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Banks boost the FTSE 100

Standard Chartered Bank branch

Some decent earnings reports have given the FTSE 100 a welcome lift today, although the market reaction to some has been a little bit underwhelming, which is causing the rebound on the UK index to lag its European peers.


Banks are doing well, helped by some solid numbers from Standard Chartered, while Barclays results have been a mixed bag. Barclays has had a difficult quarter with the shares down near one-year lows, having hit their highest levels since April 2018 at the start of this year. The honeymoon for new CEO Venkat is well and truly over, with his competence being called into question after it was revealed that the bank was facing a regulatory investigation over some of its trading products in the US, when he was in charge of controlling the bank's risk environment. The mistake appears to have come about after it was realised that the bank sold nearly £28bn of exchange traded notes that track commodity prices over a three-year period, and only registered £16bn of them with the SEC. It now has to repurchase the balance, which it is estimated will cost it over £500m.

In today’s Q1 numbers the bank has set aside £540m in respect of this matter. Putting that to one side, the wider numbers for Q1 show a bank that is trading well, with total revenues rising by 10% to £6.5bn. Offsetting that improvement it's notable that costs have risen faster, rising 15% to £ 4.1bn, however £523m of that increase was in respect of litigation costs related to the above. This has resulted in an 18% decline in attributable profit of £1.4bn.

The Barclays UK business saw profit rise to £594m on revenue of £1.65bn, pointing to an improved interest rate environment which has seen net interest margins improve to 2.62%. Despite the cost-of-living squeeze, there’s little evidence of an increase in credit card arrears. Customer deposits were stable at £260.3bn. The corporate and investment bank has seen profits before tax decline 13%, again primarily due to an increase in costs of 23% to £3bn, while investment banking fees fell 25% to £648m. Total revenues were £3.94bn, consisting of £1.6bn FICC, a solid 37% increase, a 13% rise in equities trading to £1.05bn.

All in all today’s numbers are a mixed bag, with the bank saying they hope to resume the buyback some time towards the end of Q2, with the shares seeing a pretty feeble bounce in early trade.

Staying with the banking theme, Standard Chartered shares have undergone a strong rebound after reporting a decent set of Q1 numbers and raising its revenue outlook for the year. Adjusted pre-tax profit rose 3.7% to $1.5bn, while adjusted operating income came in at $4.28bn, an increase of 9%, prompting the bank to comment that it was likely to see income growth in excess of its 5-7% target for the year, due to     

Sainsbury’s share price has slipped back to one-year lows, despite reporting full year pre-tax profits of £854m on record revenues of £29.9bn. Sales growth saw a bit of a slowdown from last years elevated levels with digital sales down 11%, but up 80% on a two-year basis. Ordinary retail sales declined 2.6%, on a year-on-year basis, but were up 4.6% on a 2-year basis. The decline in the share price appears to be driven by management guiding down expectations for adjusted pre-tax profits next year to £630m to £690m. This seems somewhat of an over-reaction given that this is still above the £586m the supermarket achieved pre-pandemic, at a time when their cost base was lower. 

Markets appear to be once again adopting a glass half empty approach when it comes to looking at the wider fundamentals for a supermarket that has managed to ride out the last two years reasonably well, and looks in pretty decent shape. It is true that the outlook is challenging with margins likely to remain squeezed and costs likely to remain high, however the business appears to be in good shape, with a net debt reduction target on course to be completed ahead of schedule. The risk is that the decline in the share price will prompt renewed interest from the unwelcome predatory clutches of certain elements of the private equity space given what’s happened to Morrisons and Asda recently.

Unilever’s Q1 trading update has been greeted with a collective shrug despite reporting a 7.3% rise in underlying sales growth, well above estimates. Revenues also beat estimates, coming in at €13.78bn, a rise of 11.8% helped by an 8.3% rise in underlying pricing. This improvement appears to be being tempered by warnings that input cost inflation is likely to push up costs to around €2.7bn in the second half of the year, up from €2.1bn in H1. This increase has prompted Unilever to downgrade expectations of full year underlying operating margin to come in at the bottom end of the predicted range.   

Premier Inn owner Whitbread has surprised the market by narrowing full year pre-tax losses to £15.8m, giving the shares a welcome lift. A stronger than expected recovery has seen UK accommodation sales surge 198% from last year, while food and drink sales rose 170.2%. Obviously, these numbers have been flattered by the fact that for most of the previous year the economy was locked down, but even allowing for that and comparing to pre-Covid levels the second half of the year has seen occupancy rates exceed pre-Covid levels to the tune of 12.5%, despite the impact of Omicron in Q4.

This perhaps shouldn’t be too much of a surprise given how much of a pain in the neck travelling overseas has been with the various covid checks and mask mandates. Quite simply people have preferred to holiday at home. The company has resumed the dividend, declaring a final dividend of 34.7p per share, resulting in a total dividend of £70m. On current trading accommodation sales are 29.9% ahead of pre-Covid levels, although food and beverage sales are lagging, behind those same levels. Costs are expected to rise modestly by 1% more than originally guided in Q3. 


