Despite a resilient week, European stocks have had an altogether softer tone today ahead of tomorrow’s speech by Fed chair Jay Powell at Jackson Hole.
With volumes at low levels, and a weak hand off from Asia, it’s been difficult to establish any sort of clear direction, although reports of two explosions in the Kabul airport region has put markets on the back foot a touch, as we head towards the close.
In a surprise development the Bank of Korea raised its headline rate by 25bps to 0.75%, despite rising cases of the virus across its economy, perhaps acknowledging the fact that while the risks of the virus are real, the side effects of easy policy were starting to become more damaging than living with the virus itself.
The basic resource sector has been the main drag on the back of weaker energy and metals prices, although the losses aren’t huge, sentiment today feels slightly less exuberant than it was earlier in the week, with Antofagasta and Rio Tinto amongst the bigger fallers.
On the plus side, Irish construction giant CRH has reported a strong first half of the year, with sales 15% ahead of the previous year, at $14bn. Its US operation has performed strongly, while Europe has also bounced back, although this must be set against a weak comparative with its operations in Europe hit by Covid-19 restrictions 12 months ago. The company also increased its dividend by 4.5% to 23c a share
Hays, the recruitment agency also reported a set of full year numbers that came in ahead of expectations. While it’s been a tough year, with operating profits falling 30% to £95.1m the company was more optimistic about the outlook and as such announced a special dividend of 8.93p per share.
Earlier this month German company Delivery Hero took a 5% stake in Deliveroo as it looked to diversify its risk across what is becoming an increasingly fierce and low margin business. Today’s first half numbers have seen losses rise to €332.2m, and while margins have improved, they are still negative to the tune of -2.1%.
Having once again seen the Nasdaq and S&P 500 posting new record highs yesterday, US markets have seen a slightly more negative and cautious open after US Q2 GDP was revised modestly higher and weekly jobless claims came in at 353,000, slight above the 349,000 a week before.
Reports of two explosions in the Kabul airport region appear to have exacerbated the cautious tone, with the S&P 500 slipping to session lows. The initial report of an explosion didn’t really register however reports of another have prompted a little bit of afternoon weakness.
On the earnings front, Williams-Sonoma, which is usually a decent bellwether of middle America, reported Q2 numbers that were well ahead of expectations, cracking a new record high, above $200 in the process. Having seen a decent Q1, expectations for Q2 were slightly more modest, however the momentum continued through Q2 as profits rose to $3.24 share, while revenues also beat expectations, coming in at $1.95bn, with the company raising its full-year guidance from low double-digit to mid-teen revenue growth, to high teens to the low 20s in percentage terms. The company also raised its dividend by 20% to $0.71 a share, as well as increasing its share buyback programme to $1.25bn.
Snowflake also has a point to prove, in Q1 management expressed optimism that they would be able to grow the business to the point that full year revenues would grow to more than $1bn. In Q1 the company saw revenues of $228.9m, thus raising the bar for the remaining quarters. Yesterday’s Q2 numbers were a solid start with revenues of $272.2m, taking the company halfway to that $1bn mark. Losses came in at $0.64 a share. For Q3 the company is projecting revenue of $280m and a full year return of $1.06bn, both upgrades to previous projections.
Lordstown Motors has seen its share price surge over 20% after announcing it was appointing former Icahn executive Daniel Ninivaggi as its new CEO, though how that will make up for the fact it currently has a cashflow problem isn’t immediately apparent.
The US dollar appears to have found a bit of a base after the declines in the early part of this week, as markets look for clues as to how US monetary policy will evolve over the course of the rest of the year. Comments this morning from St Louis Fed president James Bullard and Kansas City Fed president Esther George, that it's time to begin ending asset purchases, have given the greenback a more of a bid undertone and underscores a growing move towards outlining a timeline for such a process.
Gold has slipped back from its recent highs as a combination of higher US treasury yields and a stronger US dollar has prompted some profit taking ahead of tomorrow’s speech by Fed chair Jay Powell. Today’s comments from Bullard and George haven’t helped the case for further gains in the short term either.
Crude oil prices have slipped back after three days of strong gains, with the upside limited to concerns over rising infection rates in Asia, as the push pull effect of rising vaccination rates, when set against supply chain constraints continues to underpin the downside at the same time as limiting the upside.
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