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London Quick Take – 21 July – Stocks flat as EU-US trade talks take shape, investors assess big earnings week with Tesla on deck
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
Ryanair shares rose over 6% after posting a first quarter profit of €820 million, €100 million ahead of forecasts on higher fares and better cost control. Passenger numbers were up 4% but fares rose by a fifth. This was a simple case of tailwinds and execution coming together – revenues rose 20% and expenses were up just 5%.
BP’s revival is building some momentum. Two days after revealing it’s selling its US onshore wind business, the oil giant has appointed a new chairman to replace much-maligned Helge Lund. He will be replaced by Albert Manifold, former chairman of building materials firm CRH – which moved its main listing to the US from London. Perhaps BP is gearing up for some more radical shifts?
Tesla numbers are due Wednesday. Q2 numbers are going to be bad on most fronts - the update from Elon Musk on robotaxis, new product timelines, AI initiatives will matter more for the stock.
Compass Group: Post-Covid return-to-normal winner, the contract food business Compass may see tailwinds from US payrolls continuing to surprise as 68% of group revenues are from the US. Last update saw management stick to annual guidance despite an 8.5% rise in organic turnover. It expects full-year high single-digit growth in underlying operating profits, supported by revenue increase 7.5%. Look for any shift in the guidance after this quarter now there is perhaps a little more visibility for the FY and on tariffs.
Lloyds: Shares of the UK bank have risen about 40% so far this year and expectations are for continued growth in net interest income (NII), which rose 3% in Q1 to £3.29bn. Q1 saw net interest margins rise to 3.03% from 2.97%. Morgan Stanley forecasts this to tick up further to 3.06% and 2.1% QoQ growth in NII. About the same time as the results we are expecting a Supreme Court ruling on motor finance, which several analysts have said could be a positive catalyst for the stock and the broader bank sector in the UK. Investors will be happy to get clarity on this front as it could remove an overhang for the shares. Investors will also want to hear more about the £4bn investment plan to develop new revenue streams to make it less reliant on NII. Lloyds Q1 profits fell 7% to £1.5bn, in line with forecasts, due to increased provisions for bad loans and the expected impact of tariffs – look for signs that they are less worried than three months ago on those fronts.
NatWest: Like Lloyds, the outlook on NII seems positive, with Morgan Stanley reckoning on Q2 delivering ahead of management forecasts for income to be at the “upper end of our previously guided range of £15.2-15.7 billion” for the full year. Citi also suggested back in February that this guidance was “conservative”. Q1 was certainly on the positive side as pre-tax operating profits rose 36% from the year before to £1.8bn, ahead of the £1.6bn anticipated, despite a higher-than-expected provision for “economic uncertainty”, for which we might read “tariffs”. NIM had risen to 2.27% from 1.19% in the previous three months.
London Quick Take – 21 July – Stocks flat as EU-US trade talks take shape, investors assess big earnings week with Tesla on deck
Key Points
- Stocks open in muted fashion as investors assess trade talks between EU and US
- President Trump touts 15-20% tariffs for the EU ahead of 1 August deadline
- Ryanair shares rise on strong profit beat and pricing
- Tesla and Alphabet to report this week
Deal or no deal? Stocks opened pretty flat in a muted start to trade in Europe on Monday amid fretting over trade talks between the US and EU. President Trump is reportedly pushing for 15-20% tariffs on the EU, which is racing to secure a deal before the 1 August implementation of 30% tariffs on the bloc. The market fell on Trump's comments on Friday but as far as I can tell 15-20% is slap in the mid-point between the 10% base rate and the 30% bargaining rate so it seems about right. The EU is also said to be preparing retaliatory measures of its own to deploy in the event of a no-deal scenario. US Commerce Secretary Howard Lutnick said he was “confident we’ll get a deal done”.
Stock markets are flat – the FTSE 100 is hovering around the 9,000 level after breaching it for the first time last week. The Dow Jones was a little softer on Friday but the S&P 500 and Nasdaq were basically unchanged. We do have a bit of a summer holiday vibe to the markets, while we need to watch bond yields – the US 30yr has shied away from the 5% handle again...we need to see if this level can be breached properly. For the week as a whole the Dow Jones Industrial Average was down slightly while the S&P 500 and Nasdaq Composite rose 0.6% and 1.5% respectively. Asian equities seemed to suffer little impact from Japan’s election, which saw the ruling party lose its majority in the upper house.
Earnings on Wall Street are beating the lowered expectations – 83% beats so far according to FactSet. As noted in my preview to US earnings season, the bar to beating expectations had been lowered significantly, so this is not a surprise. Netflix fell despite beating forecasts and raising guidance – it had been well priced for this beat it seems.
This week is all about the big tech numbers with Alphabet and Tesla set to report. These will be important for maintaining the AI investment narrative underpinning much of the market’s strength of late. The European Central Bank is expected to hold rates steady and the Federal Reserve is in blackout ahead of next week’s meeting...but we will probably hear Trump throw a few more jabs in the direction of chair Powell.
