CMC Markets | Oct 28, 2016 11:08
The ongoing jump in government bond yields is becoming a discomforting force in stock markets where investors are contending with one of the busiest few days of the quarter for corporate earnings.
The FTSE 100 dropped by half a percent by mid-morning. Oil companies BP (LON:BP) and Shell (LON:RDSa) have been the biggest drag after a poorly-received update from France’s Total. Airlines and healthcare shares offered UK blue chips some reprieve in a positive read-across from a rise in IAG (LON:ICAG) and Sanofi (PA:SASY) shares after quarterly results. It was a more mixed showing for bank shares after a slew of earnings reports from the likes of RBS, UBS and BNP Paribas (PA:BNPP).
It was a rollercoaster reaction in the shares of Royal Bank of Scotland (LON:RBS) to the bank’s results. Initial gains of 5% gave way to losses of over 1%. Some investors will have taken the earnings bounce as an opportunity to offload holdings. RBS shares approached post-Brexit highs reached in September before the retracement. The underlying bank is looking a lot sounder but a never-ending trail of legacy fines and the low rates environment mean it’ll probably be a number of years before RBS is not a tax-payer backed bank.
Shares of International Consolidated Airlines rose 3% on Friday in a warm response to its earnings update despite a profit warning. Chief Willie Walsh underlined the trouble the airline industry faces from the fall in the pound, air traffic control strikes and terrorism. Despite the profit warning, full-year earnings are still expected to grow year-over-year, and a new agreement reached this week on its pensions will limit the effect of contributions on the bottom line.
Cost-cutting and higher production helped French oil major Total beat earnings estimates. A 25% decline in profits compared to the same period last year shows the integrated oil firms are far from out of the woods, despite oil prices doubling from the lows this year. Total’s results set the scene for earnings next week from BP and Royal Dutch Shell, both of whom have been restructuring to deal with the lower price of oil.
Weak global sentiment is setting US stocks up for a lower start following overnight results from tech giants Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL) and another mega merger, this time with Qualcomm (NASDAQ:QCOM) to buy NXP.
While Apple (NASDAQ:AAPL) is apparently pulling back from its “iCar” plans, Qualcomm is making a $39 billion dollar bet on the world’s largest developer of chips for automobiles. Smartphone sales, where Qualcomm sells a lot chips, are reaching a plateau. The smartphone-ification of automobiles is in its infancy.
USA pre-opening levels
S&P 500: 3 points lower at 2,130
Dow Jones: 3 points lower at 18,166
Nasdaq 100: 25 points lower at 4,811
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Written By: CMC Markets
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