Recent weakness in commodity prices appears to be starting to act as a bit of a drag on equity markets, with yesterday’s slide in Brent crude oil suggesting contrary to some indications that we may well have seen a short term peak in prices. Not only have we seen weakness in oil prices this past two weeks, but copper and platinum prices have been declining over a much longer period.
Despite this weakness equity markets have managed to hold up fairly well in recent weeks, but there could be some signs that we could be set for some short term weakness, especially if oil prices continue their spate of recent declines.
Today’s start for European equities has been relatively mixed, as investors look ahead to the latest comments from Federal Reserve Chairman Jerome Powell when he testifies to the US Senate banking committee later this afternoon.
Royal Mail’s (LON:RMG) latest results didn’t contain too much in the way of surprises with the letters division containing to act as the “ball and chain” around its profitability, while on the positive side the parcels division offset some of this with underlying sales rising 2% in the latest quarter. Most of this came from its European parcels division which saw sales rise 11%. The company warned that the recent implementation of GDPR could well see letter volumes fall even further over the next 12 months, as postal volumes decline on lower marketing turnover.
When Talk Talk (LON:TALK) (LON:TALK) revealed that its full year profits were down just a couple of months ago there was widespread scepticism about where the company fits in a telecoms space that has seen its bigger competitors fight it out over content, as well as offering discounted but still expensive quad play deals.
Its new business model of offering a no frills high speed internet service does seem to be starting to bear fruit as 80,000 new subscribers in this first quarter would seem to bear out. The company’s willingness to invest in a fibre network that will supply high-speed broadband to up to 3 million homes and businesses, does appear to be translating into a business model that appears more sustainable than its previous ones, and today’s rebound in the share price would appear to suggest that markets like what they see. Nonetheless, in the interests of context, the shares are still down 45% from last November’s peaks.
The pound has held up fairly well despite all the political shenanigans surrounding Brexit this week at Westminster with today’s wages and unemployment data not really adding to the debate over whether we get a rate hike from the Bank of England in just over two weeks’ time.
Unemployment came in at 4.2%, matching a 42 year low, while wages for the three months to May rose 2.7%, also as expected. On the one month measure the unemployment rate for May fell from 4.2% to 4%, raising once again the question as to why wage pressure continues to remain stubbornly on the low side.
US stocks, particularly in the tech sector could well find themselves under pressure early on after last night’s miss from Netflix (NASDAQ:NFLX), which saw the company undershoot subscriber growth by 1m users in their latest quarter.
Having seen JPMorgan (NYSE:JPM), Citigroup (NYSE:C) and Bank of America (NYSE:BAC) beat expectations all eyes will be on Goldman Sachs (NYSE:GS) as they announce their latest Q2 earnings update.
The bar is likely to be high with particular focus on investment banking, and in particular M&A which has seen a significant amount of activity this year. Its equities business was the out-performer in Q1, largely due to the volatility seen at the beginning of the year. This is likely to be harder to repeat, but higher rates may well offset some of this despite a narrowing yield curve.
Expectations are for a number in the region of $4.65c a share, with new CEO David Solomon having a tough act to follow as he beds himself in as replacement for Lloyd Blankfein.
Dow Jones is expected to open unchanged at 25,064
S&P500 is expected to open 4 points lower at 2,794
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