Daily market update: Japanese equities, BP, Ryanair, water utilities

“Markets were muted at the start of the new trading week as investors awaited updates on US trade negotiations,” says Russ Mould, Investment Director at AJ Bell.

“There is now less than a fortnight before the 1 August deadline for the new tariff regime to kick in, and we still don’t have framework deals between the US and many regions including the EU.

“It’s now been six months since Donald Trump returned to the White House and it is fair to say he’s ruffled a few feathers during that period. Financial markets have been all over the place, geopolitical tensions have intensified, and uncertainty has prevailed.

“Profit warnings from UK-listed companies increased by 20% year-on-year during the second quarter according to EY, many as a direct result of Trump’s policies. While financial markets have wobbled and fully recovered, consumers and corporates are still treading carefully and that’s clouding the economic outlook. Many businesses have curtailed investment and are having to deal with new cost pressures and uncertain demand, hence widespread downgrades to earnings guidance.

“Markets shrugged off political turbulence in Japan where the ruling coalition lost its majority in the country’s upper house. Helping to calm investors’ nerves was the fact prime minister Shigeru Ishiba pledged to remain in office, offering much-needed political stability to the markets. The Nikkei 225 dipped 0.2% which was a relatively muted reaction under the circumstances.

“Moneysupermarket-owner MONY fell 5% after flagging headwinds in certain markets and reporting a mixed first-half trading performance.”

BP

“Albert Manifold’s appointment as chair of BP will stir speculation the energy group might switch its main stock listing to the US. He oversaw a similar move when running construction group CRH and knows the process inside out.

“BP’s announcement focuses on Manifold’s experience in driving cost efficiency, capital allocation and cash flow generation. While all those elements are priorities for BP, so is the need to get its share price moving higher.

“Stripping out costs, expanding interests in oil and gas, and generating more cash could also lead to a higher share price in time, but investors might not have the patience to wait for the results to feed through. Instead, the new chair needs to convince the board there are other things that can happen in the meantime to win back the market’s favour.

“Switching listing to the US would be a risky move as there is no guarantee of getting a higher valuation. Doing so and then remaining on a big discount to rivals could cause further embarrassment to the board and further hurt the company’s reputation.

“Manifold has good experience as a CEO but not as a chair. It’s a slightly different skillset with less involvement in day-to-day operations and more focus on accountability, governance and direction.

“The muted market reaction to his appointment is a good indicator that investors aren’t blown away by the choice of new chair. Someone with a track record of keeping CEOs in check would have been a more logical choice. Manifold is an unknown entity in this role so investors can only keep a watching brief for now, rather than celebrate.”

Ryanair

“Travel demand and travellers’ willingness to pay up to jet away continues to be robust based on the latest update from Ryanair.

“The better-than-expected increase in average fares is particularly striking, as is the fact the company now seems to think it can recover nearly all of the decline in fares in the last financial year.

“It is important to note that these quarterly numbers are flattered by the timing of Easter and weak prior-year comparatives, and the company lacks full visibility on the current quarter.

“Ryanair continues to be impacted by the issues at Boeing, which are affecting the delivery of 737 MAX aircraft and are thereby constraining passenger growth.

“However, Ryanair is confident this growth is delayed rather than cancelled, as it expects to get the planes delivered in good time for next summer. Given its reliance on Boeing, tariffs remain a risk if they are imposed on exports of commercial aircraft from the US to Europe.

“A crackdown on people loading oversized cabin bags plays to Ryanair’s longstanding approach to its customers and is unlikely to do the brand any real harm.”

Water utilities

“The status quo in the water industry has not worked for any party, be it shareholders, the government or customers, so it’s not a major surprise to see a new report suggest a complete overhaul of the regulatory set-up.

“This includes scrapping Ofwat, which is seen as having been ineffective in addressing issues around pollution, financial mismanagement and perceived excessive executive pay.

“The modest gains in the share prices of the listed water utilities on the news may reflect some relief that nationalisation does not get a mention in the report. However, taking these assets back into public ownership is certainly part of the political debate around the industry.

“After a period where the sector’s reputation has been in the mud, water companies may welcome the opportunity for a fresh start – although proposed ‘minimum capital’ requirements might impact their ability to return funds to investors and take on large debt to fund investment.”