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FTSE 100 hits an 18-month high, as HSBC profits beat expectations

HSBC offices at Canary Wharf

It’s been a fairly solid start to the week for markets in Europe, although the CAC 40 is lagging behind, while the FTSE 100 briefly hit a new 18-month high, before slipping back.

Europe

The main gainers today, given the continued rise in oil prices to multiyear highs, have been the likes of BP and Royal Dutch Shell, while BHP Group is also doing well given its exposure to US shale, as US oil prices make new seven-year highs.  

HSBC is also having a good day, following up a good H1 performance with a decent Q3. Profits after tax rose to $4.2bn, taking total profits year to date to $12.66bn. Q3 revenues came in slightly better compared to a year ago, although there was a slight decline from the levels seen in Q2.

All areas of the business showed a strong improvement, the most notable of which was the UK business which followed up its H1 contribution of $2.1bn with another $1.5bn of profits before tax in Q3. The Asia business contributed $3.3bn, while the headline number of $5.4bn was boosted by another release of credit impairment charges of $700m on top of the $700m released in H1.

Management reassured about the banks’ exposure to the Chinese real estate sector saying it had no direct exposure, but would continue to monitor the situation closely.

The bank announced a $2bn share buyback, however unlike in the first half, when it paid a dividend of $0.07 a share, the bank won’t be paying a quarterly dividend. This will be reviewed ahead of its full year results which will be announced early next year, with management expressing optimism over the rest of the year.

In line with a lot of other banks, lending was subdued, with a fall in net loans and advances to customers over the quarter. Global Banking and Markets saw a modest decline in adjusted revenues to $3.6bn in Q3, with net interest margin remaining steady at 1.2%, well below the 1.35% from the same quarter last year.

This lack of growth in revenues could well start to be a concern going forward, but for now investors seem more interested in the buyback, and the boost to profits than the longer term inability to start boosting revenue growth.  

ITV shares initially ticked higher this morning on weekend reports that it might be interested in making a bid for Channel 4. CEO Carolyn McCall when pressed on the reports declined to comment. When talking about the wider business she was bullish about BritBox, while also acknowledging that advertisers were becoming much more cautious, with the shares drifting lower.  

Tesco share price has shrugged off the problems seen over the weekend, with its website and app back online after being taken off line in response to a cyber-attack on its digital architecture. The supermarket said there was no evidence that any customer data had been compromised.

Darktrace shares have plunged sharply after broker Peel Hunt initiated coverage with a sell recommendation, despite it being reported it will enter the FTSE 100, replacing Morrisons when its takeover transaction finally completes.      

US

After another decent week of gains US markets have picked up where they left off on Friday as attention turns to another big week of earnings announcements, starting with Facebook later this evening. Facebook shares slumped on Friday in the wake of the profits warning from Snap, amidst concerns over the effect the recent privacy changes Apple might have on today’s Q3 earnings report.

The fall which has taken it back to its 200-day MA, and near its October lows, has so far managed to hold above it, however a clear break below these lows could see further losses unfold, especially if guidance is poor. Facebook is also under increasing scrutiny over how it polices online content against a backdrop of rising concern that it puts profits before people, with UK MPs listening to testimony this afternoon from Frances Haugen about the company’s internal processes.  

Last week’s news that PayPal was looking to acquire Pinterest for $45bn has seen their shares fall back sharply in the last three days. Today’s news that they have decided against a bid has seen the shares move higher, while the uplift seen in the Pinterest share price has evaporated further with the shares falling back for the third day in a row.    

Tesla shares have started the week well, opening at new record highs, after the news that car rental firm Hertz says it will be buying up to 100k Tesla’s in a deal that is said to be worth $4.2bn, with the cars set to be available from early November, and delivered by the end of 2022.

FX

Having slid back for two weeks in a row, the US dollar has rebounded modestly today, but not before hitting a one month low, with the Swiss franc and the euro bearing the brunt of the rebound.

The euro has come under pressure after the latest German IFO Business Climate survey for October fell for the fourth month in a row to 97.7, well below expectations of 98, with economic expectations also declining to the lowest levels since February. This weak number is likely to feed into the narrative that the ECB is unlikely to be hardening its stance on monetary policy any time soon when it meets later this week.

The pound has continued to hold up reasonably well, as has the Australian dollar with both currencies looking to next week, and the prospect of a signposting of a possible rise in interest rates.     

Commodities

A fall in US rig counts at the end of last week, the first decline in seven weeks, and low inventory levels continues to keep a floor under US crude oil prices which today has seen another 7-year high, while Brent crude prices are also closing in on the highs seen back in 2018.

Gold prices are back above $1,800 an ounce as the yellow metal continues to trade either side of its recent range, and with the ECB and Bank of Japan due later this week its unlikely we’ll see gold prices make much progress beyond their recent peaks at $1,840. 


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