Fri 23 July 2010
A combination of the ongoing second-quarter US results season and economic releases provided for yet another week of volatile trading.
The FTSE 100 had gained 2.83% for the week, as at midday on Friday, bringing the year-to-date performance to a negative 1.99%. Meanwhile, the Dow Jones had posted a gain of 2.22% as at the close of play on Thursday.
US Central Bank Chief Ben Bernanke provided a key downside over the course of the week by highlighting what he saw as an ”unusually uncertain” outlook. Yahoo also undermined sentiment when its ‘group net revenue’ – a figure which excludes revenues which it shares with website partners such as Microsoft – came in below forecast, despite earnings for the period beating the consensus expectation. Some customers (mainly US-based) unexpectedly cut spending on online advertising towards the end of the quarter.
On the upside, investors were generally pleased with announcements from companies including industrial conglomerate United Technologies, construction equipment group Caterpillar and Coca Cola. which benefited from exposure to emerging markets.
Back in the UK, an initial estimate of second quarter Gross Domestic Product provided a positive. Growth of 1.1% was almost twice the consensus estimate of 0.6%. A rebound in construction activity, following a harsh winter, appeared to assist along with recovery in the country’s important financial sector, whilst the football World Cup appears to have given consumer spending additional momentum.
On the UK corporate front, a number of themes continued to show through. At high street and online gaming group William Hill, a push towards internet gaming assisted performance. The World Cup also played its part, while gaming machine revenues continued to grow. However, the group’s core and more historic horse racing business disappointed – Royal Ascot generated a loss.
Broader questions relating to competition across national boarders also raised their head. The tax benefits enjoyed by offshore rivals were seen by management as disadvantaging William Hill, prompting a review. However, a move to relocate business overseas, potentially to the benefit of the company, could then disadvantage UK-based jobs and subsequent tax revenues for the nation.
Vodafone was also in the news as results once again exceeded market expectations. Positive financial metrics were once more driven by increased demand for data services from consumers accessing the internet on the move – a development aided by a rising number of ‘smart phones’ coming to the market. In addition, the company’s push into emerging markets continued to assist.
Next week, UK and European markets will have the chance to react to the European bank stress tests being announced later today (23 July 2010). Attention also moves to US economic growth, whilst the corporate sector in the UK continues to provide second quarter/half year results. For fuller details on these events, please refer to the “Week in advance”.
Keith Bowman
Equity Analyst
