2 August 2022
- The S&P and Nasdaq both slipped overnight amidst US House Speaker’s planned trip to Taiwan
- Asian markets followed suit and fell during their trading hours
- European markets have had a choppy start
- House prices grow just 0.1% in a month, the lowest increase for a year
- BP reported a bumper set of results, boosted by the impact of the war in Ukraine on energy prices worldwide
- Sage Group pushes guidance for full year up
- Greggs announces sales are booming, but profits are kept flat by rising costs
- Direct Line reveals half year profits have halved, with repair and personal injury claims rocketing
Steve Clayton, Fund Manager at HL Select, Hargreaves Lansdown:
Wall Street struggled to make progress last night, after China informed the US that if House Speaker and senior Democrat, Nancy Pelosi, went ahead with a planned visit and set foot on Taiwanese soil, it would make a military response. Pelosi would be the most senior US politician to visit the disputed island in 25 years. By the close, the main US indices were in negative territory, with the S&P shedding 0.3% and Nasdaq declining by 0.2%.
Asian markets took the cue from Wall Street and amplified it, with the Hang Seng losing 2.2% overnight, Japan’s Topix index declining by 1.4% and Taiwan and Shanghai both losing over 1.5% in their trading hours. European futures markets are indicating a slightly choppy start to trading this morning, with FTSE100 futures down 0.5%.
UK Housing – is a slowdown looming?
The latest release from the Nationwide Building Society sees the lowest increase in its house price index for a year. The last month saw a gain of just 0.1%, which still leaves prices 11% ahead, year on year. This comes on the heels of Bank of England data last week showing mortgage approvals dropping back below pre-pandemic rates as lenders passed on the recent increases in interest rates. The Bank is expected to announce a further half-percent increase later this week, squeezing affordability for new borrowers and those on variable rate mortgages.
Company news:
BP reported Q2 results that showed the expected bumper trading outcome. Underlying profits rose to $8.5bn for the quarter, up from $6.2bn the previous quarter and roughly three times the 2021 outcome. Cash flows of $10.9bn allowed the group to pay down their debts by several billion and announce a further $3.5bvn of share buy-backs. Shareholders benefit from the group’s strong financial result, with a 10% increase in the quarterly dividend announced this morning. The company highlighted the potential for further dividend increases each year out to 2025, assuming oil prices remain at or above the $60 level.
BP’s earnings were boosted by the impact of the war in Ukraine upon energy prices worldwide. Refining margins remained elevated, but marketing contributions fell on the quarter, not least due to an ongoing outage at Freeport LNG. The group is investing in both its conventional hydrocarbons activities and growing its exposure to renewables. During the quarter BP invested into wind farms offshore the Netherlands and green hydrogen projects in Australia, Iberia, and the UK.
Elsewhere, Sage Group, the business accounting software specialist, reported growth of 9% in recurring revenues, boosted by the shift to the Cloud where revenues were up 20%, and the strength of the US economy. The group pushed its guidance for the full year up to as much as 9% growth.
Greggs, one of the nation’s leading food-to-go operators with over 2,200 stores revealed the impact of cost pressures. Sales are booming, up 27% versus last year, but rising costs have kept profits flat as the group’s margins were squeezed.
The rising cost of crashing cars has driven a slump in profitability at Direct Line, which today revealed that half year profits had almost halved. Car repair costs and the cost of personal injury claims have been rocketing, with everything from spare parts and bodyshop labour costs all rising faster than the group had expected. Direct Line say they have now repriced their policies to restore the expected rate of profit to normal levels.
