Europe
The FTSE100 has continued to outperform wider European markets this morning, helped to a large extent by the weaker pound and decent gains in the oil and gas sector after the latest numbers from BP beat expectations.
Elsewhere across Europe we’ve seen signs that the economic outlook is continuing to darken with further evidence that the region is sliding towards a slowdown, and a deflationary funk with a host of weak German inflation numbers, while the French economy showed a weaker than expected expansion in Q2 of 0.2%.
The DAX has come under the most pressure, sliding to a one month low after weak disappointing updates from Bayer (DE:BAYGN) and Lufthansa, as well as concerns that one of Germany’s biggest export markets is about to become much more expensive, as the euro continues to climb against the pound.
The UK accounts for about 7% of German exports, and alongside concerns about a Chinese slowdown, the German economy could well find itself come under further pressure in the coming months.
Having seen its profits more than double in Q1, expectations were high that BP (LON:BP) would be able to better these numbers given the rise in average oil prices seen during the course of Q2.
The company didn’t disappoint as increased productions returns were a feature of the company’s Q1 numbers, and this has carried over into Q2, with an increase of 4%, and this has helped drive profits to increase to $2.81bn.
In terms of provisions for Deepwater Horizon the company has paid out $1.4bn on a post-tax basis.
On the debt front there has been little in the way of progress with a gearing of 31%, which remains slightly over the company’s 25% to 30% target ratio.
Reckitt Benckiser (LON:RB) first half results appear to show that the company still has plenty of challenges to deal after the company cut its full year revenue target, by a full percentage point, to a range of 2-3% due to a slowdown in its baby milk formula business in China.
Sales growth also fell short of expectations, coming in flat, with the company blaming a slow start to the year. The company was more optimistic for the second half of the year, as management expressed optimism of a pickup in the markets which had a weak first half. Investors appear less convinced with the shares falling back, after the gains seen yesterday.
The recent settlement with the US Department of Justice over the marketing of Suboxone when the company owned Indivior for $1.4bn is also one headwind the company won’t have to deal with in the future.
Centrica (LON:CNA) shares have also plunged after management cut the dividend from 12p to 5p for 2019. CEO Ian Conn has also announced that he is to step down, which is probably just as well given that he would probably have been pushed out, given how the share price has performed since he took over.
When Mr Conn took over the reins at Centrica the share price was just below 300p, and it’s been pretty much one way traffic since then. In a word the share price performance has been woeful. Against that last year he received a pay rise of 44%, quite awful optics when set against a headcount that has seen 4,000 people lose their jobs and the loss of 742k customers.
Revenues came in at £13.8bn a fall of 2% while the company fell to a loss of £446m with the company blaming an exceptionally challenging environment, an excuse that is likely to be starting to wear a bit thin with shareholders, particularly since the environment has been the same for every other utility provider.
US
US markets opened lower this afternoon in what appears to have been a case of President Trump getting out of bed in a bad mood. His early morning tweetstorm has seen stocks shift sharply lower after he complained about China not following through on its promises, and that if they don’t do a trade deal now, he’ll make sure they get a worse one if he wins another term in 2020.
In a further sign that the banking sector remains under pressure from higher costs, and lower rates US bank Citigroup (NYSE:C) is reported to be considering hundreds of job losses in its trading division, with the bulk of the cuts expected to take place in equity and fixed income.
As a harbinger of things to come, this is likely to be only the start, if confirmed, and comes despite US banks outperforming their European peers, in their recent reading updates. The outperformance of US banks doesn’t disguise the fact that trading revenue has been in decline for several quarters now, and looks set to continue to do so, particularly since interest rates look set to turn back lower.
Has the bubble burst for Beyond Meat’s share price (NASDAQ:BYND)? The shares have slumped sharply after the company announced it was looking to sell up to 3.25m extra shares in a secondary offering.
Having seen the share price move from $25 to well above $200 it’s not hard to see why management are seeking to lock in some profit, by cashing in on this move higher. The signal it sends however is not a good one, as it gives the impression that they probably don’t see too much further upside after what has been a parabolic move up.
On the plus side of the ledger we’ve seen revenues grow by more than was expected, to $67.3m, well above expectations of $52.5m, with the company also raising its full year guidance. Losses were higher than expected, coming in at $0.24c a share. Despite this growth in revenues the improvement in the company forecasts in no way justifies the current multibillion dollar valuation, and the question investors ought to be asking themselves now is how much upside is there left?
Apple Inc (NASDAQ:AAPL) are also looking to release their latest numbers for Q3 after the bell later today. Expectations for Q3 have already been set quite low at $53.4bn in revenues with profits set to come in at $2.10c a share, below last years $2.34c. One thing that could help drive an improvement is the recent product enhancements to the iPad and Mac which were announced at the end of Q2, which could have prompted a pickup in demand here. The importance of services is also likely to continue to show decent growth ahead of the release of Apple+ in the autumn.
FX
The pound has continued to come under pressure today, hitting a new two year lows against a raft of currencies including the US dollar, Swiss franc, Japanese yen, with the next key support level against the US dollar sitting at the 2017 lows at 1.1985.
The more uncompromising tone from the UK government in the past week or so has raised concerns that the UK and EU are on a collision course for a rupture at the end of October, as both sides embark on a staring contest across the Channel, with little sign that talks are set to restart in the near future.
While one can legitimately question the wisdom of the new Prime Minister upping the ante with respect to no deal, the UK Parliament in its actions over the past two years, has made it quite clear that there isn’t a majority for any course of action. With the status quo quite clearly not an option it probably isn’t unreasonable to look at taking action to try and unlock the blockage, so that a solution can be found.
On the data front the latest numbers out of the US continue to make you wonder why the Federal Reserve is considering a cut to interest rates when it concludes its meeting tomorrow.
The latest consumer confidence numbers for July saw a rise to 135.7, the best levels this year, and up from June’s 124.30. Pending home sales also rose in June, by 2.8% in another sign that the US economy is doing just fine.
The danger for investors in these numbers is that they reinforce the case that the Federal Reserve is being bounced into a rate cut by a President who has shown himself to be completely at odds to normal convention when it comes to interfering in areas that he shouldn’t.
It will be interesting to see how Fed officials spin a narrative that they are data dependent at a time when the only weakness in the economy appears to be in a sector that is a fairly small part of the US economy. How they craft this message is likely to dictate how bond markets react, given that they are well priced for more than one rate cut this year.
The data seen thus far in no way supports the pricing for multiple rate cuts which means a one and done cut could result in a sharp repricing of risk.
Commodities
Oil prices have been largely side-lined today ahead of tomorrow’s Fed rate decision. They are slightly higher on the day, buoyed to some extent by the hopes for progress, as US, China trade talks restart, but even here expectations are tempered by the fact that a deal remains a long way away, and economic data in Europe still looks weak.
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