On 26 July, 2016 – Investors respond to earnings

Trading was subdued as investors waited for the FOMC and Bank of Japan monetary policy decisions.
United States
US stocks were mixed Tuesday as investors evaluated the latest earnings reports and waited for Wednesday’s Federal Reserve monetary policy statement. The Dow Jones industrials slipped 0.1 percent dragged down my MacDonald’s. The S&P was virtually unchanged (up0.7 point) and Nasdaq added 0.2 percent.
McDonald’s led declines in the Dow. Verizon Communications also declined after earnings disappointed. Caterpillar reported a profit for the second-quarter that however was about 31 percent lower from the previous year, while total sales and revenues declined 16 percent. The company cut its outlook for fiscal year 2016. It also warned that more layoffs are expected in the second half. 3M retreated even though profits beat expectations despite falling sales in its struggling electronics and energy business, and the company trimmed its sales outlook for the year. United Technologies, Caterpillar and DuPont rose after their earnings results Tuesday.
Verizon Communications reported a 5.3 percent fall in quarterly revenue as more customers opted for cheaper plans. The company, which suffered a six-week long strike by 40,000 wireline workers during the second quarter, said net income attributable to Verizon fell to $702 million or 17 cents per share from $4.23 billion or $1.04 per share a year earlier. Total operating revenue fell to $30.53 billion from $32.22 billion. Verizon said on Monday it would buy Yahoo’s core internet properties for $4.83 billion in cash to expand its digital advertising and media business.
McDonald’s sales edged up just 1.8 at established US locations in the second quarter. It was the fourth straight quarter that comparable-store sales rose, despite “softening industry growth.” Globally, sales rose 3.1 percent at established locations. For the quarter, McDonald’s earned $1.09 billion or $1.25 per share including a 20-cent negative impact from restructuring charges. Total sales were $6.27 billion.
Twitter said its user base increased to 313 million average monthly active users in the second quarter from 310 million in the first quarter. The company’s net loss narrowed to $107.2 million or 15 cents per share in the second quarter ended June 30 from $136.7 million or 21 cents per share a year earlier. Revenue rose about 20 percent to $602 million.
Apple said demand for the iPhone was getting stronger and that the decline in sales has passed the “low point”, as it reported third-quarter results broadly in line with expectations. Apple sold 40.3 million iPhones in the three months to June, down 15 percent on the prior year but at the higher end of forecasts. Overall revenues fell 15 percent to $42.4 billion, with net income down 27 percent to $7.8 billion. Sales in China were the worst hit, down 33 percent year on year.
Positive housing statistics were released — new home sales rose 3.5 percent in June to an annual pace of 592,000 units, marking a 7-year high. Home sales prices rose more than expected in July. The S&P case-Shiller Index climbed 1.2 percent for the month. July Conference Board’s consumer confidence index reading was 97.3 for July.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up US$9.85 to US$1,323.00. Copper futures were up 0.3 percent to US$2.22. WTI spot crude was down 32 US cents to US$42.81. Dated Brent spot crude was up 2 US cents to US$44.74. The US dollar was up against the Swiss franc. It retreated against the yen and the Canadian and Australian dollars. It was virtually unchanged against the euro and the pound. The Dollar Index was down 0.2 percent. The yields on US Treasury 30 year bond and 10 year note were down 1 basis point to 2.28 percent and 1.56 percent respectively.
Europe
Stocks were mixed Tuesday with modest gains and losses. Investors noted a mixed batch of corporate financial results while economic data were on the light side. Investors remained in a cautious mood ahead of Wednesday’s announcement from the Federal Reserve and the Bank of Japan announcement at the end of the week. The FTSE and CAC inched 0.2 percent higher while the DAX and SMI added 0.5 percent and 0.4 percent respectively.
