Market Report: global markets get back on the front foot
Matt Britzman, senior equity analyst, Hargreaves Lansdown: “The FTSE 100 is building on a strong start to the week with a positive open this morning. Yesterday was all about the banks after the Supreme Court gave a favourable ruling on motor finance. It’s back to company results today with some big names on the docket like BP and Diageo.
US markets put last week in the rearview mirror. Stocks surged across the board with encouraging breadth as investors dived back in. Friday’s soft jobs report has reignited the argument that the Fed should be cutting, and markets are now almost certain of a cut in September, putting the odds at 94%. The potential for rate cuts, alongside a strong earnings season, is proving enough of a cocktail to keep the fire lit under US stocks.
Palantir’s staggering growth is showing no signs of slowing. The AI darling posted quarterly revenue over a billion dollars for the first time as demand for its data solutions continues to rocket. Momentum is a powerful tool and Palantir has bucket loads. Euphoria can last a long time, and Palantir’s ability to grow at scale has been underestimated by a large cohort of the market. This is a name you want to own in the new era of AI – but at these prices, it’s still hard to see a world where there aren’t better entry points down the line.
Brent crude oil futures steadied at $68.7 per barrel in early trading, ending a three-day drop amid fears of supply glut from OPEC+’s September output hike. Prices are being buoyed as the US pushes India off Russian oil with Trump’s tariff threats beyond 25%, risking disruptions to global supply flows.”
Derren Nathan, head of equity research, Hargreaves Lansdown: “A slick turnaround plan pumped up BP’s second-quarter results. Despite lower oil and gas prices, it’s managed to push underlying profits up by nearly $1bn from the first quarter to $2.4bn, well ahead of analyst forecasts of $1.8bn. Production increases, strong results from trading activities, favourable tax rates, and better volumes and margins downstream all played their part.
It’s also upping the ante when it comes to exploration and development, culminating in this week’s announcement of an oil find at the offshore Brazilian prospect Bumerangue. Its drilling rig intersected a staggering 500m of hydrocarbons. Taking into account the acreage of the block, it’s given BP the confidence to declare the largest discovery in 25 years.
Shareholders will be glad to see this matched with financial discipline, with a further $0.9bn of cost savings delivered and net debt dropping by a similar amount from the first quarter. But with production still set to fall over the year as a whole, management are being cautious on shareholder payouts, maintaining the buyback at the reduced run rate of $750m per quarter and raising the dividend by a modest 4% to 8.32c. per share.”
Aarin Chiekrie, equity analyst, Hargreaves Lansdown: “Diageo’s full-year results managed to stumble past analysts’ conservative forecasts, despite a weak underlying alcohol market. Guinness remained a stout performer, with yet another year of double-digit revenue growth. Diageo also has a world-class stable of spirit brands on its shelves, including the likes of Smirnoff, Johnny Walker and Tanqueray. Sales figures late in the year were helped by customers stocking up on booze before tariffs were expected to kick in. These ongoing tariff headwinds are expected to add around $200m of extra costs annually. To help offset this, Diageo’s looking to streamline operations elsewhere in the business, with the group upping its guidance by $125mn, hoping to find a total of around $625mn of cost savings over the next three years.
After a period of more than two years of relatively dispiriting performance, which has seen the share price nearly halve, former CEO Debra Crew stepped down with immediate effect in mid-July. The hunt for a new leader remains ongoing. The sobering fact is that no matter who takes the reins, wrestling the group’s leverage down is likely to remain a key target. Diageo could look to sell a few brands to bring in some cash and speed up the process, but it’s hard to call which brands will fall on the chopping block. Given the group’s focus on delivering higher and more sustainable free cash flows, any future sales would likely be of lower-growth and lower-margin brands.