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More records for European stocks, but the FTSE 100 lags

FTSE100 lags as miners drag

We’ve seen more record highs for the FTSE 250 and the Stoxx 600 today, with the FTSE 100 once again being the perennial party pooper, lagging behind due to underperformance in the basic resource sector.

Europe

The FTSE 250 has been led higher by decent numbers from Savills the estate agent, who surprised the markets by reporting underlying pre-tax profit of £66.1m, well above expectations of £13.2m, while Greggs and Trustpilot have also seen decent gains.  

Rio Tinto, Anglo American and BHP as well as Glencore are all lower over concern about iron ore demand out of China, as prices slip to four-month lows. These declines come in spite of Glencore reporting record profits, and a 32% rise in revenue, with the company announcing $1.18bn in dividends and buybacks when it reported its H1 numbers today.   

Lloyds Banking Group is also down sharply after being cut to sell by Goldman Sachs, over concerns about margins in the UK mortgage market.

On the plus side, Rolls-Royce appears to have made some progress in reducing its cash flow leakage, which helps to account how it was able to surprise markets with an unexpected H1 profit of £393m, beating consensus expectations of a small loss. This was helped by a better than expected £600m improvement in free cash flow, which while still negative to the tune of -£1.17bn, is still a marked improvement on a year ago. The company also announced last night that it was in discussions with Bain Capital on the sale of ITP Aero, its Spanish business for £1.6bn, which is much more like it, and is likely to be needed given today’s H1 results. It’s still behind schedule on large engine flying hours, which improved to 43% but still remains below the end of year target of 55%, which the company conceded due to the delays in restarting international travel could take a little longer.

The world of advertising appears to be returning to a semblance of normality if today's interim results from WPP are any guide. A strong H1 has seen revenues return to 2019 levels a year ahead of expectations according to management, rising to £6.1bn, a rise of 9.8%. Much of the increase has come from digital media and ecommerce. The company upgraded its advertising forecasts for 2021 to growth of 19%, with operating margins expected to come in at the upper range of 13.5% to 14%, rising to 15.5% to 16% in 2023. The company announced an interim dividend of 12.5p, and plans to buy back £350m of its own shares in the second half of the year.   

Packaging company Mondi has also posted a decent first half update, revenues rising to £3.6bn, up from the same period a year ago, although profits before tax were slightly lower at £461m. operating margins are also lower from a year ago, although they have improved over the previous six months, coming in at 19.5%.  

US

US markets opened higher after weekly jobless claims came in as expected, but continuing claims dropped sharply, by over 300,000 to below 3m to 2.93m, and a post-pandemic low. With US non-farm payrolls tomorrow, this appears to be another piece of positive news, adding to the anticipation of a decent July jobs report.

Uber’s shares hit a nine-month low in early trade, despite beating on revenues and bookings for Q2. Gross booking rose to $21.9bn, while decent growth in its delivery business saw revenues rise to $8.6bn. Losses were higher at $509m due to having to spend more money on recruiting drivers back onto the platform as demand for delivery capacity rose sharply. Uber said it expected losses to narrow to $100m in Q3 and was hopeful of a profit in Q4. As unemployment benefits expire in September the expectation is that driver costs may well moderate as more people are forced back into the workforce.   

Robinhood Markets, after two days of big gains have seen the shares slip back after a number of shareholders filed to sell up to 98m shares. The shareholders in question appear to be the same investors who came to the company’s rescue when they needed help earlier this year as the meme stock craze threatened to run out of control.   

Moderna, has also continued to reap the benefits of its own vaccine candidate, the shares hitting new record highs after, posting Q2 revenue of $4.4bn, well above expectations, with the vaccine contributing $4.2bn of that number. Profits came in at $6.46c a share with the company announcing a $1bn share buyback program of $1bn over 2 years. We also saw the latest vaccine data which showed that the second Covid jab was still 93% effective 6 months after being delivered. Twelve months ago, Q2 revenue was a mere $67m, illustrating how far this company has come in the space of a year. Full year capex for 2021 is expected to be in the region of $450m and $550m as the company strives to add additional capacity.

FX

The pound has seen fairly little reaction to today’s Bank of England policy decision, which produced a policy dissent on the bond buying program from external MPC member Michael Saunders, as he filled the gap left by now departed Chief economist Andy Haldane as dissenter in chief. On balance the decision was more positive than negative with the bank pledging to start to unwind QE when the bank rate reaches 0.5%. This was previously set at 1.5%, while the bank also upgraded its GDP forecasts for 2022 and 2023, while keeping 2021 unchanged at 7.25%.

The Australian dollar is amongst one of the better performers today with some citing a better-than-expected trade report for June. The big improvement in the numbers appears to be offsetting rising concern about stricter restrictions, with Melbourne heading into another lockdown and Sydney infection rates increasing. Today’s rebound could merely be a brief respite given that the June numbers are very much rear-view mirror stuff.     

Commodities

Crude oil prices are on the up again after three days of declines, with the upside capped by concerns over rising Delta infections across China, as well as the rest of Asia. Any downside is likely to be restricted by US gasoline inventories which yesterday fell to their lowest levels this year, as the US driving season hits its peak.

Gold prices don’t appear to know which way to turn with the way bond markets have been trading in the last couple of days, testing both the top and bottom of its recent range. A decent payroll report tomorrow could well see the yellow metal head back towards $1,790 with today’s sharp fall in continuing claims helping to act as a drag on any attempt to move higher.


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