Earnings provide optimism ahead of Trump deadline

A combination of strong corporate earnings, trade optimism following a US deal with India and a rise in defence names such as BAE Systems and Rolls-Royce help the FTSE 100 continue with its winning streak. The blue-chip index surged past the 9,100-point mark for the first time in its history, closing at 9,112 and briefly touching an intraday high above 9,120.

The second-quarter earnings season is going reasonably well. According to FactSet, the blended year-over-year earnings growth rate for the S&P 500 stands at 5.6%, slightly above the 4.9% forecast at the end of June. A striking 83% of companies have beaten earnings estimates, a figure well above the five-year average, with revenue beats equally robust, with 83% of revenues exceeding Wall Street expectations. The Technology and Communication Services sectors are leading the charge. Communication Services is posting a staggering 32% year-over-year earnings growth, while Technology followed with +18%, buoyed by strong performances from the likes of Alphabet and Microsoft.

Donald Trump once again risked market ire by goading Federal Reserve Chair Jay Powell with an unusual visit by a US resident to the Federal Reserve as the “refurbishment overspend” story maintains its presence in the news agenda, Mr Trump, however, backed off from any threat to fire the head of the central bank.

The FTSE 100 was up 1.2% over the week by mid-session on Friday, with the more UK-focused FTSE 250 trading 0.7% ahead.

• What is the average retirement age for men and women?
• What is the average pension pot by age in the UK
• How to transfer SAYE or SIP shares into an ISA
• How global investment can diversify your portfolio

Donald Trump

In this edition of Market Moves, Charles Stanley’s Chief Investment Officer Patrick Farrell looks at the looming 1 August deadline for the introduction of Donald Trump’s reciprocal tariffs. It was recorded before the announcement of the US-Japan trade deal.

US President Donald Trump struck a trade deal with Japan that lowers tariffs on auto imports and spares Tokyo from punishing new levies on other goods in exchange for a $550bn package of US investment and loans. However, the exact details remain unclear. Japan's auto sector, which accounts for more than a quarter of its US exports, will see existing tariffs cut to 15% from 27.5% previously. Duties that were due to come into effect on other Japanese goods from 1 August will also be cut to 15% from 25%. Two-way trade between the two countries reached nearly $230bn in 2024, with Japan running a trade surplus of nearly $70bn. Japan is the US’s fifth-largest US trading partner in goods. The US investment package includes loans and guarantees from Japanese government-affiliated institutions of up to $550bn to enable Japanese companies to build resilient supply chains in key sectors such as pharmaceuticals and semiconductors. Japan will also increase purchases of agricultural products such as rice.

With just days to go before Donald Trump’s threatened 30% tariffs on European Union (EU) goods take effect on 1 August, Brussels is scrambling to avert a full-blown transatlantic trade war. The EU has dispatched a team of trade experts to Washington for technical-level talks, while EU Trade Commissioner Maroš Šefčovič has held urgent calls with top US officials, including Commerce Secretary Howard Lutnick and Trade Representative Jamieson Greer. Trump insists the tariffs are already “a deal” unless the EU offers major concessions to reduce the US trade deficit, including potentially relocating European production to American soil. European leaders, meanwhile, have warned that the tariffs would amount to a de facto trade ban, threatening to retaliate with countermeasures if no agreement is reached. The high-stakes standoff underscores the fragile state of US–EU relations under the Trump administration.

In a highly unusual move, Donald Trump visited the Federal Reserve headquarters on Thursday, intensifying his public campaign against central bank Chair Jerome Powell. The visit – only the fourth by a sitting president in the Fed’s history – came amid Trump’s escalating criticism over the central bank’s refusal to cut interest rates and a ballooning renovation budget for its historic buildings, now projected at $2.5bn, up from $1.9 bn in 2019. Mr Trump, who has floated firing Powell over alleged “fraud” tied to the cost overruns, was joined by senior White House officials seeking transparency on the project. While the Federal Reserve maintains the increase stems from inflation, design changes, and unforeseen issues such as asbestos, Mr Trump’s visit to the Fed marks a symbolic challenge to the Fed’s independence – a cornerstone of US monetary policy. Despite speculation, President Trump did not confirm whether he met Powell directly and later appeared to back off immediate threats to remove him. Dan Ivascyn, chief investment officer of the $2.1 trillion bond fund manager Pimco said any attempt to curb the Federal Reserve’s independence would be “very bad for markets”.

