It’s a bumper day on the corporate calendar, but the effect on equity indices has been fairly muted in the aftermath of the rallies earlier this week. The FTSE is trading fairly flat, up a mere 14 points, with seven of those points coming from Royal Dutch Shell (LONDON:RDSa).
The capex and job cuts continue at the oil giant, as $50 crude oil starts to dig its heels in, and with added bearishness on the prospect of a return to more favourable levels. Holding up the share price today is an improvement in downstream operations, whilst the BG Group (LONDON:BG) takeover has been somewhat draining for price action overall this year and may continue to do so until the synergies are clearer.
BT Group (LONDON:BT) is trading lower despite a fairly decent earnings report. TV is on the up at BT, as the Champions league rights result in a flurry of new customers, overall though revenue fell slightly and just missed expectations. The integration of EE to complete the mobile leg of their quad-play offering has brought them a lot of business already, but the benefits to this in the medium term may be hampered if rivals successfully argue that the network operator part of the group, Openreach, should be siphoned off into a separate entity.
Deutsche Bank (XETRA:DBKGn) announced that its second quarter profit more than tripled as revenues from trading fixed-income and currencies surged. Higher price volatilities on Eurozone sovereigns and the Greek saga kept the currency volatility between a solid 25-30% in the second quarter, with an outstanding volatility in currency prices in the first half of April (33%).
Deutsche Bank’s freshly appointed CEO Anshu Jain is now expected to increase pressure on further diminishing costs and cutting back low profitability businesses to strengthen the balance sheet. A major plan is to reduce the trading operation unit. The market has cheerfully welcomed a more aggressive restructuring, the DBK shares surged above €31 for the first time in three months
Lufthansa (OTC:DLAKY) doubled its profit in the first half thanks to cheap oil, while Shell (NYSE:RDSa), despite beating 2Q 2015 expectations, is leaving business in Japan and cut 6500 jobs in Nigeria, Canada, in back office and the North Sea, according to improvement programs that have been running. This is in order to stay in line financial objectives, especially knowing that the company commits to a pre-announced dividend for the 7 next quarters.
Siemens \(OTC:SIEGY) announced good fiscal 3Q results as the US dollar boosted revenues. The stronger outlook for the US dollar could further boost Siemens’ competitive advantage on the international platform. The positive take on Siemens is maintained, with risks of further slowdown in China to be considered.
Merlin Entertainments(LONDON:MERL) beat earnings estimates, yet with little enthusiasm from the market given the disruption in activity and related costs, which would follow the Alton Towers tragedy in June. Rolls Royce (OTC:RYCEY) missed estimates, while Smith & Nephew (LONDON:SN) has just hit their earnings target of 0.39.
In the US, Coca-Cola (NYSE:KO), Procter & Gamble (NYSE:PG), CME Group (NASDAQ:CME), Western Union (NYSE:WU) and Colgate (NYSE:CL) are among big international players to release earnings.
No fireworks out of the FOMC meeting
Nothing new has been said as a result of the FOMC meeting this week. We have not taken a single step forward regarding our quest on the timing of the first Fed rate hike. Fed said it will raise rates when some further improvement in labour market is seen and ‘reasonably’ confident inflation will move back to 2% target, adding that the inflation continues to run below objective, partly reflecting earlier declines in energy prices and prices of non-energy imports.
Fed’s reluctance to change its view on inflation brings us a step further from a September rate hike; even if a September action is still not off the table, a December kick-off is given more probability.
At this stage, it is worth noting that the market is ready for any timing. The new question is: by how much will the Fed hike the federal funds rate.
Now the sovereign market traders give no more than 44% chance for a September hike, yet a solid 74.4% for a December move. The equity futures traded north. The US dollar is broadly in demand this morning. USD/JPY approaches the major resistance of 124.45/50 as the US 10-years advance to 2.30%. EUR/USD stepped below 1.10 mark.
The US’ 2Q GDP is expected to be revised significantly higher from -0.2% to 2.5%. The core PCE may have doubled, according to market estimates. Should the core personal consumption expenditure meet the 1.6% q/q consensus versus the past release of 0.8%, the appetite in US dollar should get a significant boost.
We are calling the Dow 15 points lower.