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Barclays in the red after DoJ fine

European equity markets are a mixed bag this morning ahead of the European Central Bank (ECB) meeting this afternoon. 

Investors are still a little concerned about rising bond yields, as they offer an attractive alternative to stocks. It is likely that volatility will be low in the run-up to the ECB update.

Barclays posted a better-than-expected first-quarter pre-tax profit, but a fine from the US Department of Justice (DoJ) sent the bottom line into a statutory loss. Profits were £1.7 billion, with analysts expecting £1.4 billion. The bank set aside £400 million for the mis-selling of payment protection insurance, and took a hit of £1.4 billion on account of the DoJ fine in relation to toxic mortgages pre-credit crisis. The common equity tier (CET1) ratio slipped to 12.7% from 13.3%, which suggests a slightly weaker balance sheet, but that was partially due to the enormous DoJ fine. The stock has been in an upward trend since November, and should it continue it could target 220p.

Royal Dutch Shell shares have been hit by profit-taking after the company posted its best quarterly profit in over three years. The oil giant stated that first-quarter profit jumped by 42%, as higher prices and production levels fuelled the strong earnings. The stock is a touch lower this morning, but a lot of the good news was already priced in. Earlier this week the stock was trading above 2,600p – the same level it was at when the underlying oil market was north of $100 per barrel in 2014. 

Deutsche Bank revealed a sizeable fall in profit, and missed expectations. First-quarter profit fell by 79% to €120 million, while the consensus was for €376 million. Revenues from asset management, corporate and investment banking were all down. The bank reiterated its plans to reduce the size of the organisation and trim the headcount. The stock is a touch higher this morning, but at the beginning of the month was at a 17-month low, which highlights the poor sentiment.

EUR/USD is off its six-week low as short covering has lifted the currency pair. The German GfK consumer confidence report came in slightly above estimates, and that helped the single currency. The reading was 10.9, while economists were expecting 10.8, and that added to the bullish move in the euro.

At 12.45pm (UK time) the ECB interest-rate announcement will be released, and traders aren’t expecting much from the meeting. The press conference at 1.30pm (UK time) will take more of the focus. The single currency has been losing ground recently, and seeing as a softer euro helps the eurozone in terms of exporting, Mario Draghi, the ECB chief, would rather keep the currency weak.

We are expecting the Dow Jones to open up 17 points at 24,100 and we are calling the S&P 500 up 5 points at 2644.

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