Europe

Less than two days after Monday’s sharp falls, markets have undergone a complete and utter mood change. The concern that rising Delta infections will slow down the economic rebound, appears to have been replaced by optimism that today’s better than expected company reports speak to a consumer that is down but by no means out.

That’s not to say Monday’s concerns have disappeared completely, but today’s trading updates appear to have had the effect of adding some calming balm, on some early week frayed nerves.

Travel, leisure, and retail stocks have fuelled a rebound in the FTSE100 back towards the 7,000 level on the basis that the recent declines may well have been a little overdone, while the FTSE250 has also come storming back.

In the past month the likes of TUI, easyJet, IAG and Jet2 have seen declines in the region of 10% to 15%, inviting the question as to whether all the bad news might now be in the price.

We’ve also seen big rebounds in the likes of Cineworld, up over 10% today, while pubs are also seeing good gains with Mitchell and Butlers and Wetherspoon reversing some of the big declines over the last two weeks.  

Rolls Royce shares are also higher for the second day in a row, helped by reports yesterday that it, along with Babcock was looking to sell its stake in aircraft leasing company AirTanker, as both look to bolster their finances in the weeks and months ahead.

We’ve also seen a decent rebound in general retail after Next blew the doors in with its latest quarterly update.  

Over the last few weeks retail stocks have been on the slide, with Next hitting seven-month lows on Monday. For all the pessimism over the retail sector, Next has been one of the few retailers that has managed to recover all its post pandemic losses, and today’s its shares have soared.

Today’s latest trading update has seen full price sales for the quarter rise 18.6% compared to the same period in 2019. This was well above guidance of 3%, and a marked improvement on the -1.5% decline seen in Q1. Because of this Q2 outperformance sales guidance for the year was been raised from 3% to 6% growth.

Full year profit guidance is also being raised by £30m to £750m, while Next has also taken the decision to repay £29m of business rates relief to the government.

As a result of today’s solid numbers, we’ve seen decent gains from the likes of Marks and Spencer, ASOS and Superdry.

Royal Mail shares have slipped back to the bottom of the FTSE100 after its latest Q1 trading update saw group revenue rise by 12.5% compared to last year, and by 20.5% compared to 2019.

The parcels division saw a 13% slowdown in volumes as shops started to reopen, although the numbers also need to be set in the context of last year’s lockdown when comparatives were much tougher due to everyone being at home. Revenue on the other hand was higher, with the company reiterating its full year guidance.  

Private equity firm Bridgepoint has seen its shares rise over 20% on its LSE debut today pushing the valuation to over $5bn. The company owns stakes in various Burger King franchises as well as Itsu, the sushi fast food chain. The timing is particularly noteworthy given recent private equity interest in UK companies, due to the low valuations. Supermarket chain Morrison’s, for example, is the object of serious interest from US private equity companies Fortress and Apollo.

US

Having reversed all its Monday losses in yesterday’s session, US markets have continued to move higher in early trade.

Netflix shares have been given a bit of a slap after last night’s disappointing Q2 update. It is true that subscriber growth is slowing, however revenues are still holding up despite the company having to raise prices. This suggests a certain resilience, despite some churn in its US market, however this isn’t where the growth opportunities are, with decent growth in the Asia Pacific region, and its international markets. Some US investors appear to have a blind spot on this and appear to be adopting a glass half empty approach.

Coca Cola’s latest Q2 numbers have seen the company post quarterly revenue more than the same quarter in 2019 as demand recovers, after the sharp falls seen last year. Revenues came in at $10.13bn. The company also raised its full year guidance for revenue growth to between 12% to 14%, sending the shares back to their best levels since March 2020.

FX

The pound appears to be finding a little bit of a base after several days of decline, with the negative noises surrounding the NI protocol starting to become background noise. Today’s comments from UK negotiator David Frost weren’t anything new and will probably draw the usual critiques from the usual suspects, however the fact remains the status quo is unsustainable, and the sooner both sides stop fighting the last war, and deal with the problem as it is now the better for everyone involved. The blame game is starting to become tiresome from both sides.

The latest public sector borrowing numbers showed the UK government borrowed another £22.8bn in June, with the delay in relaxing restrictions probably not helping matters.

We’ve also seen a decent rebound from the likes of Norwegian Krone and the Canadian dollar, while the buoyant mood in equity markets is pushing the Japanese yen lower.  

Commodities

Having hit a two-month low yesterday, after a surprise rise in US inventories, oil prices have rebounded, helped by the recovery being seen across equity markets. While today’s rebound is a welcome respite, the concerns that prompted the recent falls haven’t gone away yet with respect to the demand outlook and rising infection rates.

Gold prices have retreated a bit on the back of the decent recovery in US 10 year yields off their 1.126% lows of yesterday.

Bitcoin has once again squeezed those who thought a move below $30k would prompt further declines, recovering back towards its Monday highs, just below $32k.   

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