The recovery in US markets continued yesterday, helped by a recovery in bond yields which saw big falls on Wednesday, which in turn saw a close that put markets in positive territory for the week.
That hasn’t translated into a similarly strong recovery in Asia markets, with markets finishing the week lower, or here in Europe for that matter, but nonetheless markets appear a little less fraught than we were at the lows on Wednesday.
Whether that can last is another matter given that the current backdrop from a politics standpoint looks as uncertain as ever.
Overnight in Italy, deputy Prime Minister Matteo Salvini has called for another election, which has seen Italian bond yields jump sharply on the prospect we could see him win a majority in any upcoming vote, an event that could take place sometime in October, just before the UK is scheduled to leave the European Union. October could be an interesting month!
China, US tensions remain no less volatile, after it was reported that the US was holding back on granting licences to US companies to restart business with Huawei, after China said it was halting purchases of US agricultural products. On the currencies front the Chinese central bank once again set the yuan mid-rate at a weaker level and further away from the key 7 level which had been capping the rate for the last ten years.
Against that backdrop markets here in Europe have opened lower, with the FTSEMib leading the losses on the prospect of new elections in the next couple of months.
The latest numbers from WPP (LON:WPP) showed that the advertising market continues to be difficult as revenues declined 2% in the first half of the year. This was slightly better than the 2.9% decline which was forecast, with the business in the US showing the biggest underperformance in Q2 with a decline in like for like sales of 5.4%.
Headline operating profit saw a decline of 6.8% to £730m, while profits after tax sank over 50% from a year ago, coming in at £349m. The company did reiterate its full year guidance while pledging to continue to simplify the business in line with its three year turnaround plan.
Management also pledged to continue their disposal programme and said the proceeds from the Kantar disposal would be used to help reduce leverage, as well as return the rest to shareholders. This has seen the shares rise sharply in early trading.
Bookmaker William Hill’s latest first half results are a timely insight into the effect that recent changes to UK betting regulations over the £2 stake limit has had on company profits. Operating profits showed a decline of 33% to £76.2m, while revenues improved modestly to £811.7m, though these were boosted by the expansion in international markets with the acquisition of Malta based online gambling company Mr Green.
Of all the bookmakers on the High Street, William Hill appears to be one of the best positioned to ride out the crackdown on its revenue streams in the UK as it looks to expand into the US, as its international operations become a much bigger percentage of its net revenue.
On line international revenues grew 66% in H1, contributing up to 33% of income in the first half. The acquisition of Caesars Entertainment is only likely to see that percentage increase.
US markets look set to give up some of yesterday’s gains with a lower open with the main focus on the latest numbers from ride sharing app Uber (NYSE:UBER) set to take centre stage.
An eye watering loss of $5.24bn saw the shares slide sharply in afterhours trading, while revenues for the quarter also came in below expectations. There had been an expectation that Uber would follow in the footsteps of its counterpart Lyft (NASDAQ:LYFT) by showing an improvement in revenues and guidance. These proved to be wide of the mark.
Broadcom (NASDAQ:AVGO) is also likely to be in focus after it agreed to buy Symantec’s enterprise security software business for $10.7bn. Broadcom said it expects to be able to extract more than $1bn in cost savings over the next year, and expects to deal to be concluded by year end.
The pound is steady ahead of today’s latest Q2 GDP numbers.
It shouldn’t be a surprise that we will see a markedly weaker level of economic activity in Q2, given how much of the activity was pulled forward into Q1, as a result of the March 29th Brexit deadline.
Imports in particular are likely to be much weaker given that Q1 imports saw their biggest rise in sixteen years to 6.8%, with a decline of 9.1% expected for Q2.
Weakness in manufacturing should also be put into the context of the widespread maintenance shutdowns that we have seen in the auto sector in June.
We’ve already seen weak readings in France and Germany in recent days so a slowdown in the UK also needs to be set against that weaker European and global backdrop. It’s all too easy to blame every weak economic reading on Brexit uncertainty, though it probably isn’t helping.
Bottom line, the numbers aren’t good, but the UK is not alone in struggling to boost output. Even without Brexit the challenges facing the manufacturing sector are significant.
Crude oil prices have continued to sink against a backdrop of concerns about the trade outlook, though any downside could well be limited in the short term against an expectations that OPEC producers might cut production further in an attempt to underpin prices.
Gold prices have remained fairly well supported against this backdrop of uncertainty, edging back above the $1,500 level after a brief dip to $1,490 yesterday.
Dow Jones is expected to open 100 points lower at 26,278
S&P500 is expected to open 13 points lower at 2,925
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