Golf can be bad for your career. Just ask Phil Hogan, the now ex-EU trade commissioner, who’s resigned after a golf dinner in Kildare which fell foul of Ireland’s coronavirus restrictions. Maybe he was testing his eyesight – ‘ah yes, I can see that prawn. I’m safe to go to Claridge’s now’. Golf hasn’t been this newsworthy since Tiger Woods went for a joy ride.
Global stocks hit a record high as the FTSE All World Index beat its peak set in February. The only word we can use to describe this is ‘liquidity’. It’s simply a result of a huge injection of stimulus and money that has needed to find a home. The S&P 500 and Nasdaq also both notched fresh record highs. For the most part the path of least resistance is upwards – for global stocks led by the US that is probably true when there is so much liquidity and so little yield. But for the UK market, the path of least resistance seems to be sideways – the FTSE 100 remains anchored to 6,000 and it may take a move in the FX markets to drastically alter its range-bound price action.
European indices were flat to slightly negative in early trade on Thursday ahead of Jay Powell’s speech at 14:10 London time. Investors are waiting for the substance of the speech amid expectation he will detail the outcome of the monetary policy framework review (that is the title of today’s speech). The Fed chair is expected to tee up a new monetary policy framework based around average inflation targeting (AIT), which would let the Fed run the economy as hot as it likes for a longer period. Of course, he may skirt round the details and prefer to use the September FOMC meeting to make a formal announcement. Expectations are rather high ahead of this speech – there is a potential to underwhelm.
WPP shares rose 5 per cent after the company reported a 15 per cent drop in life-for-like revenues less pass-through costs in the second quarter but signalled the worst is over for the advertising market. The company also said it is on course to achieve the upper end of the £700m-£800m cost savings target and declared an interim dividend of 10p. Trading is improving but lumpy. In July, the LFL revenue less pass-through costs of -9.2 per cent was a steady improvement on Q2 but the performance across markets remains volatile.
Another good bellwether Hays said it’s seen some stabilisation in fees since May and ‘modest’ signs of improvement in permanent hiring. Net fees were down –11 per cent for the year to the end of June, whilst pre-tax profits were –63 per cent lower as a result of a collapse in recruitment due to the pandemic. Shares ticked up 1 per cent.
Even worse news for Rolls Royce; shares slumped over 7 per cent and neared the 52-week low after the engineer reported a £5.4bn loss due to the crippling of civil aviation during the pandemic. It also included a £2.6bn loss from FX hedges. Underlying revenues were down by a quarter. CFO Stepehen Daintith has resigned.
UK Company announcements
| WPP (WPP) | The advertising titan has committed to an interim dividend of 10p per share, having already survived what it expects to be the toughest period this year. The company logged a pre-tax loss of £2.6bn in the first half. |
| Hays (HAS) | Operating profit declined by 45 per cent, with the fourth quarter just about breaking-even, as the pandemic stymied activity within the recruitment market. However, permanent fees did improve slightly between May and July. |
| Hunting (HTG) | The group revealed that interim profit had fallen by nearly two-thirds as the clients of the oilfield services group either cancelled or deferred projects due to the fall in fuel demand brought about by the outbreak. The group expects the market to improve in the fourth quarter. |
| Anglo Pacific (APF) | The group's portfolio contribution for the first half of £19.1m was 43 per cent down on the corresponding period in 2019. The fall was driven by a substantial decrease in coal prices during Q220 due to Covid-19. |
| FRP Advisory (FRP) | The corporate restructuring outfit hailed its first set of financial figures as a listed company as "a milestone year", which ended with a 16 per cent uptick in revenue. Since the April year-end, trading has been "in line with expectations". |
| OneSavings Bank (OSB) | For the past few months, bank results have been dominated by asset writedowns. But while half-year results for the buy-to-let specialist show a near five-fold increase in the underlying loan loss ratio - resulting in a £42m charge and a £54.4m impairment loss - returns remain strong. |
| Puretech (PRTC) | The pharmaceutical group’s top-line advanced by more than half to £6.8m, while its operating loss narrowed by 25 per cent to £53m. The company noted that it is now actively advancing a potential listing on Nasdaq. |
| SDL (SDL) | The language translation group is set to merge with RWS (RWS) in an all-share combination. Investors will be entitled to receive 1.224 new RWS shares for each share held in SDL - based on yesterday’s closing prices, this is a premium of 52 per cent. |
| Ocado (OCDO) | Chief financial officer Duncan Tatton-Brown will step down from his role next month due to family circumstances, and will be replaced by Rolls-Royce (RR.) CFO Stephen Daintith. |
| Flutter Entertainment (FLTR) | The gambling operator's half-year pre-tax profits plunged 70 per cent to £24m. Flutter was impacted by disruption to sporting events and also recorded £195m in costs relating to its merger with The Stars Group. |
| DFS (DFS) | DFS has agreed to sell its premium UK subsidiary, Sofa Workshop, to Halo Furnishings for £300,000. The company said that the disposal would allow it to concentrate on its core activities. |
| Macfarlane (MACF) | The packaging outfit recorded a 5.5 per cent drop in its interim pre-tax profits, with the coronavirus pandemic contributing to a second quarter sales drop of 5.2 per cent after small gains were made in its first three months. |
| Rolls-Royce (RR.) | Pre-tax losses widened to £5.4bn in the six months to 30 June, versus £791m a year earlier. This came amid a collapse in engine flying hours, £2.2bn of exceptional charges and a £2.6bn revaluation of its US dollar hedge book. There was a £2.8bn free cash outflow which is guided to reach £4bn for the full year. Rolls is now looking to raise at least £2bn from disposals over the next 18 months, including selling ITP Aero. |
| Grafton (GFTU) | Revenue from continuing operations dropped by almost a fifth in the six months to 30 June, reflecting the impact of branch closures in its distribution business during lockdown. While adjusted operating profit sank by more than 60 per cent to £39m, on the back of a strong recovery, the group is guiding that profit for the second half will be similar to last year. |
| The Hut Group | The online beauty and nutrition retailer has announced its plan to list on the London market in an IPO that would value the company at £4.5bn. THG recorded a pre-tax loss of £49.8m in its six months to 30 June. |
Oil prices were steady as Hurricane Laura makes landfall in the US amid significant amount of production and refinery shut ins. The hurricane is at risk of strengthening to a category 5 storm. WTI (Oct) maintained the $43 handle but backed off from a 5-month high. Yesterday the Energy Information Administration noted a draw of 4.7 million barrels last week, but oil inventories remain 15 per cent above the average for this time of year.
The market reaction has been rather muted by the fact inventories are unseasonably high and demand is down compared to last year. Whilst more than 80 per cent of Gulf of Mexico crude production has been shut in, stocks at Cushing at 25 per cent above the five-year average, and distillates are 24 per cent above average. One further note on yesterday’s inventory data relating to travel and the airlines – over the four weeks to Aug 21st jet fuel product supplied was down 45.7 per cent compared with the same four-week period last year.
Neil Wilson is chief markets analyst at Markets.com
