In a reversal of yesterday’s move, the FTSE 100 is being hurt by the strength of the pound

Europe

Sentiment in Europe is weak, but the positive move in sterling, has caused the British equity benchmark to underperform. In terms of index points, some of the biggest fallers are GlaxoSmithKline, AstraZeneca, British American Tobacco and Unilever – they all earn a large chunk of their revenue overseas, so the upward move in the pound works against them.

Tensions between the US and China have heightened again as President Trump has tightened restrictions on Huawei. The US leader wants to limit the Chinese company’s access to US-produced chips. The firm was already under scrutiny from the US government, but the heat has been turned up again.

The DAX is holding up relatively well considering Germany as seen a large jump in the number of new Covid-19 cases – its largest daily increase in nearly four months.           

Persimmon shares are bucking the wider negative trend as the company reinstated its dividend. The interim pay-out will only be 40p, which is considerably lower than the 125p that was distributed to shareholders last year, but it paints the group in a positive light. Like so many other firms, it cancelled its dividend in March, so the announcement that it will resume paying a dividend has boosted the stock. In the first six months, profit before tax dropped by 42% to £ 292.4 million, and the number of completions fell by 35%. The health crisis prompted the closure of construction sites. The firm has had a tough time in the last few months, but forward sales have increased by over 20% to £2.48 billion. Persimmon’s share price hit its highest level since early March and if the bullish run continues, it might target 3,000p.

BHP Group revealed a respectable set of full year numbers as attributable profit slipped by 4% to $7.95 billion, while underlying attributable profit was only 1% lower at $9.06 billion. The final dividend was $0.55, which brings the annual dividend pay-out ratio to 72%, which is down fractionally from last year’s 73%. In the current climate, shareholders are unlikely to complain with the pay-out ratio too much. The gearing ratio stands at 18.7%, and keep in mind it was 19.5% in December, so the group is keeping an eye on its debt levels. BHP is keen to decarbonise and it is contemplating selling-off two thermal coal mines, and a coking coal business in Queensland – the BMC unit. The mining titan wants to hold onto its high-quality coking coal asset as it predicts demand from steelmakers will remain robust.

Capita shares sold-off aggressively as the company swung to a loss of £28.5 million, from a profit of £31.2 million last year. Capita is an outsourcing specialist that depends on winning contracts, so the pandemic was blamed for the poor performance. Reported revenue fell by 9.1% to £1.68 billion. The adjusted profit before tax metric, which strips out one-off items, tumbled by over 70% to £30.1 million. £73 million was saved from a cost transformative programme, and further cost action is in the pipeline.    

At Marks and Spencer, the food business has traditionally outperformed the clothing and home division, and the pandemic has exacerbated the gap between the two units. In the last 13 weeks, total food sales increased by 2.5%, while the clothing and home division saw revenue tumble by 38.5%. It is worth noting that things are improving at the clothing and home department as in the last eight weeks, sales are down 29.9% - thanks to the reopening of stores. The retailer was already undergoing a restructuring scheme before the health emergency struck so that policy will be sped up. Over the next three months, the company will cut its headcount by 7,000, which equates to roughly 10% of the workforce. M&S experienced a jump in online sales during the lockdown, and it aims to channel more sales from e-commerce.    

According to Kantar, UK grocery sales in the 12 weeks until 9 August grew by 14.4%, which was down from the previous report of 14.6%. This is probably because restaurants and cafes are opening again, so there is less demand at the shops. Of the ‘ big four’ supermarkets, Morrisons was the best performer as sales rose by 16%.               

US

The S&P 500 briefly hit a new intra-day record high – as calculated by the exchange - but it has since turned lower. Traders on Wall Street are weighing up the tensions with China, as Beijing is likely to strike back in relation to Huawei. There is still no sign of a coronavirus relief package being agreed upon, and that is impacting sentiment too. The US building permits and housing starts for July were both 1.49 million. The readings topped forecasts and showed growth on the June reports. It is further proof the US economy is recovering.   

Walmartposted decent second quarter numbers. EPS was $1.56, which comfortably topped the $1.25 forecast. Revenue for the three month period was $137.74 billion, and that was a little above analysts’ predictions. Online sales surged by 97% and sale store sales (SSS) increased by over 9%, so the retailer is firing on all cylinders.

Home Depot announced impressive second quarter numbers. Revenue rose by over 23% to $38.05 billion, topping the $34.53 billion consensus estimate. EPS was $4.02, and that easily topped the $3.71 that traders were expecting. US SSS jumped by 25%. The pandemic encouraged some people to carry out home improvements, but the group incurred extra costs of $480 million in the period as Covid-19-related costs rose. 

Tesla’s bullish run continues as it traded above $1,900 for the first time – a new record high.

Kohl’s posted better than expected figures, but the company cautioned that back-to-school sales were soft as uncertainty around the coronavirus and schools persists. The quarterly loss per share was 25 cents, and that was narrower than the 83 cents loss per share that analysts were expecting. Gross margin was 33.1%, down from 38.8% one year ago.        

FX

The US dollar index has tumbled to a 27 month low. The greenback nudged lower ahead of the US housing data, and it lost a little more ground even though the numbers were solid. Traders seem to be more focused on the fact that US lawmakers are not close to reaching an agreement on the coronavirus relief package.

EUR/USD and GBP/USD have been given a boost on account of the weakness in the dollar.

AUD/USD hit a level last seen in February 2019. Overnight, the minutes from the latest Reserve Bank of Australia (RBA) meeting showed the bank felt there is no need for further easing at the moment. The update also revealed that the downturn has not been as severe as initially predicted.      

Commodities

Once again, the weak US dollar has boosted gold. The inverse relationship between the yellow metal and the greenback is helping the commodity. Gold has been pushing higher for nearly one week, but it has recently slipped back below the $2,000 mark. If the positive trend continues, it might retest the recent record high.

Brent crude and WTI are in the red as the energy has retreated from yesterday’s solid gains. On Monday, the energy market pushed higher on the news that state-owned companies in China had booked tankers to carry at least 20 million barrels of US oil for August and September. There was speculation the Beijing administration was trying to make good on their pledge to purchase more US energy products. In the past 24 hours, tensions between the US and China have risen in relation to Huawei, so that might impact the trading relationship.       


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