While US markets still finished the day lower yesterday the strong recovery off intraday lows has seen Asia markets post a fairly positive session, and seen markets here in Europe open higher, after posting their lowest levels since December 2016 yesterday.
On the earnings front we’ve seen Barclays and Deutsche Bank post their latest numbers for Q3, with both banks at different stages in their turnaround plans.
For Barclays the numbers look positive with Q3 revenues rising to £1.159bn from £977m a year ago. Pre-tax profits for the year to date is £3.12bn and the bank remains on track to meet its annual targets with the equities business in particular having a stellar quarter, while the fixed income and commodities business also outperformed.
It certainly offers food for thought for activist investor Edward Bramson who it is reported wants to spin off this part of the business. Without the performance of the investment bank this quarter the numbers would not have been anywhere near as good with banking fees down 14% and corporate lending down 29%.
Deutsche Bank’s results were as disappointing as they were expected to be with profits down 65% from the same period a year ago. Revenues came in at €6.2bn below estimates of €6.34bn, with FICC revenues also missing, coming in at €1.32bn. Net profits did come in above expectations at €229m, however the bar we very low at €149m which goes to show if you set the bar low enough it becomes easier to get over it.
The bank said it was cutting its full year revenue outlook with the investment bank revenues down 15% from a year ago, anchoring it firmly at the bottom of the pile this earnings season, and in contrast to Barclays which saw a 34% rise.
The downgrade to the revenue outlook appears to be partly as a result of ongoing restructuring costs, however it is becoming increasingly clear that investment banking remains a problem area. This a problem, particularly since its peers are well ahead of it in terms of refining their business models and as such will continue to raise serious questions over the banks’ ability to ever recover its mojo in this key area.
It could be a big day for the pound with Prime Minister Theresa May set to appear in front of the influential Conservative party 1922 committee, against a background of dark mutterings about her future. While it would appear that she may well have headed off a leadership challenge in the short term there remains widespread unhappiness with her Chequers plan amongst rank and file and she is likely to come under further pressure to modify her position to a more unifying one.
The US dollar has shrugged off further comments from President Trump, who has once again taken aim at Fed Chairman Jay Powell for continuing to raise rates. He complained that Obama had zero interest rates, however Trump appears to have forgotten that he regularly took to the airwaves during that period criticising the Fed for not doing what they are now currently doing.
On the data front concerns about economic growth into yearend are becoming a more dominant narrative in addition to the concerns about rising rates, trade tensions, Brexit, Italy as well as tensions in the Middle East with respect to Saudi Arabia, not to mention the upcoming embargo on Iranian oil which is due to start early next month.
Today’s flash manufacturing and services PMI’s from France and Germany have reinforced concerns about a slowing European economy ahead of tomorrow’s ECB rate meeting, where ECB President Mario Draghi will undoubtedly be asked as to where he is seeing this evidence of inflationary pressure, that he’s talked about recently, given that core prices have remained resolutely below 1%.
The manufacturing sector has continued to come under pressure with France manufacturing to 51.2 a two year low, though services was better at 55.7, while German manufacturing came in at 52.3, its lowest level since May 2016.
US markets look set to open slightly lower after their late recovery off the lows with company earnings once again set to be the key driving force. Yesterday’s sell off on the back of the Caterpillar guidance was probably a little excessive, given that it was merely stating the obvious.
Today’s focus will again return to the latest numbers from Ford, Microsoft and Visa.
Ford has been struggling for a while now, especially in Europe so expectations probably aren’t likely to be that high.
On the tech front which has borne the brunt of the recent sell off, Microsoft’s numbers will be in focus, in terms of how well its cloud business continues to do. The decision by CEO Satya Nadella to re-orientate Microsoft’s business model towards the cloud has helped the Windows giant keep pace with the technological changes being created across the internet. Having turned over $110.36bn last year, this week’s Q1 update should give a decent indication as to whether the company is on track to deliver the 12% revenue growth that investors are pricing in for this fiscal year.
Visa’s numbers are also like to give an insight into US consumer confidence and the willingness of consumers to use their credit cards to go out and spend.
It’s also Bank of Canada rate decision today where it is widely expected, on the balance of probabilities that the Bank of Canada will follow the Fed’s lead last month and raise rates by 25 basis points. A rising oil price, the recent USMCA agreement to replace NAFTA has removed a significant layer of uncertainty over the Canadian economy, where unemployment is around 15 year lows and though inflation dropped sharply from 2.8% to 2.2% in September, it still remains well above the Bank of Canada’s target rate, while core prices are at eight year highs
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