Just in: Snacks and fizzy drinks group Pepsico has kicked off the Q2 reporting season, by beating expectations.
Revenues at Pepsico fell to $15.95bn in the last quarter, down from $16.45bn a year earlier – but ahead of forecasts of $15.37bn.
This knocked net income down to $1.65bn, or $1.18 a share, from $2.04bn, or $1.44 a share a year ago.
Core earnings were stronger than expected, though, suggesting that the food and beverage industry might have weathered the pandemic better than analysts thought.
As well as Pepsi, the company also produces Tropicana and Lipton ice tea, Quaker Oats and Doritos (plus less well-known products such as Mug Root Beer and Matador Beef Jerky).
Three hours into the new trading week in Europe, and stocks are holding most of their earlier gains.
- FTSE 100: up 60 points or 1% at 6156
- German DAX: up 116 points or 0.9% at 12,750
- Stoxx 600: up 2 points or 0.6% at 368.91
That follows a solid session in Asia-Pacific markets:
- China’s CSI 300: up 99 points or 2.1% at 5,852, a five-year closing high
- Japan’s Nikkei: up 493 points or 2.2% at 22,784
While today is a bit quiet, investors are eagerly (or perhaps nervously) awaiting the start of the Q2 earnings season this week. It’s likely to show that company earnings and revenues slumped in April-June during the lockdown — but will major companies also sound more optimistic about future prospects?
Jesse Cohen of Investing.com says it could be the worst quarter since the 2008 financial crisis, with earnings on the S&P 500 expected to plunge by 44% on average (with energy companies really struggling, and tech firms doing OK).
Wall Street banks all report results this week, so their view on the outlook will have a major impact on markets. As will Netflix’s results – just how much streaming have we all managed during the lockdown?…
Britain’s property sector emerged from its Covid-19 freeze in June, according to new data from property group Andrews.
It has reported that instructions picked up last month (although they were still lower than a year ago). Viewings also increased sharply – with some people checking out properties remotely.
Here’s the details:
Instructions in April and May 2020 were down 90% and 73% respectively on the equivalent months in 2019 as the property market felt the full impact of lockdown and Covid-19.
But June 2020 saw a significant rebound, with instructions down just 26% on the corresponding month last year, up 178% on May 2020, when the property market reopened mid-month, and 624% on April — when Andrews saw just 55 instructions across its south of England branches.
June also saw viewings bounce back sharply, up 373% on May as prospective buyers returned in even greater volumes. Andrews carried out 6,436 viewings in June 2020, or 214 a day, compared to less than one viewing a day in April. Three in 10 of the viewings carried out in June were ‘smart’.
The ONS has looked at how households were set-up to cope with a loss of income when lockdown hit.
Using data from its wealth and assets survey, it found households where the head works in accommodation and food services were the least equipped to manage with a loss of income.
Workers in those industries – where 67% of the workforce was furloughed, and some businesses are still not open again – had the least savings to tide them over. Just over a quarter of households (28%) had insufficient assets to cover a 20% drop in income for a single month.
This rose to 39% if the drop was sustained for two months and 41% for a three-month period.In contrast households where the head worked in IT were best placed to face a fall in income – and less likely to have been furloughed.
Single parents were least likely to have savings to last them through three months, with just half able to cover a 20% fall in income over that period.
UK retailers aren’t joining in today’s rally, following signs that some consumers are still avoiding the shops.
Footfall on the UK high street slumped by 65% in June compared with a year ago, new figures from data company Springboard show.
That’s a small improvement on the previous month, but it shows that some people are still staying at home to avoid catching Covid-19.
My colleague Joanna Partridge writes:
The latest figures are an improvement on the 73% year-on-year decline in May, but highlight the challenges facing retailers and hospitality companies as they try to encourage worried customers to return as the coronavirus lockdown eases.
At the same time online shopping has soared, as consumers browse and order from the comfort and safety of their home…
The Springboard figures show overall footfall including high street, shopping centres and retail parks fell by 57% in June 2020 compared with June 2019. The decline was sharpest on high streets, down 65%.
