Gold passed through the $1,500 an ounce mark in recent times to hit a six-year high thanks to mounting anxieties over trade and currency wars and the outlook for global growth. Meanwhile, Goldman Sachs expects safe haven demand to push up the gold price by another $100 over the next six months.
As of Wednesday (7 August) 85% of the S&P 500 had reported their second quarter results with a surprisingly high number of companies delivering positive earnings surprises.
Quilter Investors senior trader, Jonathan Callow, observes of this quarter’s numbers: “Some 76% of companies to report have delivered positive earnings surprises with 57% reporting a positive sales surprise. This means we’re on course for modest US earnings growth against an expected decline.
“However, US companies have become increasingly dour in their outlooks for the
remainder of the year; earnings estimates are now being revised more frequently while guidance is becoming more cautious. Whether this is the result of trade war worries or just a cooling off remains to be seen,” he says.
In July, the US Federal Reserve (Fed) cut interest rates for the first time in more than a decade, emphasising the continued accommodative, or ‘dovish’, approach by central banks globally.
Fed chairman Jerome Powell cited weaker global growth and “simmering” trade tensions for the 0.25% cut on 31 July, with a “more accommodative” approach aimed at supporting a slowing US economy.
He stressed it wasn’t the start of a “long series” of cuts and was lambasted by President Trump’s Twitter account.
On 25 July, the European Central Bank pledged to maintain interest rates at present, or lower, levels until mid-2020 and “for as long as necessary”. It also emphasised its willingness to employ further quantitative easing to ensure its inflation target is met.
The Bank of Japan maintained interest rates at -0.1% on 30 July, committing to such “extremely low levels” until at least Spring 2020 and saying that it “will not hesitate” to ease policy further should overseas risks threaten the economy’s momentum.
Despite a no-deal Brexit looming, the BoE held rates at 0.75% on 1 August. It said while Brexit had made UK data volatile, underlying growth appeared to have slowed to a “rate below potential”.
The Bank of England also cut its GDP forecasts to 1.3% for 2019 and 2020 (from 1.5% and 1.6% respectively). It also warned the policy response to Brexit “will not be automatic and could be in either direction”.
On Wednesday (7 August), driven by fears of trade and currency wars, three more central banks made significant rate cuts.
New Zealand’s 0.5% was twice what was expected and sent the kiwi dollar tumbling. Thailand also surprised with a 0.25% cut as did India with a 0.35% cut.
Shares in Kellogg, jumped some 13% on Thursday (1 August) as a return to sales growth and robust revenues suggested that its planned turnaround was gaining traction.
This was the biggest jump in the company’s shares in 11 years. Second-quarter results revealed that investments in its key brands helped deliver global sales growth of 2.3%, including a modest 1.1% gain in its home market after losing 1.5% last quarter.
The move is a shot in the arm for the ailing household name. Although demand for its core breakfast cereals continues to weaken in the US and Canada, losses were offset by ‘healthy’ gains from its snack stable of Pringles and Cheez-It crackers. Snack sales grew almost 4% as Americans pigged out on new variations of old favourites.
Marks & Spencer shares took a hit from friendly fire on Monday (5 August) when they fell just over 5% following a painful report from Morgan Stanley, one of its own house brokers, that questioned its £750m Ocado investment.
With impeccably poor timing, the bank published its research on the same day M&S announced the completion of the Ocado deal, which CEO Steve Rowe described as “truly transformative” and a major step toward becoming a “digital-first retailer”.
The deal, which will see M&S swap seats with Waitrose as Ocado’s distribution partner from September next year, was financed by a £600m rights issue, led by Morgan Stanley, and a painful 40% dividend cut, which was subsequently questioned by the investment bank.
Fickle Americans: Although US GDP remains solid, personal consumption expenditure, a key component, remains volatile.
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