Stock markets are flat – the FTSE 100 is hovering around the 9,000 level after breaching it for the first time last week. The Dow Jones was a little softer on Friday but the S&P 500 and Nasdaq were basically unchanged. We do have a bit of a summer holiday vibe to the markets, while we need to watch bond yields – the US 30yr has shied away from the 5% handle again...we need to see if this level can be breached properly. For the week as a whole the Dow Jones Industrial Average was down slightly while the S&P 500 and Nasdaq Composite rose 0.6% and 1.5% respectively. Asian equities seemed to suffer little impact from Japan’s election, which saw the ruling party lose its majority in the upper house.
Earnings on Wall Street are beating the lowered expectations – 83% beats so far according to FactSet. As noted in my preview to US earnings season, the bar to beating expectations had been lowered significantly, so this is not a surprise. Netflix fell despite beating forecasts and raising guidance – it had been well priced for this beat it seems.
This week is all about the big tech numbers with Alphabet and Tesla set to report. These will be important for maintaining the AI investment narrative underpinning much of the market’s strength of late. The European Central Bank is expected to hold rates steady and the Federal Reserve is in blackout ahead of next week’s meeting...but we will probably hear Trump throw a few more jabs in the direction of chair Powell.
Ryanair shares rose over 6% after posting a first quarter profit of €820 million, €100 million ahead of forecasts on higher fares and better cost control. Passenger numbers were up 4% but fares rose by a fifth. This was a simple case of tailwinds and execution coming together – revenues rose 20% and expenses were up just 5%.
BP’s revival is building some momentum. Two days after revealing it’s selling its US onshore wind business, the oil giant has appointed a new chairman to replace much-maligned Helge Lund. He will be replaced by Albert Manifold, former chairman of building materials firm CRH – which moved its main listing to the US from London. Perhaps BP is gearing up for some more radical shifts?
Tesla numbers are due Wednesday. Q2 numbers are going to be bad on most fronts - the update from Elon Musk on robotaxis, new product timelines, AI initiatives will matter more for the stock.
Tesla is set to report a double-digit decline in revenue and earnings amid a slump in sales, fading EV market share, sterner competition and a brand left somewhat tarnished by CEO Elon Musk’s recent foray into politics. Loss of EV credit sales will be material and maybe not properly reflected in share price.
Revenues are seen declining more than 11% to $22.4 billion, with earnings per share down 23% to $0.40 after a very difficult year-to-date for the company as it battles brand tarnish, flailing sales in Europe, rising competition in China and ongoing doubts about its ability to roll out robotaxis.
The critical thing this quarter will be the comments from Elon Musk on the call. His latest foray into the political sphere unnerved investors who had thought he was fully dialled into the Tesla narrative once again following his departure from DOGE and acrimonious split with President Trump.
His commentary will be vital to sustaining the Tesla bull narrative. We'll be looking for detail on the company's new product launches and expansion plans, the latest on Full Self Driving (FSD) and the impact of the loss of EV credits. Meanwhile investors will be especially hungry for updates on the robotaxi rollout following the debut in Austin, Texas last month. This was deemed initially a success but questions over safety soon surfaced. More on this here.
Other earnings this week -
Compass Group: Post-Covid return-to-normal winner, the contract food business Compass may see tailwinds from US payrolls continuing to surprise as 68% of group revenues are from the US. Last update saw management stick to annual guidance despite an 8.5% rise in organic turnover. It expects full-year high single-digit growth in underlying operating profits, supported by revenue increase 7.5%. Look for any shift in the guidance after this quarter now there is perhaps a little more visibility for the FY and on tariffs.
Lloyds: Shares of the UK bank have risen about 40% so far this year and expectations are for continued growth in net interest income (NII), which rose 3% in Q1 to £3.29bn. Q1 saw net interest margins rise to 3.03% from 2.97%. Morgan Stanley forecasts this to tick up further to 3.06% and 2.1% QoQ growth in NII. About the same time as the results we are expecting a Supreme Court ruling on motor finance, which several analysts have said could be a positive catalyst for the stock and the broader bank sector in the UK. Investors will be happy to get clarity on this front as it could remove an overhang for the shares. Investors will also want to hear more about the £4bn investment plan to develop new revenue streams to make it less reliant on NII. Lloyds Q1 profits fell 7% to £1.5bn, in line with forecasts, due to increased provisions for bad loans and the expected impact of tariffs – look for signs that they are less worried than three months ago on those fronts.
NatWest: Like Lloyds, the outlook on NII seems positive, with Morgan Stanley reckoning on Q2 delivering ahead of management forecasts for income to be at the “upper end of our previously guided range of £15.2-15.7 billion” for the full year. Citi also suggested back in February that this guidance was “conservative”. Q1 was certainly on the positive side as pre-tax operating profits rose 36% from the year before to £1.8bn, ahead of the £1.6bn anticipated, despite a higher-than-expected provision for “economic uncertainty”, for which we might read “tariffs”. NIM had risen to 2.27% from 1.19% in the previous three months.
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