Consumers had more confidence to return to retail parks in the month from 31 May to 4 July, where footfall was 32% lower compared with the same period in 2019. In shopping centres footfall declined by 62%.
JD Sports are the top faller on the FTSE 100, down 2%, with Primark owner AB Foods losing almost 1%.
In the telecoms world, the boss of BT has warned it will be “impossible” to strip Huawei products out of the UK’s telecommunications network within a decade.
With the government due to rule on Huawei’s involvement in 5G networks on Tuesday, Philip Jansen warned that its tech is already very deeply embedded in the UK infrastructure.
Removing it quickly would lead to outages, and probably mean UK vendors couldn’t access security patches in the meantime, Jansen added. The UK government, though, has hinted that it could rethink its decision to allow Huawei to provide 5G kit. More here:
Germany’s economy has turned the corner in the Covid-19 recession, according to a new government report.
Reuters has the details:
Germany’s economy has passed its lowest point and the recovery process is starting, the economy ministry said on Monday.
A rise in industrial orders indicates that production will pick up in the coming months, but risks still exist, particularly in a very slack demand from non-euro zone, the ministry said in its monthly report.
The copper price also rallied today, hitting a two-year high in London, after copper miners in Chile voted to strike.
Workers at Antofagasta’s Zaldivar copper mine in Chile voted to walk out after rejecting a pay deal, accusing Antofagasta of trying to strip workers’ contracts of existing benefits.
The Zaldivar union, which represents workers at the mine says workers have been risking their lives to maintain production levels despite Covid-19, which has infected some miners.
A strike had been set for July 15 (subject to mediation), with Zandivar warning:
We cannot accept the mine owner’s exploitation.
“If the company does not recognize our contribution and sacrifice, it will face an extensive strike that will completely stop production
Mining stocks are also among the stock market risers, usually a sign that investors are more upbeat about growth prospects.
Glencore (+2.7%) and Anglo American (+2.5%) have now muscled their way into the FTSE 100 top risers. That follows a jump in commodity prices today, with iron ore, lead, aluminium and zinc prices rallying.
This market optimism is certainly at odds with the escalating Covid-19 pandemic, and the latest record jump in cases.
But investors seem to be betting on an economic recovery, and the possibility that governments will launch fresh spending programmes, or tax cuts, to stimulate growth.
Paul Donovan of UBS Wealth Management says:
Equity markets seem relatively unconcerned with the rising number of US COVID-19 cases. Although fear in the US would appear to have increased, the level of fear is nothing like that seen earlier this year. National lockdowns remain very unlikely.
There is also the possibility that the increase in cases will encourage further fiscal stimulus.
Security firm G4S has cheered investors this morning, by hiking its profit forecasts.
G4S reported that that earnings for the first half of 2020 will be ‘significantly above market consensus’, thanks to a resilient trading performance during June”.
The firm has certainly been busy during the pandemic, providing security at the UK’s Nightingdale hospitals and also running Covid-19 testing sites.
Shares in G4S have jumped 9% this morning, to their highest level since the crash in early March.
Output across Britain’s service sector and manufacturers picked up in June, but remains extremely weak, according to a new survey this morning.
Accountancy firm BDO has reported that its Services Output Index posted its biggest ever monthly jump for June, following the reopening of businesses. It rose by 11.2 points to 64.73.
Factories also reported a jump in activity, lifting BDO’s manufacturing output index from 69.55 to 80.47.
Encouraging. But overall, BDO’s output index is still below its lowest the lowest point of the 2008/2009 financial crisis.
Kaley Crossthwaite, partner at BDO LLP, says:
“Although economic activity remains considerably suppressed, the recovery in output is an encouraging signal that the easing of restrictions has breathed life into certain sectors.
“While output continues to show positive momentum, the crucial infrastructure underpinning the economy remains fragile. As government support measures are rolled back in the coming months, the prospects for the economy will become clearer. For now at least, there is reason for some very cautious optimism.”
Some traders are pinning their hopes on a Covid-19 breakthrough.
