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FTSE 100 sets 18-month high, DAX hits new record, US core prices slip

Stocks lift off to new record highs

It’s been another day of decent gains for markets in Europe, with new records for the DAX, FTSE 250, Stoxx 600 with the FTSE 100 also making a new 18 -onth high, on another varied day for earnings, and a softer than expected US CPI print.

Europe

Among the outperformers has been Spirax-Sarco Engineering who have seen a decent jump in H1 revenues to £643.7m due to increased demand for its steam products. An increase in operating margins to 23.9% has helped drive a 41% increase in profits before tax to £150m.   

It’s been a mixed day for UK insurers, with Admiral shares moving higher after the insurer saw a 76% rise in group profits before tax to £482.2m in the first half of the year, raising its interim dividend by 63% to 115p per share. Profits were boosted by the sale of its Penguin Portals business, which included Confused.com, as well as lower claims payouts

Prudential is also higher after reporting a H1 operating profit of $1.57bn, on revenues of $11.69bn. The separation of its US business Jackson is expected to complete next month, with management reiterating that they were still considering an additional equity raise of between $2.5bn and $3bn. The dividend was kept unchanged at 5.37c a share 

On the downside Phoenix has gone down in flames, after falling short on expectations on H1 operating profits which rose by 46% to £527m While operating profits improved, impairments of £299m and an investment variance hedge of £807m saw the business post a H1 loss after tax of £667m.

The deal announced overnight that Norton Lifelock and Avast have agreed an $8.6bn merger deal has somewhat overshadowed a decent set of H1 numbers for the Prague based company this morning. The company behind the AVG security and antivirus software reported an 8.8% rise in revenues to $471.3m, and H1 net profits of $205.8m, a big increase on the $86.5m a year ago. Nonetheless the news has seen Avast shares push higher.

The long slog back for the Deliveroo share price has continued this week, helped in no small part by the decision by German rival Delivery Hero to take a 5% stake in the business. Today’s H1 trading update from Deliveroo delivered on the upgraded guidance given in July, as H1 revenues came in at £922.5m putting it well on course to hit its full year revenue target of £1.8bn. Losses also came in better than expected, narrowing to £27m despite increased spending on boosting overall capacity, however the shares have slipped back, after initially opening higher, as profit taking on recent gains kicks in.

On Monday UK defence firm Meggitt announced it had agreed a £6bn deal from US firm Parker Hannifin, for 800p a share, at a 71% premium on Friday’s closing price. There had already been concerns that the deal might prompt national security concerns, with reports that the UK government might be looking at the deal. This afternoon the game developed further, after Transdigm; a US based aerospace manufacturing company put in a non-binding counter bid proposal of 900p per share. Meggitt is a key defence contractor for the UK military, and supplies a range of systems including thermal and weapon scoring systems, as well fire protection and control systems and avionics, and while the new proposed bid is being considered by the board, management don’t appear to be resiling from recommending the original Parker Hannifin bid.

US

US markets opened higher, setting new records in the process, after the latest US CPI numbers for July showed that prices appear to be starting to level off as headline CPI came in unchanged at 5.4%, while core prices fell back to 4.3%. It helps to lend support to the transitory narrative and saw US bond yields which had been edging up heading into the numbers, reverse course and slip back.

When Coinbase issued its Q2 guidance back at the end of Q1 management were somewhat cautious predicting flat transaction volume for Q2, though they did revise up their guidance on the number of monthly transacting users to 7m from 5.5m. Their caution may have been predicated on concern over possible crypto crackdowns as well as increased regulation, however this caution turned out to be unwarranted, judging by yesterday’s Q2 numbers which crushed expectations. Q2 trading volumes came in at $462bn, well above expectations of $381.6bn, while revenues soared to $2.03bn. Profits which were expected to come in at $2.41 a share rose to $6.42, or $1.6bn, while verified users rose to 68m. On a more notable point, ethereum trading overtook bitcoin trading as a main source of income. While the numbers in Q2 crushed expectations, the outlook for Q3 was slightly more cautious with the company guiding lower on revenues relative to Q2.

Norton Lifelock shares have also leapt higher on the news of the conclusion of the Avast deal. On the downside, Virgin Galactic has seen its shares drop sharply on the back of a downgrade from Morgan Stanley.

After the bell we’ll be getting the latest Q2 numbers from on-line car retailer Vroom. When the company reported in Q1 there was some improvement with revenues coming in at $591.1m, while losses also came in lower than expected at $0.57 a share, they were still higher than the same quarter a year ago. For Q2 Vroom said it expected sales to come in between $618m and $640m, with losses in the region of $0.55 a share, however given the recent sharp rise in used car prices it wouldn’t be a surprise to see sales come in higher.   

FX

The US dollar has slipped back from a four month high after US core CPI slipped back to 4.3%, and headline CPI came in unchanged at 5 4%, lending support to the idea that we may have seen the peak in US inflation pressures. The biggest gainers have been in the likes of the commodity currencies, of the Australian dollar and Norwegian Krone. The euro has managed to find support near to its previous lows in March, against the US dollar.

Commodities

Crude oil prices took a tumble after White House officials urged OPEC+ to increase their current production levels over and above what has been already agreed, to offset rising gasoline prices which they said could choke off the recovery around the world. This is certainly a valid concern given current levels of inflation, and the energy component, however it seems strange that US shale producers haven’t been given the same message.

Of course, if the US was serious about keeping a lid on prices, they could also look at releasing some reserves from the SPR, which suggests that a lot of this all about politics, and looking to deflect blame for higher fuel costs away from the US government’s own green agenda, which is pushing same prices higher. The latest inventory data showed a fall of 448,000 against an expectation of a fall of 800,000.

The weakness in the US dollar and softer inflation reading has helped to lift gold prices, as the yellow metal continues to claw back the losses of the past few days. 


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