All Eyes on Earnings (and the Fed)

Most global markets were mixed on Tuesday, swaying up and down as earnings releases start to intensify. In Asia, the Nikkei ended half a point lower as the yen regained some of the ground it lost over the past weeks. In Europe, the FTSE managed to end the day higher, while gains in the US were minimal, with the NASDAQ failing to make any headway.

Up and coming central bank meetings, notably in the US and Japan, kept investors on the sidelines. No action is expected by the Federal Reserve tonight, but the ensuing press conference will be closely watched for hints about when the Fed might resume – if at all – its hiking cycle. By contrast, expectations are high in Japan, where domestic conditions have prompted yet another furious debate about further quantitative easing and its merits. The Bank of Japan is already pursuing an extremely aggressive expansionary monetary policy, but it seems that any uptrend in growth or inflation is proving to be short-lived.

Notable underperformers in Asia include Mitsubishi Motors and Toshiba. The carmaker has lost another 10% after revelations that mileage tampering dated back as far as 1991, while Toshiba has warned of a larger-than-expected operating loss this year. The loss of $6.2 billion was compounded by a writedown in the value of its stake in US nuclear unit Westinghouse, following an accounting malpractices which overstated revenue by $1.3 billion. Toshiba said the potential of its nuclear business remains unchanged, but it agreed to sell its medical device unit to Canon for $6 billion in a bid to bolster its finances.

The best performer in Europe was Finnish paper maker UPM, which climbed almost 9% on better-than-expected quarterly results, and the UK’s FTSE also managed to end the day in the green. Standard Chartered leapt 11% after an expected a drop in profits was less than feared, and BP rose after it maintained its quarterly dividend payment. The energy company’s first quarter loss also proved lower than forecast. Whitbread rose after its full year pre-tax profit grew by 12% to £487.7million, thanks to good sales growth at both its Premier Inn and Costa Coffee brands.

In the US, the talk is all about Apple’s earnings release. The company confirmed what it had forecasted in its latest outlook, that a slowdown in global demand contributed to its first ever decline in iPhone sales and the first revenue decline in 13 years. CEO Tim Cook rejected claims of maturing global smartphone market, saying instead that the slowdown was only temporary. “The market, and particularly us, will grow again”. Growth will not come soon though, if Apple’s second-quarter forecast is anything to go by, with revenues forecast to be almost 10% lower than analysts had expected.

Shares were understandably hit, more by expectations of little to no growth rather than the current results in and of themselves. Apple fell almost 8% afterhours, and major suppliers ARM and Hon Hai Precision Industry also saw their shares decline.

We all live in an Aussie Submarine

French state-controlled defence contractor DCNS outbid Germany’s ThysennKrupp Marine Systems and Japan’s Mitsubishi Heavy Industries to win Australia’s largest-ever defence contract. Worth 56 Aussie dollars (that’s more than €38 billion), the deal will see the French shipbuilder produce 12 new-gen submarines. Officials in Paris and Tokyo had understandably opposite reactions, but the deal with France may be a win-win for Australia, as a deal with Japan might have disrupted the relationship with China, its major trading partner.

With the associated maintenance that submarines require, the contract will likely mean a relationship of some 50 years between the two countries. The deal is expected to create some 3,000 jobs at DCNS and its partners – most of the submarines will be built in Australia – and is a further boon to the French military sector which has seen exports soaring in recent years.