Economics

UK government borrowing surged to £20.7bn in June, significantly overshooting forecasts and marking the second-highest June figure since records began in 1993. The rise, £6.6bn higher than the same month last year, was driven by a sharp increase in debt interest payments, which hit £16.4bn due to inflation-linked gilts. The figures pose a challenge for Chancellor Rachel Reeves, who has pledged to reduce debt and balance the budget by 2030. Despite the spike, borrowing for the financial year to date remains broadly in line with the Office for Budget Responsibility’s March forecast.

A flurry of UK economic data this week painted a mixed picture of the country’s recovery:

• Retail sales slump: June retail sales plunged 2.7% month-on-month, far below expectations, as wet weather and cautious consumer sentiment weighed on spending. Year-on-year sales fell 1.3%, with core sales (excluding fuel) also down sharply.
• Manufacturing woes deepen: The S&P Global Manufacturing UK PMI flash for July dropped to 47.7, signalling contraction and missing forecasts. In contrast, the Services PMI held up at 52.8, suggesting the broader economy is still expanding, albeit modestly.
• Consumer confidence rebounds slightly: The GfK Consumer Confidence Index rose to -18 in July from -20, reflecting tentative optimism, though still firmly in negative territory.
• Industrial and business sentiment weakens: The CBI Industrial Trends Orders and Business Optimism Index both deteriorated, with order books and sentiment falling to -33, highlighting persistent challenges in the manufacturing sector.
• Car production plunges: UK car output in June fell 32.8% year-on-year, a stark drop attributed to supply chain disruptions and softening global demand.

Overall, the data suggested the UK economy is treading water – with services propping up growth while consumers and manufacturers face mounting headwinds.

Geopolitics

President Donald Trump issued a stark ultimatum to Moscow: agree to a Ukraine peace deal within 50 days or face sweeping new US sanctions, including 100% tariffs on buyers of Russian oil and potential secondary sanctions targeting global energy traders. The move, aimed at forcing a ceasefire, would mark the most aggressive US action yet against Russia’s energy exports – a key revenue stream for the Kremlin. While no sanctions have been enacted yet, the threat alone has already rattled energy markets. Oil prices initially surged on fears of supply disruption but later retreated as traders digested the 50-day negotiation window. If implemented, the sanctions could tighten global crude supply, drive Brent prices above $85 per barrel, and strain US-EU trade relations, especially as European allies push back against unilateral tariffs. Critics argue the move could backfire, inflating domestic fuel prices and complicating diplomatic efforts. The Kremlin, meanwhile, remains defiant, sticking to its war demands despite mounting international pressure.

This week, the UK government made its final investment decision on the construction of the Sizewell C nuclear power station on the Suffolk coast. We look at the resurgent nuclear energy industry here.

Germany has lifted its veto on Turkey’s planned purchase of 40 Eurofighter Typhoon jets, despite some controversy. The deal, brokered primarily with the UK, was initially blocked by Germany, one of the four Eurofighter partner nations, following the arrest of Istanbul Mayor Ekrem İmamoğlu, a key opposition figure, which Berlin condemned as an attack on Turkish democracy. Greece also fears the advanced jets – especially if equipped with Meteor missiles – could tilt the military balance in the Aegean. The transaction underscores the uneasy intersection of strategic alliances, arms exports, and democratic values, with Turkey’s defence modernisation ambitions clashing against European concerns over authoritarian drift. The Eurofighter Typhoon is a European defence collaboration involving a consortium of major aerospace companies from four partner nations: Airbus Defence and Space (Germany and Spain); BAE Systems (UK); and Leonardo (Italy). In total, over 400 companies across Europe contribute to the supply chain, supporting more than 100,000 skilled jobs. The digital future of warfare.

Companies

Elon Musk is providing a textbook example of the old saying “never mix business and politics” for future generations to ponder. Tesla’s second-quarter results painted a challenging picture for the electric vehicle (EV) giant, as revenue fell 12% year-on-year to $22.5bn and vehicle deliveries dropped 14%, marking a second consecutive quarter of declines. The company missed Wall Street expectations on both earnings and sales, with chief executive Elon Musk warning of potentially “rough quarters” ahead. The downturn was compounded by a growing political spat between Mr Musk and President Trump, whose administration recently passed the “Big Beautiful Bill” – legislation that phases out the $7,500 federal EV tax credit and dismantles key emissions credit markets that have historically buoyed Tesla’s profits. The fallout has been swift. Tesla’s stock is down about 20% in the year-to-date. The clash with Trump – once a political ally – now threatens Tesla’s regulatory advantages, government contracts, and its ambitious robotaxi rollout, underscoring how political risk has become a central challenge for the company’s future.

