Update Equities: Encouraging start to the earnings season
While tariff discussions continue in the background, investor attention is also focused on the second-quarter earnings season. A key question is to what extent company results are impacted by the uncertainty around the outcome of the tariff discussions. So far, these effects appear to be fairly limited and could occur further in 2025 or even beyond.
Following extensive negotiations, the US is gradually making progress in closing tariff deals. Over the weekend an agreement was reached with Japan, and according to preliminary reports, the US and Europe are closing in on a deal around a 15% tariff. So far, the market is taking these outcomes as fairly positive, given that the initially suggested tariffs were much higher and evidence of a deal removes uncertainty.
So far, the second-quarter earnings season that kicked off last week seems relatively favourable in terms of tone and outcomes. Still, it should be noted that analysts have been lowering the bar given all the noise around the potential tariff impact, which obviously could make it easier for some companies to do better than expected.
Internet behemoth Alphabet delivered a strong set of results. The growth of its cloud business in particular continues to surprise positively. It also provided strong guidance for the next quarter as well. The continued significant investment in its cloud activities is also positively feeding into the rest of the sector and adjacent industrial companies that benefit from datacentre capacity investment.
On the negative side within the technology sector were the earnings releases of European semiconductor-related companies, such as ASML and ASMI, with the latter having lower than expected order intake. And STMicroelectronics disappointed with an unexpected quarterly loss.
The results of the European banking sector, however, were clearly encouraging with both Unicredit and BNP Paribas results on the high-end of expectations. Like every earnings season, there are plusses and minuses, but on an aggregated level the start of the second-quarter earnings period is encouraging.