Bank of Japan moves to steady market nerves, Uber sees stronger than ever consumer strength
Derren Nathan, head of equity research, Hargreaves Lansdown: “The Bear that chased markets off a cliff in recent days is taking a well-earned break, but time will tell if its just hibernating. The FTSE 100 has opened up around 1% as global stocks continue their recovery from Monday’s battering. The Bank of Japan’s deputy governor, Shinichi Uchida seems to have ended the Bear’s party, at least for now, with comments that Japanese rates won’t be hiked again while market instability continues. This comes after last week’s decision to raise rates to 0.25%, the second increase this year, alongside hawkish commentary from Governor Kazuo Ueda that very much left a further raise on the table this year.
Fingers are increasingly being pointed at the unwinding of the yen ‘carry’ trade, for amplifying the reaction to a couple of weak US economic data points last week. This has been a popular strategy amongst speculators, who have been borrowing on the cheap in yen, while riding the dollar-dominated wave of impressive gains in US mega-caps. Given the size of the positions taken, there could be more volatility to come. Central banks won’t be beholden to markets indefinitely, and long-term investors would likely prefer they stick to the job of balancing economic growth and inflation. With that in mind, it’s worth noting that while the probability of a US recession has crept up, the odds are still in favour of a soft landing, suggesting that the Fed still has time to act.
Those looking for some strength in consumer demand can take some comfort from ride-hailing trailblazer Uber’s second-quarter results. CEO Dara Khosrowshahi proclaimed, “The Uber consumer has never been stronger” with no signs of weakness in any income bracket. Concerns about demand for deliveries in the US have also failed to materialise. The company’s shares were up 11% as results cruised past expectations. There will be a further pulse check on the health of the US consumer today, with MBA Mortgage Application numbers to be released, and Consumer Credit figures after market close.
Danish pharmaceutical giant Novo Nordisk has again upgraded its revenue forecasts for the year after a strong sales performance in the second quarter. However, the outlook for operating profit has been pulled back a little after Novo wrote down the value of its experimental drug ocudurenone to control blood pressure in patients with chronic kidney disease, which failed to meet its endpoint in a recent clinical trial. A 6 percentage point hit to operating profit was already flagged back in June, and stripping that out it actually looks like the guidance for underlying profitability has actually improved. It’s not all been bad news on the R&D side either with its candidate Mim8 successfully completing a late-stage study in patients with hemophilia A.
Brent Crude is holding steady today at around $76.4m after settling a little higher yesterday, with forecasts pointing to a further decline in US inventories. Look out for the official numbers later today). Protests at Libya’s Sharara oilfield have also been impacting production, adding to concerns about tight supply in the Middle-East.”
Glencore has decided to keep its coal operations after speaking with shareholders. 95% of them voted to retain the assets in the group.”
Matt Britzman, senior equity analyst, Hargreaves Lansdown: “Following the Elk Valley deal, the plan was always to look at coal as one unit, assess the benefits of a split, and ultimately see what shareholders wanted to do. There’ll no doubt be some more ESG conscious investors disappointed that they wont have the option to remove the coal arm from the rest of the business, but operationally this decision makes sense. Splitting out a large business unit isn’t easy, and doesn’t always generate additional value. The coal portfolio is a cash cow, and it’s not all about thermal coal with steelmaking coal making up a large part too. This will not only free up cash to pursue its copper plans, but also brings back the old $10bn net debt cap which means more room to return cash to shareholders.”