Alphabet’s second-quarter results delivered a strong beat on both revenue and earnings expectations, underscoring the company’s accelerating momentum in artificial intelligence (AI) and cloud computing. Revenues rose 14% year-on-year to $96.4bn, with Google Cloud surging 32% to $13.6bn, driven by demand for AI infrastructure and generative AI solutions. The company raised its 2025 capital expenditure forecast to $85bn, up from $75bn, to support expanded data centre capacity and AI development. The search-engine owner maintained a robust 32.4% operating margin, and EPS climbed 22% to $2.31, reinforcing its position at the forefront of the AI race.

The UK’s Competition and Markets Authority (CMA) has proposed new regulations that could significantly reshape how Apple and Alphabet’s Google operate their mobile platforms in Britain. Under the proposals, both tech giants would be designated with “strategic market status” (SMS) – a powerful classification that would allow the CMA to impose bespoke rules aimed at curbing their dominance. The move follows concerns over high app store commissions, opaque app review processes, and restrictions that prevent developers from steering users toward alternative payment methods. The CMA also flagged issues with “choice architecture”, such as default settings and pre-installed apps, which it says unfairly favour Apple and Google’s own services. If confirmed, the SMS designation would pave the way for targeted interventions starting later this year, with the goal of boosting competition, lowering costs for consumers, and unlocking growth in the UK’s £18bn app economy.

AstraZeneca announced a landmark $50bn investment in the US, aimed at expanding its drug manufacturing and research capabilities amid looming pharmaceutical import tariffs under President Donald Trump. The Anglo-Swedish giant will build a multi-billion-dollar facility in Virginia focused on chronic disease treatments, including weight management drugs, and expand R&D hubs in Maryland, Massachusetts, California, Indiana, and Texas. Chief executive Pascal Soriot said the move supports AstraZeneca’s goal of reaching $80bn in annual revenue by 2030, with half expected to come from the US. The decision reflects both strategic growth ambitions and a response to US trade policy pressures.

Ryanair more than doubled its first-quarter profit in its current financial year, posting €820m compared to €360m a year earlier. This was driven by a 4% rise in passenger traffic and a 21% surge in average fares. Total revenue climbed 20% to €4.34 billion, with scheduled flight income up 26% and ancillary revenue growing 7%. Chief executive Michael O’Leary credited the strong performance to robust Easter travel demand and improved close-in pricing. The airline added five new Boeing 737-8200 “Gamechanger” aircraft and plans to expand its fleet further, despite delays in Boeing deliveries. Ryanair expects modest full-year traffic growth of 3% to 206 million passengers and remains optimistic about recovering last year’s fare declines, although its final results will hinge on late summer bookings.

Compass Group announced the €1.5bn acquisition of Vermaat Groep, a premium European food services firm, in a strategic move to bolster its presence across key European markets. Vermaat, a market leader in the Netherlands with growing operations in Germany and France, is expected to generate around €700m in sales this year with strong double-digit margins. The acquisition, which is set to be margin and EPS accretive in its first full year, marks a significant step in Compass’s strategy to replicate its North American growth model in Europe. Chief executive Dominic Blakemore hailed the deal as a “landmark acquisition” that will enhance Compass’s premium offering and accelerate its expansion in a €115bn addressable market.

Lloyds Banking Group’s second-quarter results were resilient, despite revenue coming in modestly below expectations. The net interest margin (NIM) was up quarter-on-quarter, in line with expectations. Stresses are rising in unsecured lending and there are signs of strain in parts of its mortgage book, but they were able to lighten their provisions for bad loans which helped reported profits. Chief executive Charlie Nunn was upbeat as he commented that “operational discipline” and “tech-driven efficiencies” will offset any economic storms. He reaffirmed full-year guidance and expressed confidence in delivering £1.5bn in additional income by 2026.

Relx delivered a robust second-quarter performance, underscoring the strength of its data-driven business model across scientific, legal, and risk analytics segments. The company reported underlying revenue growth of 7%, with all four divisions contributing positively, led by strong demand in its Risk and Business Analytics unit. Operating profit rose in tandem, supported by continued investment in AI-powered tools and workflow solutions. Chief Executive Erik Engstrom highlighted the group’s focus on “embedding advanced analytics and generative AI” into its platforms, which is driving both client retention and its ability to raise prices. Management reaffirmed its full-year guidance, expecting continued growth in revenue and adjusted operating profit, despite economic headwinds.

