Europe

The rout in Chinese markets continued today with the Hang Seng sliding to a nine-month low, which in turn has bled into wider market sentiment in Europe today. The weakness seen in Europe today appears to be a by-product of wider fears that a policy misstep from Beijing could have wider consequences for the global economy.

For now, the fallout looks contained, with a wider expectation that Chinese regulators are engaging in an exercise of boundary redrawing. The bigger concern is that they overreach and thus prompt widespread capital flight.  

Having seen Unilever shares take a nosedive after reporting their latest numbers last week over concern about their margins, Reckitt Benckiser shares have also tumbled for the same reason.

Net revenues for H1 came in at £6.6bn, while operating margins declined 260bps to 21.6%, with the company citing accelerated cost inflation in Q2. This is expected to weigh on margins over the rest of the fiscal year, before improving to between 22.7% to 23.2% by year end.   

LVMH had a very solid quarter in Q2 with demand for its Louis Vuitton handbags seeing revenues rise by 14% to €14.7bn. The gains in its fashion division more than offset weakness in various retail outlets at airports. Champagne volumes also boosted the headline numbers, with sales of Moet up 10%, with operating margins up to 26.6% in the first half of the year. 

LVMH’s two biggest markets were in China and the US and there was strong demand there, and with the addition of Tiffany the company appears to have extended its lead against its peers., with expectations that the second half of the year will be equally as strong.

Moonpig shares have fallen back to earth today, despite posting record revenues numbers for the year 2021. It has performed very well because of the pandemic, launching on the stock market earlier this year, and announcing today that full year revenues had doubled to £368m, as more people bought cards and gifts online. In terms of its future guidance, a sales slowdown as pandemic restrictions get eased is expected to act as a headwind, with revenues for 2022 expected to come in between £250m to £260m. This is a significant slowdown from this year, and even though the guidance is above the revenues seen in 2020, a fall of this magnitude is still a surprise. As a result, the shares have fallen back sharply to their lowest levels since its 350p IPO back in February. 

On the plus side, chemicals company Croda International has been one of the bright spots today, after reporting H1 results that were much better than expected. H1 sales rose by 39% to £934m, helping to boost operating profits by 42% to £218.5m, driven primarily by big improvements in its Life Sciences platform, which supplies the lipid nanoparticles for the Pfizer BioNTech covid-19 vaccine. The company also raised its full year guidance with the outperformance seen in H1 expected to continue in H2.

Travel and leisure have also had a more positive tone today on reports the UK could ease travel restrictions on travellers from the EU and US, with TUI showing strong gains, along with Ryanair and Jet2. 

US

It’s set to be another big day for earnings reports, with Microsoft, Alphabet and Apple all due to report after the bell, with US markets opening slightly lower, because of markets in Europe being on the back foot.

Expectations are high on all three, to not only post some decent numbers, but also a positive outlook, although Apple has been careful not to do that over the past few quarters.

Tesla’s Q2 numbers last night got the week off to a good start, after the company reported record profits and revenues, reporting a record $1bn for the first time ever, but also passing a key milestone in reporting profits from the sales of its electric cars.

As we look towards Apple’s Q3 numbers, expectations are for double digit growth for this quarter, although chip shortages may affect overall sales numbers, which means we could see a slowdown in sales. The working from home revolution has certainly helped Mac sales while services revenue continues to make up an increasing proportion of Apple’s product mix. The last quarter also saw Apple introduce a raft of upgrades including iOS 15, WatchOS8, with a new health app, and a host of new features for Apple TV, HomePod mini. Expectations are for profits of $1 a share

It’s set to be a big quarter for Microsoft as it looks to round off a record year. In April the company saw its revenues come in above $40bn for the second quarter in succession, posting $41.7bn for Q3, slightly down from the previous quarters $43.1bn, while profits came in at $14.8bn, a 38% rise from the same period last year. The company saw decent gains across all of its segments, with cloud computing up 23% to $15.1bn, productivity and workplace subscription services, up by 15% to $13.6bn, while personal computing and gaming saw a rise of 19% to $13bn helped by the launch of the new Xbox X gaming console. Huge demand for PC’s also helped boost the numbers. As we come to look ahead to today’s Q4 numbers there has been huge amounts of interest over the past few weeks over its Windows 11 upgrade path. 

Yesterday’s sell off in Chinese education shares has seen a rebound today with New Oriental, TAL Education and Gaotu Education all pulling up from five-year lows, on what looks like a short-covering rally. 

The latest US consumer confidence numbers for July came in at 129.3, the best levels since February 2020, pre-pandemic, offering a decent indication that while US consumers are still cautious about spending, they are optimistic about the wider economy.

FX

The US dollar has continued to lose ground today, as the Federal Reserve meeting gets underway. We’ve seen two weeks of gains on the premise that the US central bank is likely to tighten monetary policy before any other central bank. This remains likely, however there is some uncertainty about a possible timeline given that recent US data hasn’t been as strong as it could have been. Bond markets still point to some concern over the recovery trade, and this uncertainty could prompt a dovish message from Powell tomorrow, and remove some of the recent bullishness around the US dollar.

The Japanese yen is outperforming due to the broader risk off tone that appears to be weighing on equity markets.  

Commodities

Oil prices appear to be treading water currently caught between slowing growth concerns, and tighter supply. The picture isn’t being helped by reports the US is tightening restrictions on some countries while the UK is said to be looking at loosening them on the other side of the coin.

Gold prices are trading in and around the $1,800 level as US 10-year yields slip back towards the 1.2% level.

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