Disappointing Corporate Earnings sends markets lower

A choppy start to trading saw the European markets edge lower as investors digested a large number of corporate earnings reports which highlighted the growing impact of the debt crisis in Europe.

The FTSE closed broadly flat in the previous session, after a three-day losing streak and so far this morning has shed 0.3%. However, volumes remain weak at two – thirds of its 90 day daily average as investors hold back whilst they focus firmly on Italian debt auction and US jobless figures this afternoon.

The fact that both the US federal Reserve and the European Central bank are holding policy meetings next week means investors are also waiting on the side lines to see what policies will be put forward to deal with continuing problem of Europe and the slowing of the world economy. It is estimated that in recent months global growth has slowed from 3.3% to 1.9% which should cause lower inflation and therefore in developed markets a loosening of policy via Quantative Easing and in emerging markets a rate cuts. Lack of action next week could be met with disappointment from the markets and a continuation of lighter trading volumes throughout the summer.

Looking at UK equities, 15 constituents of the FTSE 100 gave trading updates pulling the FTSE in all directions. On a positive note Unilever posted strong underlying sales growth in the second quarter, driven by the emerging markets and has since gained 4.4%. Rolls- Royce, Compass Group and BSkyB also produced positive trading updates gaining between 2% – 4% in early trading.

After an initial positive reaction to results from Lloyds investors then changed direction as Lloyds made another massive provision for claims relating to the miss selling of Payment Protection Insurance schemes which meant that the bank stayed in the red for the first half of 2012. Lloyd is down 1.7%.

Royal Dutch Shell tops the loser board this morning as it posted a 12.7% fall in adjusted profit for Q2 as higher oil and gas output failed to compensate for the weaker crude prices and reduced consumer demand. “Our industry continues to see significant energy price volatility as a result of economic and political developments,” said Chief Executive Peter Voser. Comments which further highlight the growing impact of the debt crisis on corporate earnings.

AstraZeneca also added pressure to the FTSE as it posted a 24% fall in profits for Q2, however it stated that it would stay with its full year earnings guidance. BG group and Capital Shopping Centres also disappointed with their updates.

It is a quiet day for domestic economic data so attention will be across the Atlantic with UDS Durable Goods and Jobless Figures out this afternoon.

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