Europe

Markets in Europe have built on their gains from yesterday with another positive session, as optimism over an apparent plateauing of infection rates, creates a momentum all of its own with the FTSE100 hitting its highest levels since 23rd July.

The DAX has lagged behind somewhat, largely due to the underperformance of the tech sector, where we’ve seen some evidence of a little bit of profit taking, after some fairly decent gains in recent weeks.

The best performers today have been oil and gas stocks on the back of optimism over future demand while rising yields are feeding into a positive performance for banks and financials, with HSBC and Standard Chartered outperforming.

Some decent Q2 numbers from Chinese ecommerce giant TenCent appeared to suggest that the recovery in the Greater China region is probably stronger than recent Chinese retail sales data would appear to suggest.

Amongst the best performers today it’s been a good day, as well as a good first half of the year for Just Eat Takeaway, which saw revenues surge in the first half to €675m from €179m, as orders rose by 32%, due to the various economic lockdowns. That didn’t stop the company posting a first half loss of €158m, though this was largely driven by the various associated costs related to the recent merger between the two companies.

It’s also been a good day for the Admiral Group share price, after a decent set of H1 numbers which saw a 30% rise in pre-tax profit of £286.1m. This was despite a fall in first half turnover of 4%, after the company pledged to repay £100m to its customers since they weren’t driving as much as they used to, due to lockdown restrictions. The company also pledged to pay a dividend of 70.5p a share, which included the payment of a 15.5p special dividend, which has seen the shares rise to the top of the FTSE100.

ASOS shares have hit their highest levels since December last year, after the company said they expected full year revenue growth to be between 17% and 19% higher, with profit before tax to be in the region of £130m and £150m.  

On the downside, the tech sector is lagging with Avast shares retreating from close to record highs, despite recording revenues of $433.1m for the first half, largely driven by the working from home trend providing a strong tailwind to the desktop business. The company behind the AVG antivirus freeware brand said that they expected a slightly weaker second half due to a slowdown in the mobile unit business. Profits still came in at $241.4m a rise of 2.1% year on year, however it would appear that the slight downgrade to the second half guidance has prompted some banking of profits for a share price that has more than doubled from its March lows. 

US

US markets appear to have shrugged off the last nights late concerns over the prospects of a stimulus deal with a fairly strong rebound on the open, with the focus still on the underlying earnings outlook, after the latest US CPI numbers for July showed that inflationary pressures in the US economy appear to be on the rise.

Tesla’s decision to announce a 5 for 1 stock split hasn’t altered the upward momentum in the share price, even though they have tripled in price this year already. Each shareholder will now receive 4 new shares for every single share that they own, with trading due to start on 31st August. The company appears to be following in the footsteps of Apple who have performed the same trick twice in the last few years in order to make share ownership more accessible to the ordinary man in the street.

In the race for a vaccine for Covid-19, Moderna appears to have won a contract from the US government for $1.5bn for 100m doses of its own vaccine, with the US government also getting the option for another 400m additional doses.

Ford has said its cutting more than 10,000 positions across its European operations, while also announcing that it will reduce its number of plants in Europe to 17, by year end.On the earnings front we also have the latest earnings numbers from Cisco Systems, Lyft and Vroom to look forward to, which are due to be released after the closing bell.

Cisco was one of the few companies that did offer guidance when it reported in May given its role in the technological architecture of the world wide web. Its Q3 numbers saw revenues and profits come in above expectations, even though revenues were still down from the same period last year at $12bn. It’s been a steady income earner for a lot of US investors and did see some disruption in its China business last year, due to ongoing US, China trade tensions. As far as Q4 is concerned management said they expected to see a 10% decline in revenues over the quarter, though profits are expected to come in at $0.70c a share, with the shares seeing a steady performance over the last quarter. The company is also set to be in a good position to capitalise in future investment into the growth and potential of 5G networks.

FX

It’s been a little bit of a non-event on currency markets today, with the pound initially shrugging off the GDP numbers which showed that the UK economy contracted by -20.4%, as a result of the lockdown of the economy at the end of March, and throughout April. As the day has progressed the pound has started to come under a little bit of selling pressure, presumably over concern over the resilience of the current strength of any recovery.

While the headline GDP number will grab all the headlines, along with the inevitable hyperbole, about unprecedented drops in output, the UK is hardly unique in this regard, with countries across the world all seeing record declines in economic activity. The likely reason the UK Q2 drop was higher was due to the fact that the UK went into lockdown later than its European counterparts, and also came out later, which means that the total economic effect has been more concentrated in the context of the overall quarter. That hardly constitutes a basket case scenario in comparison to other countries, however that hasn’t stopped some people trying to do just that.

Since then the picture has improved somewhat, with a decent recovery in the June data, however trying to distil the impact of an economic shock of this magnitude into a single number is always like to present challenges.

It is true that the picture has improved in recent months, however the ripple out effects are likely to resonate for months and years into the future, and that’s even before we even consider the unforeseen human costs, of higher structural unemployment as the economy attempts to recover from this once in a lifetime shock.  It does appear that Chancellor of the Exchequer understands this as he warned this morning that “hard times” lie ahead.

US treasury yields have seen further gains today in the wake of today’s hotter than expected US CPI data, with investors trying to work out whether the rise in prices is a symptom of higher demand, or down to problems due to supply side constraints Irrespective of the reasons, higher food prices are a concern at a time when disposable income for consumers is likely to become more constrained. 

Commodities

Gold prices have stabilised a touch after yesterday’s brutal sell-off, however any rebounds could well be limited in the short term, as we look to try and ascertain a base, against a rising backdrop of concern about rising inflationary pressures, which is contributing to a modest rebound in US yields. Today’s US CPI numbers showed a significant rise in inflationary pressures after core CPI jumped to 1.6%, from 1.2% the month before.

Crude oil prices have remained fairly well supported despite OPEC cutting its oil demand forecasts for 2020, by 100k barrels per day, while also expressing reservations about the outlook for demand in 2021. US inventory data showed that crude stocks fell by 4.51m barrels per day, against an expectation of a decline of 2.75m.


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