FTSE100 slips back after a choppy week

Europe

It’s been a disappointing end to the week, and the month for markets in Europe at the end of a week and a month that has seen the FTSE250 hit a new record high, and yet we’ve seen very little way of progress in the FTSE100, which looks set to finish July more or less where it started.

Markets in Europe have also slipped back today, at the end of a week that has lacked a clear direction overall. We’ve seen moves in both directions, but they’ve lacked any sort of conviction, with the overriding concern being one of concern about whether the second half of the year will be able to match up to some of the decent numbers we’ve seen from various company updates this week.

NatWest Group has followed in the footsteps of Barclays and Lloyds earlier this week by reporting a decent set of H1 numbers, as the unlocking of the UK economy boosts confidence, and a lot of the worst-case scenarios failed to play out.

In Q1 the bank was able to release £102m back on to the balance sheet, which in turn boosted profits to £946m, above expectations of £539.5m.

Today the bank released another £605m from reserves helping to boost H1 profits by £707m, due to the low levels of loan defaults.

As a result, Q2 pre-tax profit came in at £946m, helping to push H1 profits to £1.84bn, with the bank taking the decision to resume the dividend, declaring an interim payment of 3p per share. The bank also said it plans to buy back £750m of its own shares in the second half, after the Bank of England removed restrictions on payouts a few weeks ago.

The way the housing market has boomed this year, with record amounts of mortgage lending and rising prices it would have been surprising if Rightmove hadn’t beaten expectations in its latest H1 numbers. The company saw a record 1.4bn site visits in H1 as more people looked to move in order to take advantage of the stamp duty holiday.

First half revenue surged 58% to £149.9m, while operating profits jumped 86% from a year ago. While its important to acknowledge that these numbers are compared to the period a year ago when the market came to a halt during the first lockdown, they are also much better than the comparable numbers in 2019, although not to the same extent, with revenues up 4%. The dividend was also resumed at 3p per share. Average revenues per advertiser were also higher, hitting a record level, up 11% from 2019 levels. Management expects the second half to be equally as positive and expects to deliver on expectations over the course of the rest of the year.

British Airways owner IAG has seen its shares slip back, giving up some of this week’s gains after announcing a Q2 operating loss of €1.05bn, which was slightly higher than expected. The airline said that the reopening of the UK to US visitors was a positive development, but that the airline was still only planning on resuming 45% of its 2019 capacity this quarter. The refusal of the US to open its border in the other direction is probably a factor in the rather downbeat outlook, with CEO Luis Gallego declining to offer a financial outlook for the rest of the year. Its all very well the UK government opening up travel from the US for vaccinated travels but if the US won’t reciprocate its tokenism at best. The failure of the US FDA to sign off on the AstraZeneca vaccine is also likely to act as a barrier for UK travellers going to the US.    

Intertek shares have plunged after the company reported a worse than expected first half trading update. The company reported a 29% increase in pre-tax profits, however revenues fell back to £1.32bn, while the dividend was kept unchanged, against an expectation for a modest increase.

US

US markets opened to the downside, the slide getting triggered in after hours trading in the wake of disappointment over Amazon’s latest Q3 results which came in below expectations. The latest US economic data also showed that personal spending for June came in slightly better than expected at 1%, while the latest core PCE deflator showed that inflation came in slightly lower than expected at 3.5% in June.  

Amazon shares opened sharply lower today after revenues for Q2 came in short of expectations, while Q3 guidance was also lower than expected, although this also needs to be set into some sort of context. Revenues were still in excess of $110bn at $113bn, while sales for Q3 were expected to be equally as good, however the guidance was lower than some had been expecting. This still seems somewhat of an overreaction given that the last three quarters have seen revenues in excess of $100bn and Q3 is expected to go the same way.

Pinterest also saw heavy falls after user growth came in well below expectations. The company reported a decline in monthly users, as well as downgrading its Q3 outlook.

After a poor first day of trading Robinhood Markets shares dropped another 3% soon after the open as markets try to make up a decision as to whether the shares are worth taking a punt on.  

FX

This week's Federal Reserve rate meeting appears to have marked the top in the recent bout of US dollar strength, with a big weekly decline in the greenback after Fed chair Jay Powell said that rate increases were “a ways away” from becoming a reality. This appears to place a high bar to those calling for rate hikes as soon as next year, with this week's disappointing jobless claims and Q2 GDP numbers helping to reinforce the weaker narrative. .   

Commodities

Oil prices have edged back above $75 a barrel this week as US inventories fell back to their lowest levels since February 2020. It is clear that demand is picking up, however there is uncertainty as to whether this pickup can continue at a rate that can keep up with supply. Gold had its best week in two months last week, as slightly weaker US data and a dovish Federal Reserve undermined the US dollar.