UK and Europe
European stocks built on morning gains after US markets opened positively, inspired by well-received earnings from Apple (NASDAQ:AAPL). European markets had already been on the rise in early trading. Talk of fiscal stimulus in Japan, data showing stronger-than-forecast UK economic growth and mostly better-than-expected corporate earnings offset jitters before Wednesday’s Fed meeting.
The FTSE 100 made a one-year high on Wednesday as second quarter GDP data came in ahead of expectations. Gains were led by shares of housebuilders and ITV (LON:ITV) after the firms maintained optimistic forecasts for the year despite the EU referendum vote.
UK bank stocks were amongst the top risers since a stronger UK economy diminishes the chance of a Bank of England interest rate cut next week. A rate cut would further erode bank net interest margins, hurting profitability. The gains were despite disappointing results from German rival Deutsche Bank.
ITV shares jumped after the TV company reported a 9% leap in profits for the first half of the year and guided that advertising revenues would fall less than expected. It’s a bit too soon to tell, but the report is some early evidence that the much feared Brexit-induced advertising spending decline will not be very severe.
Shares of Taylor Wimpey (LON:TW) rose after the homebuilder reported operating profits rose by 9% through July with no difference seen from the Brexit vote. In further evidence the housing market was resilient before the Brexit vote, Rightmove (LON:RMV) beat revenue estimates according to a trading update.
Shares of Deutsche Bank (DE:DBKGn) tumbled after bank reported a painful 98% y/y plunge in net profits and suggested more cost cutting would be needed. Restructuring charges and a write-down made up the bulk of the profit decline, but trading revenues were also well down. The poor trading performance from Deutsche is particularly disappointing given the improvement seen at most of the US banks. It may be that DB’s deteriorating capital position is impacting its desirability as a counterparty.
US
US stocks rose on the open thanks to a jump in Apple shares after the tech giant sold more iPhones than expected in the second quarter, helping profits and revenues beat expectations.
Whilst the results beat expectations, they confirm an ongoing slide in iPhone sales as customers hang onto their smartphones for longer. Notably the Apple Watch is not making up the lost ground with the “other” category, which includes the watch seeing revenues decline. Excluding moon-shot projects like the electric car, the best hope for future Apple growth appears to lie with its services. Apple Music and Apple Pay face intense competition and won’t have the comfortable margins enjoyed by the iPhone.
Shares of Twitter (NYSE:TWTR) opened over -10% lower after it reported a modest rise in users and warned advertising demand was not as high as anticipated. It was the fourth quarter in a row that Twitter has seen double-digit declines after reporting earnings.
FX
The British pound rose modestly following better-than-expected UK GDP growth for the second quarter. The economy grew by 0.6% q/q, better than the 0.5% expected and the 0.4% previously.
Japanese Prime Minister Shinzo Abe announced plans for massive $28trn yen in stimulus according to reports, though the amount of new money in the package is unknown. The announcement has caused considerable turbulence in the Japanese yen following the disappointment yesterday that a much smaller package was being considered. The yen pulled back from its initial losses after the report was released because opinion is divided over whether more fiscal stimulus necessarily means more monetary stimulus to boot.
Commodities
Crude oil prices erased early gains after a surprise build of 1.67m barrels in US crude oil inventories. Expectations were for a draw of 2.0m. Oil has dropped for five days and to its lowest in three months despite weakness in the US dollar following weak economic data. The 200 day moving average now appears to be a tractor beam for the WTI contract at $40 per barrel.
The price of silver jumped into action at the beginning of the US trading session, above $20 per oz for the first time in over a week, after US durable goods orders missed expectations. The precious metal had been building a base at $19.20, showing relative strength against a backdrop of positive economic data. The US data miss heightened expectations the Fed would issue a cautious statement following Wednesday’s rate decision.
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