Over the weekend, the head of German biotech firm BioNTech predicted that the vaccine being developed with Pfizer could be ready for regulatory approval by the end of the year.
CEO Dr. Ugur Sahin also told the Wall Street Journal that several hundred million doses could be produced even before approval has been granted – given his confidence in the drug (which has shown potential in early trials).
Fiona Cincotta of City Index explains:
A study on Remdesivir showed that the drug reduced coronavirus fatalities by 62%. Boosting sentiment further Pfizer and BioNTech announced that their vaccine could be approved by the FDA as soon as December.
A vaccine is the quickest and surest way for the economy to bounce back to pre-corona levels, which explains why the market is so sensitive to any vaccine news flow.
A burst of Monday morning optimism is lifting stocks in the City.
Britain’s FTSE 100 has jumped by 77 points at the open, or 1.3%. That lifts the blue-chip index back to 6174 points – clawing back a chunk of last week’s losses.
Stocks vulnerable to the Covid-19 pandemic are among the top risers, with asset manager M&G up 3%, British Airways-owner IAG gaining 2.7% and luxury fashion chain Burberry up 2.1%.
Other European markets are rallying too, with Germany’s DAX jumping 1.5% and the wider Stoxx 600 gaining 1.2%.
A new poll from Reuters has found that the slump in China’s exports probably eased in June as some countries reopened their economies.
The survey of economists also found that imports also probably contracted less sharply, thanks to higher demand for crude oil and commodities from Chinese firms.
Given China’s crucial role in the global economy, this would indicate a revival in growth – although demand is clearly still below pre-crisis levels.
June exports from the world’s second-largest economy are expected to have contracted 1.5% from a year earlier, according to a median estimate from the survey of 32 economists, easing from a decline of 3.3% in May.
Imports likely fell 10.0% on year, the poll showed, compared with a steep drop of 16.7% the previous month, due to higher purchases of crude oil and orders for infrastructure materials.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The Covid-19 pandemic continues to test the markets’ resilience — and today, investors are starting the new week in a hopeful mood.
Stocks have rallied in Asia, with China’s benchmark CSI 300 jumping 2.5% to a new five-year high. Japan’s Nikkei has gained 2%, in a burst of risk-taking, and we’re expecting gains in Europe and the US today.
This followed a decent rally on Wall Street on Friday, after Gilead Sciences Inc reported that its antiviral drug remdesivir showed reduced risk of death in severely ill COVID-19 patients.
Gilead cautioned that clinical trials still need to be conducted to confirm the benefits. But, this is bolstering hopes that medical science will allow the global economy to return to more normal times.
David Madden of CMC Markets explains:
A study found that Remdesivir, an anti-viral drug produced by Gilead Sciences, reduced the fatality rate by 62%.
The drug in question has been tipped as a potential treatment for the coronavirus for several months, and the findings from the latest study boosted market sentiment.
Hopes of an economic recovery from the pandemic are also building, after China Association of Automobile Manufacturers reported a pick-up in demand.
China’s car sales jumped by 11.6% in June, the third month of growth in a row, figures released late last week showed. That suggests that Chinese consumers are feeling confident about their economic prospects, as its economy recovers.
But the pandemic continues to rage. The World Health Organization has reported a record increase in global coronavirus cases on Sunday, with the total rising by 230,370 in 24 hours. The biggest increases were recorded in the United States, Brazil, India and South Africa.
In total, nearly 12.9 million cases have been recorded, with 568,296 deaths from the virus. Florida alone reported a record-breaking 15,000 new cases on Sunday.
A new study has also suggested that people who have recovered from Covid-19 may lose their immunity to the disease within months. That would rather undermine hopes that ‘herd immunity’ could protect the global economy.
But investors seem keen to look through these issues, and are pinning their hopes on a pickup in growth and profits later this year.
Second-quarter earning season starts this week, so that’ll test whether companies are any more optimistic — and whether the market rally since late-March is built on solid foundations….
- 8am BST: China’s foreign direct investment data for June
- 4.30pm BST: Bank of England governor Andrew Bailey gives a speech on “Libor: Entering the Endgame”