US markets look set to open higher after Facebook owner Meta Platforms posted numbers that weren’t as bad as a lot of investors feared. Revenues came in lower than expected at $27.91bn, although profits were slightly better at $2.72 a share. Average revenue per user was slightly better than expected at $9.54 a share, while daily active users came in at 1.96bn beating expectations of 1.95bn and were better than the previous quarter of 1.93bn. This appears to be what investors are reacting to because monthly active users came in lower at 2.94bn so you pay your money and takes your choice. The reality is that Meta shares finished the day sharply lower yesterday so we can probably expect a nice relief rally today, on the basis that while they weren’t great numbers, they weren’t horrible either.

Later today we have the latest numbers from Amazon and Apple, which are likely to be crucial in whether we maintain the current rebound in the Nasdaq. Apple’s Q2 revenues are expected to slow to $90bn from the record $123.95bn in Q1, as the company was able to navigate various product delays during December. These disruptions could well bleed through into Q2, however this isn’t expected to adversely impact its ability to shift its products, with strong demand still coming through. Its China business is also likely to have been affected by the various lockdown disruptions. Keep an eye on operating margins which were at 38.4% in Q4 although services margins rose to a new record of 72.4%. Services revenue continues to go from strength to strength and with 785m subscribers to music streaming and gaming, Apple CEO Tim Cook suggested that they starting to look at developing products for augmented reality and were developing plans for an AR headset and glasses in the next year or so, as it looks to move into the Metaverse. Profits are expected to come in at $1.42 a share.

In light of Netflix big subscriber miss, Amazon Prime numbers are likely to be a major focus, alongside AWS revenues. Amazon share price is currently trading at its lowest levels this year so a decent number here could well offer a welcome lift. It wasn’t help by weak Q1 guidance when it reported its Q4 and full year numbers at the beginning of February. Net sales are expected to come in between $112bn and $117bn, below market expectations of $120bn, while operating income is set to come in between $3bn and $6bn compared to $9bn a year ago. Some of the disappointment was offset by the announcement of a $20 a year, or $2 a month price hike in Amazon Prime on its US members, as investors fretted about the company maintaining its margins in the face of higher costs.

The big concern over a price hike like this is that they might experience some churn, however it appears that management are betting that a new Lord of the Rings series, and streaming rights to Thursday night football could tip the balance in their favour. It’s worth keeping an eye on costs as well. In Q4 Amazon hired an extra 140k extra staff, while over the year operating expenses have risen from $363bn in 2020, to $445bn.

Its cloud business has also been a significant contributor, in Q4 the cloud business AWS posted revenue of $17.8bn, a 40% increase on last year, as well as beating the $16.1bn in Q3, which was a continuation of quarter-on-quarter improvements seen throughout the whole of last year. Investors will be hoping this trend of growth continues, as we look ahead to the upcoming 20:1 stock split, which was announced in March, and is set to take place on 6 June subject to shareholder approval. Profits are expected to come in at $8.51 a share.


The story for today has been the continued decline in the Japanese yen after the Bank of Japan gave the market the green light to sell the currency down even more. The Japanese yen has lost almost 12% against the US dollar this year alone and looks set to go to 135 in short order after the Bank of Japan said that its next move was more likely to be an easing of monetary policy.

This could well raise the accusation from some US politicians that Japan is manipulating its currency lower to achieve its inflation targets, while the rising US dollar could well present problems elsewhere as it rises to multi year highs everywhere else. The slide in the euro has continued and is likely to exacerbate the inflationary impulse already being felt in the euro area by rising energy prices. 

The pound has slipped below 1.2490 and now looks set to head lower towards 1.2200. Again, here a lower pound makes it much more difficult for the Bank of England to meet its inflation target with the recent decline from 1.3000 the equivalent of a rate cut. This makes it much more likely the Bank of England will raise rates next week with the only question being whether they move by 25bps or 50bps.


Tepid earnings news from General Electric earlier in the week has been serving to drive share price volatility in recent days. Despite the big slump in the underlying having been recorded on Tuesday, it was yesterday’s choppy price action as the stock tested 18-month lows that pushed it onto the radar. Daily vol sat at 198% against 80% for the month.

Significant after hours gains for Facebook off the back of better-than-expected user numbers had a corresponding impact on NASDAQ futures last night, driving price action in the US benchmark tech index. Daily vol sat at 45% against 27% on the month, making this the most active of CMC’s quoted indices on the day.

The US dollar continued its advance against the Rand yesterday with a market holiday in South Africa arguably serving to exaggerate price movements here. The pair has now added more than 10% across the last two weeks off the back of a series of fundamentals which we have flagged of late. There’s a risk that this moves into technically overbought territory, which could ensure that the volatility – which hit 20.2% on the daily print yesterday against 14.45% on the month - remains elevated for some time yet.

Finally rounding off with commodities, news that Indonesia had expanded its ban on the export of  palm oil products shocked the market. The move is designed to keep domestic prices low but the result was to see US Soybean Oil spike higher. Prices here are now around 25% higher on the month, with daily vol printing 43% against a monthly reading of 35%.

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