Europe

It’s been another mixed session for markets in Europe, with the FTSE100 under pressure for the third day in succession, weighed down by some disappointing numbers from the oil and gas sector. This sector accounts for 16% of the market capitalisation of the blue chip index, so can act disproportionately on it when there is a big move up or down.

On the other side of the channel European markets have edged modestly higher for the second day in a row, after a fairly subdued July performance.

Royal Dutch Shell shares are amongst the worst performers after Q2 profits missed expectations. Profits came in at $3.6bn, down 25% from a year ago, and well below expectations of $4.9bn.

Shell have blamed some of the miss on profits on recent weakness in the oil price, however this doesn’t really stack up, given that Q2 average oil prices were higher than in they were in Q1.

It would appear that the company’s bigger reliance on natural gas and petrochemicals is the main reason behind the slide in profits, as weaker prices and oversupply weighed on its margins. LNG prices have more than halved this year, and this appears to have played a big part in this profit miss.

Despite this the company still managed to generate $11bn of cash flow, a decent increase from a year ago.

Under pressure construction company Kier Group shares have jumped sharply today despite revealing that revenue for 2019, was likely to be about £100m lower than in 2018.

The optimism appears to be coming from this morning’s announcement that the company’s average net debt for 2019 was going to be at the lower end of the previously estimated debt range of £420-450m at £422m.

More encouragingly, average payment days to its supply chain partners has been reduced to 41 days from 57 days, indicating that the company is regaining control of its cash flow, while the company has also said that it has received significant interest in its housebuilding division.

There is still a long way to go but the direction of travel for Kier does appear to be more encouraging.

London Stock Exchange confirmed this weeks earlier story, that it is acquiring Refinitiv for $27bn at the same time as announcing its latest H1 trading update, which has helped send the shares up further to new record highs.

Total revenues were up by 7% to over the £1bn mark, while adjusted profits before tax rose 1% to £363m, with strong growth in its clearing division LCH. The company increased the dividend by 17% to 20.1p a share.

Barclays latest update was a bit of a mixed bag, albeit broadly positive, driven by improvements in the investment bank, which is likely to take the heat off Jes Staley with respect to Edward Bramson’s insistence that this division is spun off. The improvements came in both fixed income and equities while the retail bank was held back by the ongoing uncertainty around the UK economy and the political noise of Brexit.

By contrast, Asia focussed UK bank Standard Chartered has seen its profits rise despite a slowdown in its core markets in the Far East, pushing the shares up from a one month low yesterday.

Profits before tax rose to $2.6bn up from $2.3bn in the same period a year ago. Operating income showed a decent increase from the first and second half of last year, while a focus on costs has seen operating expenses fall below $5bn.

The numbers are good news for CEO, Bill Winters, with the shares up over 20% year to date, and who is currently embroiled in a row over his pension contributions, which the board recently increased to £474k a year, prompting an outcry from some shareholders, as well as MPs.

It’s certainly questionable optics when executive pay and benefits remains a hot button issue for a lot of people and the share price is still over 25% below the levels of when he took over as CEO in June 2015.

US

US markets opened higher after yesterday’s big tantrum, after the Federal Reserve didn’t give them what they wanted, in terms of a more dovish view.

The Fed did say that any decision to cut rates further would be data dependant which helps explain the gains we’ve seen in the wake of this afternoon&rsquo s latest ISM manufacturing survey which showed that economic activity slowed in July, and prices paid slumped further.

This deterioration in the data appears to have encouraged the belief that we may well get a move in September after all, especially if payrolls tomorrow shows similar weakness, with bond markets rallying and yields falling back.

The move higher has been led by the tech sector with the Nasdaq leading the charge higher, and the S&P500 moving back above the 3,000 level.

While other automakers have been struggling with falling sales, and discounting prices, GM appears to have bucked that trend, with an increase in profits and revenues in Q2. Profits came in at $1.64c a share on revenues $36.1bn. Most of the improvement came in its US sales as higher prices for pickup trucks and SUV sales offset a slowdown in overall sales. 

Spotify shares have managed to rally despite their latest numbers showing a slowdown in subscriber growth. Competition in streaming is ramping up quite significantly with both Amazon and Apple promoting their own services quite aggressively.

Revenues were decent, up 31% to €1.7bn, while total monthly users hit 232m, with 108m of those being paid subscribers.

Fitbit shares have also dropped sharply after the company cut its 2019 revenue forecast to a mid-point of $1.45bn, down from $1.55bn. The company expects to make a Q3 loss of $0.10c a share, on revenues of $350m, down from a range of $376m to $413m.

Verizon latest Q2 numbers showed that the US telecoms operator add more new subscribers than expected as well as exceeding profits expectations of $1.20c a share. While profits of $1.23c beat forecasts revenues came in a little light, however the update to its guidance for the remainder of 2019 appears to have given the shares a nice lift.       

FX

The Bank of England kept monetary policy unchanged today, while downgrading its forecasts for the UK economy for 2019 and 2020. The pound made a fresh two year low earlier today against the US dollar in the wake of last nights Fed meeting, and today’s economic assessment from the Bank of England.

The prospect of a stronger US dollar is not good news for the pound in its current condition, so today’s weaker than expected US data was able to act as a positive catalyst pulling it off these two year lows. If the US dollar continues to strengthen it will make it much more difficult for any rally in the pound to gather momentum. The key level remains down near the 1.1980/1.2000 level and 2017 lows.

Commodities

Crude oil prices have slipped back sharply on the back of a combination of a stronger US dollar, and concerns about weaker demand after the latest batch of manufacturing PMI and US ISM numbers showed scant evidence of a pickup in economic activity in July.

Gold has also tumbled in the wake of last nights Fed decision, as the US dollar rebounded strongly. It is clear markets were positioned for a much more dovish message from the central bank and when that didn’t materialise, markets sold off sharply. We have seen the yellow metal rebound off its lows in the wake of the weak ISM number.

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