Martin Weale, a member of the Bank of England’s monetary policy committee, has reportedly dropped his opposition to stimulus, spurring speculation that the Bank of England will announce new measures to stimulate growth on August 4. Martin Weale said in an interview with the Financial Times that he has shifted his monetary policy stance after the release of negative business survey results and now favors immediate stimulus to the economy. He said that he sees things “differently from what I would have done had we not had those numbers and the material point is that they were collected after July 12, so after the initial shock of the referendum.” Only last week in a speech, Weale said that the uncertainty from “Brexit” suggested waiting for firmer evidence before taking any action. He also rejected the argument that markets would be disappointed were there to be no easing in August.
Commerzbank declined after warning that its capital position had weakened in the second quarter as a result of accounting adjustments to reflect operational risks to banks across the industry. In Paris, Orange tumbled after posting muted growth in sales in the second quarter. In London, BT Group advanced after British regulator Ofcom said its Openreach network business can become a legally separate company within the telecoms group.
Mondi climbed after the packaging and paper group said its underlying operating profit for the half year ended June 30 would be above that of the comparable prior-year period of €490 million. BP declined after it posted its third straight quarterly loss. SABMiller slipped after Belgian brewer Anheuser-Busch InBev NV raised its offer for the company. Housebuilders Taylor Wimpey, Berkeley Group, Barratt Developments and Persimmon retreated as the broker cut its price target on all four stocks, citing Brexit uncertainty for a reduction in their forecasts for the sector.
Asia Pacific
Asian stocks were mixed Tuesday. Japanese shares suffered heavy losses amid a rally in the yen and another fall in oil prices. Investors waited for both the Federal Reserve and Bank of Japan policy announcements to see how they will respond to increasing global uncertainty in the wake of last month’s Brexit vote. While the Fed is not expected to increase rates, the Bank of Japan is widely expected to add at stimulus.
The Shanghai Composite added 1.1 percent while the Hang Seng was 0.6 percent higher.
The Nikkei dropped 1.4 percent as a stronger yen and falling oil prices overshadowed media reports that the government is considering injecting around ¥6 trillion into the economy over the next few years under a planned stimulus package. Exporters Honda Motor, Canon, Panasonic and Toyota Motor declined amid a broad rally in the yen. Toshiba, Mitsubishi UFJ Financial Group, and Inpex tumbled. SoftBank climbed after its US telecommunications unit Sprint reported better than expected first-quarter revenue. Nintendo rebounded after plunging in the previous session.
The All Ordinaries and the S&P/ASX both inched up 0.1 percent as commodities retreated and investors waited for consumer inflation data on Wednesday for clues to the Reserve Bank of Australia’s next move on interest rates. Santos, Origin Energy and WorleyParsons retreated after crude futures fell more than two percent to hit three-month lows overnight on growing concerns that a global oversupply of both crude and natural gas will dampen prices. Evolution Mining, Independence Group and Newcrest Mining also were down after gold prices fell overnight to extend losses from last week. Seven West Media tumbled following the takeover of its joint venture partner Yahoo by Verizon. Rio Tinto and Fortescue Metals Group and the big four banks advanced.
The Kospi added 0.7 percent as foreign investors extended their buying streak to a 14th consecutive session. The Kospi climbed to its highest level since November 26 after Bank of Korea data showed the economy grew at an unexpectedly robust 3.2 percent annual rate in the second quarter. The Sensex slumped 0.4 percent after investors took profits after a strong rally in the previous session. Weakness in rupee ahead of a state ministers’ meeting to discuss the GST Bill and mixed global cues before key central bank meetings in the US and Japan also kept investors on edge.
Looking forward
Australia reports second quarter consumer price index. France releases June producer prices. Eurozone June M3 money supply will be reported. First estimate of second quarter gross domestic product for the UK will be released. In the US, June durable goods orders and pending home sales index will be released along with the weekly EIA petroleum status report. The FOMC announces its monetary policy decision.
Global Stock Markets

*Note — all releases are listed in local time.

Source: Fidelity

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