FTSE struggles for direction on mixed results
It has been up and down for the FTSE this morning as the index is struggling to find clear direction amidst a set of mixed results from index heavyweights and mid-sized companies.
Shares in mining giant Anglo American (LON:AAL) dipped despite the company reporting an increase in its copper output, earnings at Anglo-Dutch consumer goods maker Unilever (LON:ULVR) were hit by a Brazilian truck drivers’ strike and sports goods retailer Sports Direct (LON:SPD) reported a plunge in full year pre-tax profits because of the negative effect from a £85.4 investment in retailer Debenhams (LON:DEB). European indices suffered the same fate and the CAC and the DAX traded down 0.57% and 0.37%, respectively.
Sports Direct plunge in full year pre-tax profits
A decent underlying performance from Sports Direct has been blighted by a few questionable investment decisions that could continue to hurt its bottom line down the track. The investment in Debenhams isn't exactly looking like a master-stroke and it's hard to see the ailing department store chain pulling itself together soon.
Sports Direct has also racked up losses at its young US business and warned that 'implementation challenges' there will continue.On the positive side, the core UK business has performed relatively well during what was a tough time for high street retailers.
UK sports retail revenue weakened, but costs have been kept under control as wages fell and warehouses become more efficient. Crucially, an increase in second-half UK margins indicates the new store format is gaining traction. Improvements in the UK performance bode well for the long term, but the bottom line will need to get into better shape before there can be any talk of reinstating the dividend.
Unilever off course to meet annual sales guidance
The Brazilian truckers' strike has taken a toll, knocking Unilever off course to meet its annual sales guidance.
Management had already warned of the hit, but at 2.7%, first-half sales growth has still missed the revised company-compiled consensus forecast of 2.8%.
Pressure on pricing remains a problem almost everywhere, but the low prices are at least generating a decent level of volume growth.
A much more positive feature of this result has come through on the cost side of the equation. Major restructuring efforts appear to bearing fruit, with underlying operating margins improving in all three divisions.
Unilever's revenue guidance may look a bit more fragile, but it's still on track to hit that 20% operating margin by 2020 target -- and that should limit any downward pressure on the share price.
US markets to provide a lead later today
But as the reporting season continues in the US, European markets will take their cue from the US later today. The Dow Jones Industrial Average has been on the longest upward streak in two months while the Nasdaq continues to trade very close to its record highs.
Key US initial jobless claims, the indicator of the number of people out of work, is due out later today, but analysts warn that summer data tends to be skewed due to seasonal factors and is a less reliable indicator of the broader state of economy.
Pound continues to decline ahead of retail sales data
The pound continues to feel the after effects of the unexpected UK inflation data published Wednesday which showed that consumer prices held steady at 2.4% last month despite expectations of a slight increase. The currency market has been pinning its hopes on a Bank of England interest rate hike in August, but now that this decision looks less likely the pound plunged to a 10-month low against the dollar after the inflation data was published and continues to slide further this morning, trading down 0.35% against the dollar at 1.3023 and down 0.16% against the euro at 1.1213.
Yields on 10-Year UK government bonds are trading at their lowest level since May. Retail sales data due to be published at 9.30 Thursday will provide some more insight into the state of the UK economy and provide hints on whether the BoE will change its August rate hike plans.
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