Markets in Europe received a modest uplift on the back of two positive factors today. In what appears to be good news for the peak inflation narrative, US headline CPI fell from 9.1% to 8.5% in July, with core prices remaining steady at 5.9%, prompting investors to pare back expectations of a September rate hike from the Fed to 50bps from 75bps.
There was also better news out of Ukraine after it was announced that oil flows in the southern part of the Druzhba pipeline had restarted, helping to push markets in Europe back to the top end of their recent ranges, although we have drifted off the highs of the day.
Given Prudential’s exposure to Asia markets it is perhaps not surprising that H1 profits came in short of estimates. The various lockdowns that have been implemented especially in Hong Kong weighed on its profits, which came in at $1.66bn, below expectations of $1.71bn.
Aviva’s H1 results have seen the insurer report a 14% rise in operating profit to £829m, and while the headline number may have missed estimates that hasn’t stopped the shares rising sharply after the insurer said it would look to buy back more shares at the end of the financial year.
Last month Admiral shares saw a big fall over concerns that higher repair costs would hit the sector's margins. Today’s H1 numbers have seen the shares continue to recover off the July lows after pre-tax profits came in at £251.3m. This was 48% down on the same period last year, but still well above the levels seen in 2019. The company saw growth in all its major businesses with the UK insurance business helping to carry the rest of the business. Its international business saw losses of £21.6m, with the US acting as the main drag. The company announced an interim dividend of 60p per share.
Royal Mail shares briefly slipped to 18-month lows, before recovering after the company confirmed 4 days of industrial strike action. With the company already losing £1m a day, Royal Mail said that the action, if carried out would result in the UK operation falling into a loss for the full fiscal year. Unless there is a resolution that addresses the capacity problems that are holding the business back then further share price weakness could well be on the cards.
Deliveroo shares are rising despite the company posting a bigger loss in H1 than it did a year ago, although the company did announce a £75m share buyback. Today’s H1 numbers have seen GTV rise 7% to £3.6bn, within its revised guidance, pushing revenues to just over £1.01bn, and gross profits up by 16% to £300.9m.
When marketing overheads were added this wiped the profits out with the company posting a £68m EBITDA loss for H1. Compared to a year ago marketing costs were 29% higher and while the company said that it had taken steps to reduce these costs as a percentage of GTV it is still higher than a year ago at 10.4%.
US markets opened higher after the latest CPI report showed that inflation pressures moderated in July on both headline and core measures, with the headline number being driven lower by a fall in gasoline prices.
The weaker than expected number has prompted investors to pare back rate hike bets for the September Fed meeting from 75bps to 50bps.
The Nasdaq 100 is once again leading the gains as US treasury yields slide back with the biggest falls being seen on the US 2-year yield, while the 10-year yield has also fallen back.
Tesla CEO Elon Musk unexpectedly sold shares in the business worth $6.9bn, according to a regulatory filing issued after the close yesterday. Musk’s reasons appear to be motivated by concern that he might be forced to complete his $44bn takeover of Twitter, without the backing of some of his private equity backers.
Coinbase shares have fallen sharply after the company reported disappointing Q2 numbers. Having reported revenues of $1.17bn in Q1, these fell further in Q2, to $808.3m, well below expectations again of $832.1m. Losses also increased, rising to $4.98c a share, or $1.1bn, well above forecasts of $2.27c a share. The value of assets on its platforms has also plunged, not that surprising given the plunge in crypto valuations in the past quarter, down from $256bn to $96bn. In July Coinbase announced it was looking to lay-off around 18% of its workforce. On the plus side its partnership with BlackRock may help stabilise it in the longer term.
Over the course of the last couple of weeks we’ve seen evidence that online gaming has been on the slide, from disappointing updates from Microsoft, Activision, as well as weaker chip demand from Nvidia who make a lot of gaming chips.
It shouldn’t have been too much of a surprise to find that online gaming company Roblox has also come a cropper after daily active users came in below expectations, with the shares falling sharply in early trading. That’s not to say that the company isn’t seeing improvements in the number of people using its platform, it is, it’s just that the rate of growth is slowing sharply. Q2 bookings fell 3.8% to $639.9m, while losses came in at $0.30c a share.
After the bell we have the latest Q3 numbers from Disney, against a backdrop of concerns about slowdowns in subscriber growth. Disney was able to buck this trend on Q2 posting an increase in subscribers to 137.7m subscribers from 129.8m. For Q3 the company warned of a potential hit of $350m due to the Covid closures of its Shanghai and Hong Kong theme parks in China. The company also warned on slower subscriber growth in H2 due to rising inflation hitting consumer incomes. Like Netflix, Disney said it is planning an ad supported tier of Disney+ in response to these concerns over rising prices. Profits are expected to come in at $0.96c a share.
In the lead up to today’s US CPI numbers the US dollar had been languishing close to the lows of the day, in anticipation that we might see a slightly softer number.
This feeling of a weaker number proved to be prescient as headline prices fell to 8.5%, from 9.1%, while core prices remained steady at 5.9%. There had been some concern that core prices might tick higher, however these concerns proved misplaced, with the US dollar slipping further on expectations that the Federal Reserve may well only raise rates by 50bps in September instead of the 75bps which was previously being priced.
Consequently, the US dollar’s losses accelerated losing ground across the board, with the euro breaking above 1.0300, and to its highest levels since the 5th July, while the pound has pushed back above 1.2200.
The Japanese yen has been the biggest gainer as US, Japan rate differentials start to move back into Japan’s favour due to the softer US inflation number.
Crude oil prices have fallen back after Transneft said that it plans to resume oil supplies to the southern Druzhba pipeline later today. A rise in API crude oil inventories is also weighing on prices as fears over demand destruction continues to outweigh worries over supply. We’ve also seen a rise in the latest inventory data by 5.46m barrels well above expectations of 73k, while US crude output has hit its highest levels since March 2020 at 12.2m barrels a day.
Gold prices briefly spiked above the $1,800 level on the weaker than expected US CPI number, however with gold prices already at one-month highs, it doesn’t necessarily indicate a trend. It also shouldn’t be forgotten that the Fed is still going to be hiking in September, with the only question being about the degree of the hike.
Good RX Holdings saw its shares jump sharply yesterday morning in the wake of better-than-expected earnings with the stock trading as much as 40% higher at one point, but the gains proved unsustainable with a complete reversion of the upside being seen as the day unfolded. The underlying sat less than 1% higher at the bell, but daily vol had spiked to 367% against 156% on the month.
Oats prices were back in focus for a second successive session as the cash contract unwound the gains posted on Monday. That has served to leave the crop as the most volatile of the commodities with a daily print of 188% coming in, significantly ahead of the monthly reading of 115%.
Fiat currencies again remain becalmed, but amongst cryptos there are still some pockets of activity to be found. Chainlink was the most active on Tuesday with daily vol of 101% against 83% being posted, whilst Elon Musk’s favoured Dogecoin was also in focus. Supportive comments from Mark Cuban may have offered upside here at least in the short term with daily vol coming in at 82% against 77% on the month.
Finally, early price action seen on CMC’s proprietary basket of green energy stocks was sufficient to push this into focus. Sentiment recovered as the session unfolded but there’s that ongoing expectation of big intervention here by the US government as we have previously noted with the imminent Build Back Better bill. Daily vol on the basket came in at 71%, slightly ahead of the 68% posted for the month.
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