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Pelosi's Taiwan trip keeps markets on edge, BP helps to underpin the FTSE 100

Nancy Pelosi

European markets have slipped back as the rising uncertainty created by US House Speaker Nancy Pelosi’s trip to Taiwan, has served to keep markets on edge.


The increase in noise over this trip by China has upped the ante and raised the prospect of a serious miscalculation which neither side really wants. This appears to be a classic case of sabre rattling, with neither side wanting to be seen to back down.

The FTSE100 has held up better than its European counterparts propped up by a strong performance from BP, and the more defensive parts of the index.

BPshares have pushed towards the top of the FTSE100 after reporting a bumper set of Q2 numbers. Underlying replacement cost profits rose to $8.45bn, beating expectations of $6.73bn. Profit attributable to shareholders in Q2 was $9.3bn, equating to a H1 loss of $11.1bn when the Rosneft impairment is taken into account.

Nonetheless this is still a sizeable beat and has seen BP follow in Shell’s footsteps in announcing a sizeable $3.5bn share buyback, as well as a 10% increase in the dividend to just over 6p a share.

This has inevitably provoked the usual squealing about obscene profits from politicians whose very policies over the last 20 years has resulted in the surge higher in energy prices that are causing so much pain right now.

With the windfall tax adding to the previous tax threshold of 40%, the oil majors now pay 65% on all of their UK profits, however this still isn’t a high enough number for some when set against the sort of profits they are currently generating. As far as politics is concerned its always easier to blame somebody else for the policy failures of the last few years, than look closer to home, and oil companies are an easy target. 

That said BP and Shell have been their own worst enemies when it comes to the opprobrium coming their way when it comes to underinvestment in renewables and is something they need to address in fairly short order. For example, BP, out of the $2.8bn spent on capex in Q2, only $142m was spent on low carbon energy, which is pitiful.

The rising cost of living has hit Domino’s Pizza H1 results, with the shares slipping back, as the company announced a 5.6% decline in sales to £710.5m, although revenues rose slightly to £278.3m. Underlying profits before tax fell 16.3% to £50.9m. The company has blamed higher supply chain costs which it says operate with a lag.

While that might be part of the story, the decision to levy a charge of up to £2 on its deliveries can’t have helped. Domino’s Pizza prices already operate at a premium to other takeaway services so this decision could well have impacted sales on the margin.  Dominos says it expects profitability to be weighed towards H2, however this seems doubtful against a tough consumer backdrop.  

Also on the fast food theme Greggs H1 numbers have also been impacted by rising costs, although a 27.1% rise in sales from the same period a year ago has seen revenues surge to £694.5m, and helping to push pre-tax profits up to £55.8m. Cost of sales rose by 32% to £260.7m, and while some of this has been absorbed by higher prices, the company has said that they remain confident with their full year outlook.

On the downside Fresnillo is the worst performer after missing forecasts its H1 numbers. The decline in the gold price has hit revenues, which fell by 12.6% due to lower volumes, on both gold and silver prices. Profits fell 54% to $141m.

We’re also seeing softness in house builders and DIY retailers after Travis Perkins followed Wickes last week in reporting a disappointing set of H1 numbers. Like for like revenues rose by 10.3% from a year ago to £2.53bn. Underperformance in its Toolstation business appear to be behind this decline, as revenues there fell to £376m, down from £394m, slipping to a loss of £8m, against a profit of £10m a year ago. Sector peers Howden Joinery and Kingfisher have also come under pressure.  


US markets have opened lower as the simmering tensions over US House Speaker Nancy Pelosi’s trip to Taiwan keep investors cautious.

Semiconductors have been under pressure in the last 24 hours given Taiwan’s position as a key exporter of microchips. Any disruption to Taiwanese trade as a result of these tensions has the capacity to compound the difficulties already being felt in global supply chains. 

On the earnings front it’s been a mixed bag for Pinterest which saw its Q2 results miss on revenues and profits. Not only did the company post a loss of $43.1m but revenues came in short at $665.9m, however the shares received a lift on news that Elliott Management had disclosed a sizeable stake in the business and thinks that new CEO Bill Ready is the right person to take the company forward.

Uber shares are higher after reporting revenue of $8.1bn in Q2, with gross bookings rising to a record high of $29.1bn, which was at the top end of company guidance. For Q3 the company expects to see gross bookings between $29bn to $30bn. Despite the improvements in revenues the company still posted a loss of $2,6bn due writing down its stakes in Grab Holdings and Aurora Innovation.

Activision Blizzard saw Q2 revenues slide to $1.64bn from $2.3bn a year ago, with the pandemic bounce firmly in the rear-view mirror. Profits came in as expected at $0.48c a share.

Caterpillar shares have slipped back after Q2 revenues of $14.2bn, came in slightly light. The company pointed to weakness in its China market for the modest shortfall. Profits beat expectations, coming in at $3.18c a share.  


With markets increasingly jumpy over events in Taiwan, the US dollar has been the main beneficiary pulling back from one-month lows, with only the Japanese yen managing to keep track of it.

US treasury yields pulled off their lows of the day on hawkish comments from San Francisco Fed President Mary Daly. Her insistence that the Fed’s work on inflation was “nowhere near almost done” appears to be the first attempt at pushing back on market expectations of fewer Fed rate hikes in the months ahead. With the more hawkish St. Louis Fed President Bullard due to speak later this messaging is likely to get reinforced later today.

The Australian dollar is the worst performer after the RBA hiked rates as expected by 50bps, to 1.85%, with Governor Philip Lowe saying that it is a high priority for the bank to get inflation back to target. The decline in the Australian dollar appears to be less about the rise in rates and more about the decision by the Chinese government to give up on its 5.5% GDP target, for this year. With the headline rate currently at 1.85% further increases are expected with the consensus at around 2.85%, by November.


Brent crude oil prices have remained under pressure with November and December both below $100 a barrel, despite continued supply concerns. This morning’s reports that the Chinese government has to all intents and purposes thrown in the towel on its 5.5% GDP target has confirmed that they have little intention of calling time on their zero-covid policy and as such growth and demand is likely to remain weak. 

The slide in longer term yields as well as the weakness in the US dollar is helping to boost gold prices, which are now back at 4-week highs.  


RBOB Gasoline cash prices continued to fall yesterday. The dual impact of hopes that the supply situation will improve combined with how a recession may hamper demand are in play here, with the underlying trading back at levels last seen in April. Daily vol advanced to 63.24% against 52.02% on the month.

CMC’s proprietary basket of driverless cars stocks found support during yesterday’s session, driving price action in the instrument to noticeably elevated levels. Two broader stories impacting constituents here seemed to be behind the move, with investors cheering Ford’s decision to launch a new pickup truck, whilst confidence ahead of Uber’s Q2 earnings due today buoyed sentiment in the company too. Daily vol on the portfolio of stocks advanced to 54.15% against 47.14% on the month as a result.

In fiat currencies, that sell off we noted on USD/JPY yesterday continues to be seen, albeit at a more measured pace. Again, the looming recession seems to be a key factor here, driving safe haven qualities in the Yen. Daily vol sat at 13.19% against 9.84% for the month.

And as for cryptos, it’s Tron that is dominating in terms of interest right now after the token rallied hard before meeting a common resistance level then reversing just as quickly. Daily vol here rose to 56.01% against 42.55%, with the fortunes of last week’s star Ethereum Classic fading into the background. That now trades down around 25% from recent highs.


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