Europe Lower, US Higher, Post Powell Update

Stocks are in the red after the much awaited update from Jerome Powell, the head of the Federal Reserve.

Europe

The central banker announced the Fed would adopt an average inflation target of 2%. The news was not exactly a surprise. The US central bank previously aimed to push inflation up to 2%, but now it is content to allow it to run above 2% for ‘some time’ – which is deliberately vague. The Fed has been operating an extremely loose monetary policy since the pandemic set-in, and inflation is on the rise so it seems the bank to keen to drive ahead with a loose policy without the constraints of changing its strategy on account of inflation. There hasn’t been a particularly positive reaction to Powell’s update in Europe, even though it seems as if the Fed has essentially left the door open to an extremely aggressive policy.

WPP (LON:WPP) is one of the best performers on the FTSE 100 today as the company will resume paying dividends. Amid the height of the pandemic, the firm decided it was prudent to suspend paying a dividend, but today the company announced that it will pay an interim dividend of 10p. The pay-out should make the stock more attractive to investors who are seeking an income, especially in this environment where bond yields and returns on cash are low. The advertising agency posted a first half operating loss of £2.45 billion, which included a £2 7 billion impairment charge – largely connected to recent acquisitions. Cost savings were almost £300 million and the company is on track to achieve its goal of saving between £700 million and £800 million this year. The pandemic was blamed for the fall in revenue as firms cut back on advertising spending. Second quarter like-for-like net revenue dropped by just over 15%, and that beat the 20% fall that traders were anticipating.

Flutter Entertainment (LON:FLTRF), formally Paddy Power Betfair, confirmed that pro-forma revenue in the first six months increased by 22%. Adjusted EBITDA rose by 35% to £684 million. Revenues were strong thanks to online poker’s popularity and the condensed nature of football fixtures. Across various sectors, the pandemic channeled business away from the high street towards online businesses, and that is what Flutter experienced. It is possible the e-commerce division will continue to grow from here now that more of its client base has become tech-savvy. The gaming company said it will not cut any jobs or close any betting stores despite the health crisis, but that might change in the years ahead if the online operation continues to expand. The stock hit a record high today.

Rolls Royce (LON:RR) shares are in the red but they have recouped the bulk of their earlier losses. The first half adjusted operating loss was £1.67 billion, and that was far greater than expected, but the group is examining ways to strengthen its balance sheet. It is eyeing asset sales and that should raise at least £2 billion. It seems that traders have latched onto the fact the struggling firm is taking measures to rectify its situation.

It was reported that B&M European Value Retail (LON:BMEB) could replace ITV (LON:ITV) as a constituent in the FTSE 100.

US

US indices continue to be in a league of their own as the S&P 500 traded above 3,500 for the first time, and the NASDAQ 100 has set another record high by trading above 12,000. There were no major surprises from today’s economic releases. The jobless claims reading fell from 1.1 million to 1 million, meeting forecasts. The continuing claims update dropped to 14.4 million, from 14.8 million. The GDP reading for the second quarter was revised to -31.7% from -32.9%, while economists were expecting -32.5%.

Abercrombie & Fitch (NYSE:ANF) shares are in high demand as the company posted an unexpected quarterly profit. EPS was 23 cents, and that caught traders off guard as the consensus estimate was for a loss. Revenue in the three month period was $698.33 million, which was a little higher than the $658.44 million consensus estimate. The fashion house didn’t provide a detailed guidance but it expects third quarter revenue to be 15-20% lower on an annual basis. In keeping with the surge in e-commerce, online sales jumped by over 100%. The firm is cautiously optimistic about the back to school season.

Tiffany (NYSE:TIF) announced mixed second quarter numbers. EPS was 32 cents, and that easily exceeded the 19 cents forecast. In the three month period, global sales fell by 29% to $747.1 million, while that undershot the $772 million forecast. There was a jump in online activity as revenue jumped by 123%. The high-end jeweler described the increased activity in mainland China as encouraging. Earlier in the week, it was reported the groups’ planned merger with LVMH (PA:LVMH) has been pushed back until late November.

FX

The US dollar index saw a lot of volatility on the back of the update from Mr Powell. It is up in the wake of the news about the average inflation target, but it is off the highs of the session. The signal that inflation could rise has helped the dollar, but it still failed to retest the highs of last week, so there isn’t a huge amount of confidence in the greenback.

It was been a quiet day in terms of economic news from Europe. EUR/USD and GBP/USD are under pressure from the firmer US dollar. The French business climate reading came in at 93, and that was a big improvement on the 82 posted in July.

Commodities

Gold has been hurt by the move higher in the US dollar. The commodity is traded in dollars so the upward move in the greenback has made the metal relatively more expensive. The inverse relationship between the two markets has been strong lately, so the dollar’s weakness earlier this month helped drive the metal to a record high in early August. Today has been gold’s worst day in over one week but it is comfortably above the $1,900 mark.

WTI and Brent crude are in the red as it seems that Hurricane Laura has avoided major oil infrastructure. Earlier this week the energy market was pushed higher on the back of reports some oil workers operating in the Gulf of Mexico were flown out from the oil platforms over safety concerns. Dealers dumped the oil contracts on reports the disruption wasn’t as severe as initially feared.

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