UK and Europe
European markets drifted lower in afternoon trading. A week-long slide in oil prices is beginning to weigh on sentiment and the Federal Reserve opting to keep interest rates on hold again generated limited enthusiasm. With the Fed on the sidelines, a multitude of corporate earnings were front and centre.
The FTSE 100 came off one-year highs but remained above 6,700. Britain’s benchmark was dragged down as shares of Royal Dutch Shell (LON:RDSa) and Lloyds (LON:LLOY) bank slumped following quarterly earnings reports but losses were limited by well-received results from Rolls Royce (LON:RR) and telecoms rivals BT and Sky.
A 70% profit slump from Royal Dutch Shell and a sixth daily slide for Brent crude oil made energy easily the worst performing sector on the FTSE 100. Poorly-received results from Lloyds, Credit Suisse (SIX:CSGN) and BNP Paribas (PA:BNPP) ahead of Thursday’s European bank stress test results made banks the weakest sector in the Euro Stoxx 600.
Shares of Lloyds dropped as the bank warned it was preparing for lower interest rates and an uncertain outlook for the UK economy. Lloyds earned double it first quarter pre-tax profits whilst CEO Antonio Hotra-Osorio announced 3000 job cuts and the closure of 200 branches in response to a drop in usage by customers. The uncertainty makes it unlikely the Lloyds share price can recover enough in the near term for the British government to be able to offload the rest of its stake, reducing scope for another special dividend.
US
US stocks were flat to down in early trading as markets digested the busiest day on the earnings calendar in which 60 S&P 500 were reporting quarterly results.
The Nasdaq outperformed thanks to another huge quarter for Facebook (NASDAQ:FB), which sent shares up by 3% to a new record high.
Facebook has cracked the mobile advertising model and advertisers are flocking to the social network to take advantage. Advertising revenue rose by 63% y/y in the second quarter with 84% of it coming from mobile. Even if tepid global growth reduces advertising spend, online ad spending will likely increase and poor results from Twitter and Yahoo suggest Facebook, along with Alphabet (NASDAQ:GOOGL), is claiming the bulk of it.
Shares of Ford Motor Company (NYSE:F) missed earnings estimates, sending shares down 10% after sales incentives led to lower profit margins.
FX
The US dollar extended weakness since the release of the Federal Reserve statement. The Fed acknowledged an improvement in the US labour market but unexpectedly tempered it by saying it continues to monitor global risks, offering a more dovish tone and causing an unwind of bullish dollar positions. The Fed left the door ajar for a rate rise in September but it seems the bar might be quite high.
The euro was higher after data showed a bigger than expected fall in German unemployment and a pickup in inflation and consumer sentiment.
Commodities
Crude oil dipped on Thursday, extending a run of weakness that has taken both Brent and WTI contracts to three-month lows. A surprise build in US inventories has confirmed the worry that a rising rig count would add to the supply glut. News that Iran is negotiating the development of two new oil fields was another reminder that OPEC supply is likely to expand before it contracts.
Gold and silver rose modestly on Thursday, adding to the large bounce before and after the Federal Reserve interest rate decision. If the Bank of Japan decides to add to monetary stimulus that will add to demand for hard assets, but in the short term could weaken gold as a function of dollar strength.
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