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HSBC drags on the FTSE100, as European markets close higher

HSBC logo on Canary Wharf HQ

It’s been a broadly positive day for markets in Europe, with the exception of the FTSE100, which has lagged due to weakness in banks and basic resources.

Europe

HSBC shares have dropped sharply after reporting Q3 revenue of $11.6bn, while profits after tax came in at $2.56bn. This was significantly lower than the numbers in Q2, with profit attributable to shareholders, dropping to $1.9bn, down from $5.77bn in Q2. Part of the reason for the lower profits was an increase of provisions for non-performing loans of $1.1bn, doubling the amount set aside year to date to $2.2bn. On the plus side the banks NIM rose in Q3 to 1.57% from 1.35%, helping to push net interest income to beat expectations, reflecting the higher interest rate environment. While this welcome news for NIM, it isn’t so great if you’re a saver as you won’t have noticed the difference.

With mortgage rates up above 6%, and ISA and other savings rates at or below 1%, the banks ought to be making decent profits.

Never mind talk of windfall taxes, politicians would be better served by calling out the banks for the paltry returns they are offering savers.

A cautious outlook was also weighing on the share price, along with the unexpected announcement that CFO Ewen Stevenson was leaving the business. Standard Chartered, which also has a sizeable Asia business has also seen its shares slide back on concerns over the economic outlook in its core Asia markets.

On the plus side UK real estate is higher, led by Segro after the company was raised to a “buy” by UBS yesterday, while a recent note by HSBC said that there was value in UK property raising Land Securities to a “buy”

The shares of Premier Inn owner Whitbread have been in a slow decline since the post lockdown peaks seen back at the beginning of 2021, so today’s H1 numbers were always likely to be a key test into the performance of the business during the long hot summer here in the UK. 

While some will quibble that statutory revenues came in slightly short of forecasts, we’ve still seen a strong rebound, while profits came in better than expected, after the losses of last year. A strong UK market helped to push H1 revenues up to £1.35bn. Today’s revenue numbers were more than double the same period last year, and also 25% above where they were pre-pandemic, while statutory profits before tax came in at £233.9m, yet the shares have struggled to move higher.

Occupancy rates in the UK came in at 84.8%, while in Germany they were lower at 63.4%, although both beat forecasts. Costs have been rising and Whitbread did warn that margins would be lower in the second half of the year than in H1. The increase in costs for the full year is expected to be in the region of £60m.

US

US markets have pushed in early trade, helped by better-than-expected quarterly numbers from Coca-Cola and GM, as well as a sharp slide in bond yields, after the latest S&P housing data disappointed, and consumer confidence in October showed a sharp fall from September.

Coca-Cola Q3 earnings saw Q3 revenue come in at $11.05bn, and profits come in at $0.69c a share, both beating forecasts, with sales boosted by higher prices across the board. More importantly volume of sales rose by 4%, which goes to show that consumers aren’t being deterred by higher prices. Coca-Cola also revised their full year outlook higher for full year revenue growth as well as adjusted EPS.

General Motors shares are also higher after beating on profits in Q3, although revenues fell slightly short. Q3 profits came in at $2.25c a share, while revenues came in at $41.89bn, with supply chain disruptions impacting on the speed of deliveries. GM kept full year guidance unchanged.

After the bell Microsoft is set to report its Q1 numbers with revenues expected to come in between $49.25bn and $50.25bn, which would still be 10% higher than a year ago, and still not exactly what could be described as slowdown territory, however it was markedly lower from where they finished last year. Profits are still expected to come in at $2.32c a share. Markets will be looking to see how the PC and gaming division has performed, as well as sales of Windows OEM and Xbox content.

Alphabet shares will be in focus with a particular eye on advertising revenue along with the fact that the recent Apple iOS changes, when it comes to data collection, have adversely affected all social media companies and their ad targeting efforts. As the market leader, a big miss here would have been troubling, so the fact that the numbers held up was encouraging, however that hasn’t stopped the shares from slipping lower over the past few weeks. Profits are expected to come in at $1.26c a share.

FX

Some disappointing housing data appears to have prompted a sharp slide in yields and a sell-off in the US dollar, with the pound leading the moves higher, as sentiment around the UK continues to stabilise.

The pound rose to the highs of the day on confirmation that Jeremy Hunt would remain in post as Chancellor of the Exchequer, and the pledge by new PM Rishi Sunak to correct the mistakes of his predecessor. A slide in the US dollar has also helped with the pound pushing above the 50 day SMA for the first time since early August pushing above its October highs, as it looks to move through the 1.1500 area.

The euro also looks set for a retest of parity after it too, broke above its 50 day SMA for the first time in over a month. 

Commodities

Today’s weakness in the US dollar has pulled oil prices off their lows of the day, and back into positive territory. The Saudi oil minister also aimed a barb at the US saying that emergency oil stocks/reserves should not be used to manipulate markets, and that by doing so countries could find that it could be more expensive to replenish reserves if demand were to pick up.

Gold has also seen a pickup in demand on the back of today’s weakness in yields as well as the US dollar.  

Volatility

The Hong Kong listing of HSBC saw heighted levels of price action on Monday along with many shares in the region, largely as markets attempted to dissect the impact of Xi’s third term as party leader. The consolidation of power doesn’t appear to be doing businesses many favours right now and although HSBC did advance during the session, gains were erratic. With earnings news from the bank looming too, this is adding to uncertainty. One day volatility came in at 119.82% against 49.41% on the month.

In light of this, it’s of little surprise that CMC’s proprietary basket of China Tech stocks was something of a stand out on Monday, too. This looks across a number of US-listed, Chinese tech plays, the underlying gapped down by more than 10% at the open, fell another 10% in early trade then managed to recover some lost ground. One day vol here advanced to 221.74% against 70.2% on the month.

Keeping with a theme, it was the Hang Seng that was amongst one of the most active indices on Monday, which was trading in a range of more than 900 points. One day volatility on the Hong Kong benchmark came in at 90.04%, up from 35.85% on the month.

And finally, in currencies the Japanese Yen is seeing heightened levels of activity as the Bank of Japan continues to try and reign in losses here. Intervention has brought USD/JPY back below the 150 mark but some erratic price action early in Monday’s trade saw volatility spike significantly, reaching 139.35% on the day against a monthly print of just 14.12%.


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