BP appointed Albert Manifold, former chief executive of building materials giant CRH, as its new chairman, succeeding Helge Lund amid mounting investor pressure. Mr Manifold, who will join the board as chair-elect on 1 September and assume the role officially on 1 October, brings a reputation for corporate transformation and shareholder value creation. His appointment follows growing discontent over BP’s energy transition strategy and underperformance relative to peers. The move signals a potential shift in direction as the company seeks to balance investor demands for stronger returns with its long-term decarbonisation goals.

Reckitt Benckiser delivered a robust second-quarter performance, marked by a 5.3% like-for-like revenue increase in its core business and standout 14.9% growth in emerging markets, despite headwinds in North America and Europe. The company expanded its gross margin by 40 basis points to 61% and lifted adjusted operating profit by 7%, aided by its cost-cutting “Fuel for Growth” programme.

Chip group Texas Instruments was punished by the market. Its shares fell, despite a strong second-quarter performance, as the company issued a cautious outlook on the third quarter – with guidance falling short of Wall Street’s earnings expectations. Management blamed ongoing geopolitical uncertainty and a sluggish recovery in the automotive sector for its caution. The company expects third-quarter earnings per share between $1.36 and $1.60, with a midpoint of $1.48, slightly below a consensus view of $1.50. Although the downgrade was small, the shares fell sharply as the market punished any disappointment.

Also experiencing the markets ire was elevator and lift-maker Otis Worldwide. It posted a mixed set of second-quarter results, with flat revenue falling short of analyst expectations due to continued weakness in new equipment sales, particularly in China and the Americas. However, the company beat earnings forecasts. Its service segment remained the standout performer, delivering 6% growth in net sales and contributing 90% of operating profit, while modernisation orders surged 22%, reflecting strong demand for upgrades. Management reaffirmed its full-year earnings guidance, despite the revenue miss, but the shares fell sharply after the statement.

Verizon reported strong second-quarter results, prompting the telecom giant to raise its full-year guidance. The company posted $34.5bn in consolidated revenue, up 5.2% year-on-year, driven by a 2.2% rise in wireless service revenue to $20.9bn and more than 25% growth in wireless equipment sales. Verizon added more than 300,000 net customers across mobility and broadband, with fixed wireless access accounting for 278,000 of those. Chief executive Hans Vestberg credited the results to Verizon’s diversified portfolio, disciplined strategy, and continued network leadership.

Thermo Fisher Scientific delivered a solid second-quarter performance, with revenue rising 3% year-on-year to $10.85bn, surpassing analyst expectations thanks to robust demand in life sciences and bioproduction. Adjusted earnings per share came in at $5.36, beating forecasts despite a slight dip from the prior year. Key product launches included next-generation mass spectrometers and a new bench-scale bioreactor, aimed at accelerating drug development and scaling production. Thermo Fisher also expanded its strategic partnership with Sanofi, acquiring a sterile fill-finish site in New Jersey to boost US capacity. While margins tightened slightly due to rising costs, the shares rallied after the statement.

Nestlé posted better-than-expected first half organic sales growth and management expects organic sales growth to improve further as the year progresses. The Swiss company maintained its 2025 outlook, saying it estimates an underlying trading operating profit margin at or above 16%. However, growth in the second quarter came almost entirely from price rises, as the cost of raw materials coffee and cocoa soared. The owner of the Kit Kat and Nescafe brands pushed up prices in confectionery by 10.6% and by 6% in coffee. Higher prices have hit volumes. Chief executive Laurent Freixe said the company was taking steps to address underperforming business cells and was focussing on the winning premium brands in its vitamins, minerals and supplements business.

It was another gloomy period for France’s LVMH, with its second-quarter results revealing a mixed performance. The group posted €39.8bn in first-half revenue, down 4% year-on-year, with net profit falling 22% to €5.7bn. Core divisions such as Perfumes & Cosmetics and Watches & Jewellery held steady. However, the flagship Fashion & Leather Goods segment – home to Louis Vuitton and Dior – saw a sharper-than-expected 9% drop in organic sales, reflecting subdued demand and macroeconomic pressures. Despite the downturn, chief executive Bernard Arnault emphasised the enduring strength of LVMH’s brands and its long-term vision. The results highlight the challenges facing the wider luxury retail, as well as the difficulties of LVMH’s strategic focus on maintaining leadership through selective growth and brand desirability.