Daily Market Review 07.07.2015

STOCKS

First Share Buyback Scrapped By Rolls-Royce: They might be the crème of the crop when it comes to luxury vehicles and aircraft engines, but Rolls-Royce Holdings PLC has now disappointed investors by scrapping their 1st ever share buyback. Added to this, the largest European aircraft engine making company also warned that there has been a decline in the demand for its marine engine and airliner businesses. As a result, investors should not be expecting any ground breaking earnings from Rolls-Royce until next year. This disappointing news was delivered shortly after the company moved under new management with Warren East as the new CEO and David Smith as the newly appointed CFO. Meanwhile, Rolls-Royce, which is also a leading industrial company in the UK, stated that their underlying pretax profit is now expected to be GBP1.33 billion and GBP1.48 billion this year, which is much lower than the company’s previous guidance of GBP1.40 billion to GBP1.55. Also, the company stated that its cash outlook has also declined and is now likely to range from between GBP150 million in cash outflow and GBP150 million in inflow. This is a lot lower than the GBP350 million the company expected to generate in cash. As a result of this weak cash performance, Rolls-Royce has put an end to its GBP1 billion share buyback which it introduced a year ago. Rolls-Royce is currently trading at $782.92 a share.

INDICES 

With a ‘No’ result from the Greek referendum which took place over the weekend, we could have expected to see major movements on the markets on Monday. In the U.S., stocks extended declines and the selloff of risky assets such as equities and some commodities was evident. Meanwhile, safe havens such as gold and Treasurys gained. Interestingly, the fear gauge on Wall Street, or the CBOE Volatility index (VIX, +2.08%) increased to above 18, up 8 percent. At the close of trading, the Dow Jones Industrial Average (DJIA) declined 0.6%, or 104 points, to 17,633 while the S&P 500 index (SPX) declined 0.7%, or 14 points, to 2,062. Also on the downside was the Nasdaq Composite index (COMP) which dropped 0.8%, or 37 points, to 4,971.

CURRENCIES

In currency trading on Monday, the U.S. dollar (USD) trimmed gains. This came after data showed that activity in the service sector in the U.S. grew at a slower pace than expected in June. Despite this, the USD remained broadly supported by the outcome of the Greek referendum which took place over the weekend. Meanwhile, the ISM (Institute of Supply Management) reported that its non-manufacturing PMI (purchasing manager's index) rose from 55.7 in May to 56.0 in June. This missed expectations for an increase to 56.2. The EUR/USD traded at 1.1066, down 0.40% while the GBP/USD traded at 1.5583, up 0.08 percent. Against the currencies in Canada, Switzerland and Japan, the greenback traded mixed with USD/CAD up 0.44% at 1.2629, the USD/CHF up 0.37% at 0.9437 and with the USD/JPY steady at 122.78. Also, the U.S. dollar index was steady at 96.34.

COMMODITIES

On Tuesday, crude oil prices rebounded in early Asian trade. Investors now shift their attention to the weekly report by the API (American Petroleum Institute) which is expected to release its weekly stockpile estimates of crude oil and refined products in the U.S. last week. WTI crude oil for delivery in August traded at $52.95 a barrel, up 0.79 percent. Meanwhile on Monday, Brent crude oil for delivery in August traded at $56.55 a barrel on the Intercontinental Exchange (ICE) in London. Also, according to a report released by Platts on Monday, the production from OPEC continued to increase in June, remaining at its highest level since October, 2012. Last month, OPEC produced 31.28 million barrels per day, up 170,000.

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