European markets have had a much more resilient tone today after yesterday’s declines, with the FTSE 100 edging back above the 7,100 level and the DAX also attempting to reverse yesterday’s losses.
Europe
The Bank of England was slightly more dovish than expected when it came to its tone and the outlook for a change in the policy recipe, even if they upgraded both their inflation and GDP forecasts. If there was an expectation that they might follow the Fed in being slightly hawkish, given the strength being seen in the UK economy, that feeling didn’t last very long with the bank showing little sign of paring back their bond buying program. With the departure of Haldane, the hawks will need to look elsewhere for any signs of a crack in the consensus.
Bunzl shares have slipped back after announcing that H1 trading was in line with expectations, with H1 revenues expected to be 6% higher compared to 2019 levels. The statement went on to say that underlying revenue for the year is expected to be moderately higher in 2021, compared to 2019. The company also confirmed it had completed the acquisition of Comax and Harvey Distributors in May as it looks to enhance and strengthen its cleaning and hygiene operations.
There’s been some more good news for AstraZeneca this morning after China granted approval for its Lynparza drug, used in the treatment for prostate cancer.
Housing stocks have generally underperformed the wider market over the past 15 months; however, they are having a better day today, with Berkeley Group appearing to be experiencing a delayed reaction to its numbers yesterday.
Crest Nicholson shares are also higher after increasing its full year profits guidance to £100m, on the back of a 31.2% jump in home completions in the first half of this year. Revenues rose by 35% to £324.5m while forward sales increased to 2,771 units.
Wise this morning announced its intention to float on the London Stock Exchange by way of a direct listing in early July, with expectations that the company could fetch a valuation of around £7bn.
US
US markets rose to a new record high on the open with the S&P 500 joining the Nasdaq, as investors shrugged off the hawkish noises from various regional Fed policymakers, choosing instead to focus on the message from Fed chair Jay Powell that inflation was transitory, and that the Fed was a long way from raising rates.
If anything, today’s economic data confirmed the fragility of the recovery in the jobs market as weekly jobless claims remained above 400,000 for the second week in a row, while durable goods for May came in weaker than expected. This weakness in the claim’s numbers will be of some concern given that it confirms the fragility of the US labour market, and that the rebound in jobs is likely to take much longer to achieve than was thought to be the case a few months ago. If markets were concerned that Goldilocks was about to exit stage left this time last week, this week’s reaction would appear to suggest that she’s come back for an encore.
Tesla shares have risen to six-week highs after a tweet from CEO Elon Musk that he was looking to push Starlink, the part of SpaceX that is rolling out a high-speed broadband service, into public ownership, by way of an IPO, with priority potentially being given to Tesla shareholders. This still remains some years off given his caveat that he would only do this once revenue became more predictable, which they aren’t at the moment.
Visa shares have hit a record high today after agreeing to buy Swedish open banking platform Tink for €1.8bn.
Tonight’s US bank stress test results are likely to see the lifting of all restrictions on buybacks and dividends for all US banks that pass the tests, which could see the return of billions of US dollars in excess capital to shareholders. We might have to wait until we see US banks Q2 earnings numbers to see how much that might be given recent warnings from JPMorgan and Citigroup that revenues are likely to be much lower.
FX
It was always a big ask to think that perhaps Andy Haldane’s last meeting as Bank of England chief economist would prompt a swansong of sorts with respect to a slight shift in policy. Monetary policy was left unchanged and if anything was dovish, sending the pound off its recent highs, and the worst performer on the day. Haldane did reiterate his call for a £50bn reduction in the central bank's bond buying programme, despite the risks that inflation might continue to rise well beyond the Bank's 2% inflation target.
To be fair the Bank appears to recognise this risk, admitting that CPI was likely to hit 3% before falling back. Despite this, there was no indication that anyone was concerned, and whether these upcoming price rises might be more persistent in nature. If anything, this is more of a concern as it suggests that the MPC is being captured by a groupthink narrative, unlike the Federal Reserve where there does appear to be a healthy discussion over a tapering narrative. Hopefully the addition of Catherine Mann in September can shake up the narrative here, because the apparent complacency is rather worrying. It also makes you wonder why the Bank of England bothers with an inflation target at all, given their inability to get anywhere close to it.
The US dollar appears to be treading water with little in the way of drivers one way or the other with the US 10 year yields more or less flat on the day at 1.49%.
Commodities
Oil prices have remained steady near their current highs, with yesterday’s big draws in inventories helping to support prices as various governments look for ways to restart international travel.
Bitcoin prices are continuing to consolidate above the $30k level after this week's brief dip below what continues to be a key support area.
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