Market Commentary | Touch and Go

Global markets were once again mixed but were on a more solid footing on Tuesday, as investors were comfortable with taking on some risk ahead of monetary policy meetings in Japan and the US. Most bourses in Europe were up for the day. In the US stocks followed the trend, ending mixed as market participants digest the flurry of earnings and keep a close eye on the Federal Reserve. Bond prices fell and yields rose slightly, and the yen – a very popular safe haven currency – gave up some of the gains made earlier this week.

Things changed dramatically overnight as Japanese news agency Kyodo reported that Japanese Prime Minister Shinzo Abe is expecting to push through a fiscal stimulus package in excess of 28 trillion yen. The news saw the Japanese currency fall almost 2% against its major peer – the US dollar – before recovering slightly, and fueled gains for the greenback across the board.

The Nikkei rallied 1.72%, but other Asian markets were unable to match its performance. Most markets were only a few points up or down, with Shanghai being the notable underperformer ending the day around 1.9% lower. Europe seems to have started off on the right foot this morning, with most bourses well in the green.

Earnings Watch

The earnings calendar is seeing many big name come to the fore. Shares in Caterpillar Inc rose as much as 4% after the heavy-machinery company reported better-than-expected second quarter earnings. It also lowered its forecast for 2016 due to sluggish demand in mining and other industries.

McDonalds took a hit after the fast-food giant reported second-quarter revenue and same-store sales that fell below analysts’ consensus. The company said that the recently introduced “all-day breakfast” menu, while hugely successful in its own right, is causing customers to ‘trade down’ and select cheaper items – from the breakfast menu – rather than regular lunch and dinner offerings. So whilst volumes have indeed picked up, total revenue has not. McDonald's reported net income of $1.09 billion for the latest quarter – that’s down from $1.2 billion for the same period last year. 

Deutsche Bank, Europe’s largest investment bank, saw net income of €18 million in the second quarter. That’s better than expected – analysts had forecast a loss of around €22 million – but is dramatically lower than last year’s figures of €796 million. The Frankfurt-based company is currently undergoing a significant overhaul cutting risky assets, freezing dividend payments and laying off aeround 9,000 people.

In better news, Apple said that sales of its lower cost offering – the iPhone SE – are gaining traction, offsetting weaker sales from its flagship models. Shares jumped as the Cupertino tech giant also announced a smaller-than expected decline in revenue. Analysts expect a new iPhone cycle in the coming months which should also help the company improve its financial performance.

Another Brexit Side-Effect

Brewer Anheuser-Busch InBev NV just raised its cash bid for its British counterpart SABMiller Plc by 2.3% to account for the depreciation of the sterling. The move seeks to quell shareholders’ unease that they are getting the short end of the stick in the deal. The plunge in the British pound hurt both US investors in SABMiller and SABMiller itself, whose share price could not rally beyond AB InBev’s original offer of 44 pounds-a-share on the currency-driven export boost.

AB InBev’s higher offer does not seem to address what minority investors call a disparity between the value of the cash bid and the cash-and-stock alternative, which say that the latter option is designed to favour major shareholders Altria and Bevco.

This article was issued by Andrew Martinelli, Trader at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, views and opinions provided in this article are being provided solely for educational0 and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.