Airlines get a quarantine boost as FTSE100 regains 7,000

Europe

It’s been a much more positive session for markets in Europe today, boosted by some decent earnings reports across a range of sectors.

Travel and leisure stocks are once again enjoying a decent session, helping to pull the FTSE100 back above the 7,000 level, with IAG and easyJet among the gainers after it was confirmed that the UK will exempt fully vaccinated travellers from the EU and US from quarantining from August 2nd. Rolls Royce is also higher ahead of its own H1 update which is due next week.

With Covid cases also falling here in the UK, down for seven days in a row, there is increasing optimism that we could see a late summer rush of bookings as we head towards the autumn.

Barclays has kicked off the UK banks earnings season with a bang, trebling its profits, as well as resuming its dividend and buying back £500m of its shares, sending the shares close to the top of the FTSE100. Profits were helped by the bank recycling £742m of provisions back onto its balance sheet. The numbers also gave an interesting insight into UK consumer and business sentiment with a fall in credit card debt and rise in customer deposits while business lending remained static.

Wealth manager St. James Place has also had a decent first half, seeing funds under management rise to £143.8bn, and net inflows of £5.5bn. Profits after tax came in at £120.9m with the company announcing an interim dividend of 11.55p per share.

ITV’s latest H1 results were a little underwhelming, foregoing an interim dividend with a pledge to pay a final dividend of 3.3p per share at the full year results. The worst appears to be behind ITV, with growth in both ITV studios and advertising revenue over the period, ITV Studios seeing a 26% rise in revenues and advertising posting an increase of 29%, helped largely by the euro2020 football tournament. This helped push total revenue up 27% from last year to £1.5bn.

Aston Martin shares have reacted rather modestly to a 224% rise in sales, boosted largely by sales of the new DBX SUV, driving revenues up to £498.8m. Losses before tax also narrowed, coming in at £90.7m, with the company saying it was on course to sell 6,000 cars this year.

Investors appear to be less than impressed with Rio Tinto today, despite announcing one of the biggest dividend payouts ever, after the company generated $13.7bn of cash due to the surge in iron ore, copper and aluminium over the last six months. A special dividend of $3bn was added to a $6.1bn ordinary dividend, yet the shares have spent most of this year going nowhere, with the company continuing to have to deal with the fallout from the Juukan Gorge controversy, which cost the previous CEO his job and which has prompted a root and branch review of the culture at Rio Tinto.

US

US markets opened higher, with earnings reports continuing to dominate ahead of today’s Fed meeting, and Powell press conference.

Boeing’s latest numbers have seen Q2 revenues come in above forecasts at $17bn, while also posting a surprise profit of $0.40c a share, the first time the company has been in the black for nearly two years as it looks to put its 737-MAX and Covid problems behind it. Boeing has also called a halt to the job cuts that it had been implementing as demand and orders start to show signs of picking up.

McDonalds sales also saw a big rise in Q2, passing pre-pandemic levels with gains globally as well as in its US markets. Revenues came in at $5.89bn topping expectations across the board with the UK and France reporting sales growth of 75.1% from a year ago and 2.6% from 2019 levels. There seems little doubt that the various deals that McDonalds has done with various delivery companies has helped in this regard. 

Despite posting a blowout earnings report Apple shares have slipped back over concerns about slowing sales through the remainder of the year, due to semiconductor shortages, and other supply chain issues.

On the face of it it’s hard to see what Microsoft could have done better as it rounded off its latest fiscal year with another bumper quarter, with $46.15bn in revenues. The growth in its cloud business more than offset a decline in PC and Windows licence revenues. The same supply chain issues over semiconductors were given as the main reason for the underperformance here.

Alphabet completed the tech three-card trick with a huge 69% surge in advertising revenue on its Google search engine. YouTube revenue almost doubled coming in at over $7bn, as total revenues rose to $61.9bn, with Google revenue accounting for over $50bn of that number.

The underwhelming investor response to last night’s numbers appears to have less to do with the numbers themselves which were outstanding, and more to do with the outlook with many thinking, how can you possibly top that, with all the concerns about supply chain concerns and semiconductor shortages.

Certainly, there is some upside for management in playing down expectations as it lowers the bar on future expectations and makes it easier to beat expectations. Some would call that sandbagging!

Pfizer also appears to be reaping the rewards of its vaccine program, as Q2 profits beat expectations. The company has raised its forecast for vaccine sales to $33.5bn this year from $26bn, which is extraordinary. When you consider that its total revenue for all of 2020 was $41.9bn that’s quite a sum, and just goes to show what a money earner the vaccine has been.

Next year is likely to be even better given that it is increasing its prices next year to the EU from €12 to €19.5 per dose in 2022/2023, with revenue estimates for 2021 lifted to $73.87bn, with adjusted net income expected to double to $21bn. It does rather make you question how much money is too much money when a life saving vaccine is concerned.

FX

The US dollar is finding some support heading into today’s Fed meeting, with little expectation of a significant change of emphasise, when it comes to talking about tapering.

While it is no secret that some on the FOMC see the need for it to start sooner rather than later, recent economic data has been mixed at best, along with higher prices and supply chain disruption. It will also be interesting to see if any other FOMC members have moved towards the Bullard, Bostic camp on the prospect of a rate rise next year.  

Commodities

A decline in crude oil inventories is helping to underpin oil prices today, pushing Brent to a its highest level in nearly two weeks, with the EIA seeing a fall of 4m barrels, in excess of an expected 2m draw.

Bitcoin has had another crack at its recent peaks above the $40k level, but has so far been unable to move beyond the peaks we saw in June, which prompted the first reaction rebound from the May lows just below $30k.

Gold is treading water ahead of today’s Fed meeting, with US 10-year yields only slightly higher.