The FTSE 100 is underperforming the indices in continental Europe as the sell off in banking and oil stocks has weighed on the market.
Barclays kicked off the reporting season for UK banks today, the slide in the stock price has set the tone for HSBC and Lloyds. BP and Royal Dutch Shell have relatively large weightings in the index, the retreat in the oil market has hurt the energy titans. Sterling’s strength is an issue for the UK market too as internationally focused stocks like Imperial Brands, GlaxoSmithKline and British American Tobacco derive a relatively large amount of their revenue overseas. Sentiment in Europe was a little downbeat in the morning but selling pressure picked up as US index futures moved lower in the afternoon.
Barclays’ investment banking subsidiary had a strong performance, which helped offset the sizeable credit loss provisions. Full year earnings dropped to £3.1 billion but that was still comfortably ahead of the £1.96 billion forecast. High levels of volatility in the financial markets helped equity trading revenue rise by 31%, by the same token, revenue from fixed income, currencies and commodities dealing jumped by over 50%. Deal making and capital raisings saw the corporate and investment banking unit post a 22% rise in revenue, while the retail banking division lagged behind with a more modest 8% rise in income. The prospect of negative rates being introduced by the Bank of England in the next few months seems unlikely so that should help with lending margins in the next couple of quarters. Barclays set aside £4.8 billion for bad debts as a result of the health crisis. The bank declared it will pay a dividend of 1p, in addition to that, it will carry out a £700 million share buyback scheme too. The fact the finance house is returning cash to shareholders speaks volumes about it outlook, even if the sums involved are not huge.
Credit Suisse incurred legal costs of CHF 757 million in the final quarter and that led to a loss of CHF 353 million in the three month period, but it was still better than the CHF 566 million loss expected by analysts. Quarterly revenue from fixed income and equities fell by 8% and 5% respectively, which is disappointing seeing as other banks thrived on the volatility that was seen in the markets lately. On an annual basis, provisions for bad debts were CHF 1.1 billion, up from CHF 324 million last year. Annual wealth management related fees dropped by 8% to CHF 13.6 billion. As a way of boosting profit the bank intends to grow earnings from its wealth management division by 10% in the next three years. Even though it was a challenging year for the finance house, it is still committed to achieving 10% ROTE in the medium term when business returns to a more normal environment
Smith & Nephew was impacted by the health crisis as certain medical procedures were postponed. Revenue dropped by over 11% to $4.5 billion, operating profiting tumbled to $295 million from $815 million. There are growing hopes that economies will begin to reopen soon and that should help health systems get back to carry out more services, and that is why the company anticipates solid underlying growth later on in the year.
Tech stocks are leading the declines in the US, like last night. The mood in stock across the board is a little bearish. The jobless claims reading jumped to 861,000, a four week high, the continuing claims update was 4.49 million while economists were expecting 4.41 million. The Philly Fed manufacturing reading for February was 23.1, down from 26.5 in the previous update but it was better than expected. Import prices in January increased by 1.4%, which was a big rise from the 1% growth in the previous update. Overall, the data updates were mixed but the Philly Fed and import price readings are likely to keep traders a little worried about the prospect of higher inflation.
Walmart delivered mixed fourth quarter figures, hence the dip in the stock price. EPS was $1.39, undershooting the $1.50 forecast. Total revenue grew by 7.3% to $152.08 billion, also beating analysts’ estimates. US comparable store sales excluding fuel increased by 8.6% ahead of estimates. Online sales in the US jumped by 69%. Walmart’s outlook wasn’t as optimistic as traders had hoped so that took the shine off the rest of the figures. It expects full year net sales to grow by a low single-digit percentage, which was revised down from the 8.5% guidance issued in November. Annual EPS is tipped to be flat or grow fractionally, and analysts had pencilled in 2.2% growth.
SunPower, the renewable energy company, has been in focus lately as there has been a lot of talk about President Biden being in favour of policies that are more environmentally friendly. Fourth quarter revenue was $341.8 million, undershooting the $355.8 million forecast. Looking forward to the first quarter, equity analysts were expecting revenue of $328.8 million but SunPowers’ guidance was $270-$330 million.
The US dollar index is in the red after two days of gains, it was already sliding before the mixed economic reports were posted from the US, the currency came under pressure on the back of the updates. It was a quiet day in terms of economic announcements from Europe. GBP/USD and EUR/USD have been given a hand by the negative moves in the dollar.
The CMC GBP Index is the standout performer of the session as it is up over 0.4%, it hit a new 11 month high. Sterling has been strong lately because of the UK’s vaccine distribution scheme is one of the best in the world. Dealers are snapping up the pound as they are taking the view that Britain will begin to relax some of its restrictions sooner than other European countries.
Bitcoin has cooled a little but it was traded above $52,000 last night.
Gold was treading water earlier in the session following the two-and-a-half-month low that was set yesterday, but it has rolled over again. Even though the metal typically benefits from a softer dollar, it drifted into the red. Recently some people have been referring to Bitcoin as digital gold so the rally in the cryptocurrency could be detracting from the demand for gold.
WTI and Brent crude oil saw a jump in volatility following the release of the EIA data, whereby US oil stockpiles fell by 7.25 million barrels, while traders were expecting a drop of 2.42 million barrels. The news helped oil pull back some of its earlier losses.