well above expectations. Same store sales also rose more than expected, up 5.2%, prompting the company to raise its full year profit forecast to between $6.20c and $6.35c share. The split between e-commerce sales and store sales is starting to move back in favour of stores as the economy reopens. Despite the better than expected numbers the shares have slipped back.
It was a similar picture for Home Depot which saw profits of $4.53c a share, and revenues of $41.12bn, both beating expectations, however same store sales fell slightly short of expectations, although total ticket size was bigger. Nonetheless the shares slipped back in early trade.
Video game platform Roblox has also seen its shares tumble after missing on revenues and posting a bigger than expected loss for the quarter.
The US dollar is among the better performers, along with the Swiss franc and Japanese yen, on the back of haven flows, as the more cyclical currencies get pounded.
The pound doesn’t appear to be getting much support from today’s latest UK unemployment numbers, falling to a 3 week low against the US dollar, despite the claimant count in July falling further to 5.7%, while the ILO unemployment rate for the three months to June, fell to 4.7%.
Job vacancies in July rose to over 1m, with 182k new roles added as the UK economy reopened and the rest of the remaining restrictions were removed. Wages are also pushing higher, and while some of the gains can be put down to base effects caused by the pandemic, they still rose from 6.6% to 7.4%, excluding bonuses, which means they are still rising much faster than headline CPI.
As with everything to do with the pound the glass appears to be half empty, with perhaps an expectation that this might be as good as it gets for unemployment as furlough comes to an end. Of course, that rather ignores the fact that the UK economy currently has over 1m vacancies.
The New Zealand dollar has dropped like a stone after the government imposed a three-day lockdown because of a single covid case. There had been an expectation that the RBNZ might look at a possible rate rise when they met tomorrow, however a prolonged lockdown looks set to scupper that timeline. It also speaks to a failure on the part of politicians in both New Zealand, as well as Australia to safeguard their populations by not prioritising the vaccine rollout plan. A zero covid policy which appears to be what both Australia and New Zealand are pursuing is unlikely to succeed and could well do more economic damage than it is trying to prevent, which also helps explain why the Australian dollar is also down sharply as well.
Fears over an autumn slowdown continue to weigh on risk sentiment more broadly, with brent crude prices struggling to rebound, although we haven’t been able to test the lows from yesterday as of yet, however demand patterns do appear to be slowing. The latest oil inventory later this evening could well be instructive in terms of the next move.
Gold prices have continued to rise, as US 10-year yields continue to drift back after hitting a four-week high only three days ago, with the more risk averse sentiment boosting demand for the yellow metal. The over-reaction by some governments to isolated Covid cases is also raising concerns over a sustained slowdown.
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