The blue-chip FTSE 100 index rose 0.3%, with banking shares gaining after a series of brokerage upgrades and price target hikes.
Asia-focused banks HSBC Holdings and Standard Chartered jumped 1.8% and 0.5%, respectively, after Barclays raised price targets on the stocks. RBC also upgraded HSBC to “outperform” from “sector perform”.
However, gains on the FTSE 100 were capped by miners Rio Tinto and Anglo American, which slipped 2.7% and 3.6% after Morgan Stanley cut its price targets on the stocks.
The domestically focused mid-cap FTSE 250 index advanced 0.5%.
British retail sales dropped 0.9% on the month in August versus a Reuters poll for a rise of 0.5%, after data earlier this week pointed towards a sharp recovery in the jobs market and a spike in inflation.
Investor focus will now be on the outcome of Bank of England’s (BoE) policy meeting next week.
“Next week’s policy decision should reaffirm that some tightening will be needed over the next few years to keep inflation (and the economy) in check. But we don’t expect the BoE to conclude that there is a sufficient case yet for near-term rate hikes,” Deutsche Bank economist Sanjay Raja said.
Airlines Wizz Air, Ryanair Holdings and British Airways owner IAG, and holiday company TUI AG rose between 1.2% and 4.7%, as Britain was set to consider easing its COVID-19 rules for international travel.
“The hope will be that a shift in the rules is the precursor to people jetting off for autumn and winter getaways,” said Russ Mould, investment director at AJ Bell.
Wickes Group jumped 5.6% to the top of FTSE 250 index after Deutsche upgraded the DIY retailer to “buy” from “hold”.
The pan-European STOXX 600 was down 1.6% at a two-week low, with mining stocks sliding 4.2% in their biggest one-day decline since March.
Luxury stocks with a large exposure to China’s economy such as LVMH, Kering and Richemont dropped between 5.8% and 9.2% on Beijing’s plans to target excessive corporate profits and wealth inequalities.
“The increasing determination on the part of China to pour sand in the wheels of its own recovery story with a crackdown on various sectors, including tech and luxury, also appears to be weighing on sentiment, as well as on demand for raw materials,” said Michael Hewson, chief market analyst at CMC Markets UK.
Stocks around the globe fell earlier in the day, as minutes published Wednesday from the U.S. Federal Reserve’s latest policy meeting gave the impression of a looming cut in its massive, pandemic-era bond-buying programme.
Although the European Central Bank has held steady, rising inflation has prompted some policymakers to say it must begin to rein-in its easy money policies that have been instrumental in lifting the STOXX 600 to record highs.
Focus will turn to the high-profile annual U.S. Jackson Hole conference of central bankers in late August, where Fed Chair Jerome Powell could signal he is ready to start easing monetary support.
ECB President Christine Lagarde will not attend the conference, an ECB spokesperson said this week.
Banking stocks including Asia-focused HSBC, as well as Spain’s BBVA and France’s BNP Paribas fell about 3% each.
The travel and leisure index declined 2.5% as a surge in cases of the Delta variant of the coronavirus added to concerns of slowing global growth and took the shine off a solid second-quarter corporate earnings season.
With the European earnings season nearly at the halfway mark, profit for STOXX 600 companies is expected to have surged 150% in the second quarter, the best since Refinitiv IBES records began in 2012.
Among individual stocks, Swedish heating technology specialist Nibe Industrier jumped 10.1% after posting a 64% jump in first-half profit.
Swiss building materials supplier Geberit, on the other hand, fell 1.7% as it warned about rising raw materials prices.
Utilities , considered a safe bet at a time of economic uncertainty, were the only sector in the green.
Encouraged by an economic rebound in Hong Kong and Britain, its two biggest markets, HSBC reinstated dividend payments and released $700 million that had been set aside to cover potential bad loans. That compares with $6.9 billion in loan-loss provisions made in the same period a year ago.
Pretax profit for Europe’s biggest bank by assets came in at $10.8 billion versus $4.32 billion in the same period a year earlier and was higher than the $9.45 billion average of 15 analysts’ estimates compiled by the bank.
Revenue, however, fell 4% due to the low-interest rate environment.
HSBC said given the brighter outlook globally as economies recover better than expected from the pandemic, it expects credit losses to be below its medium-term forecast of 0.3%-0.4% of its loans.
The bank also said that for the year, it could even make a net release of funds from earlier provisions rather than add to them, but it was hard to say definitely due to the unknown impact of government support programmes, vaccine rollouts and new strains of the virus.
It plans to pay an interim dividend of seven cents a share after the Bank of England scrapped payout curbs last month.
Reflecting its better than expected loan performance, HSBC will move to within its target payout range of 40-55% of reported earnings per share within 2021, it added.
(Reporting by Alun John in Hong Kong and Lawrence White in London; Editing by Edwina Gibbs)
Banks are required to issue MREL, or minimum requirement for own funds and eligible liabilities, which is a form of debt that can be written down to absorb losses and avoid repeating the 137 billion pound ($188.6 billion) taxpayer bailout of lenders in Britain during the financial crisis more than a decade ago.
The targets were set under European Union rules, which Britain now can amend more easily after leaving the bloc last December.
“Making it easier for firms to grow into MREL responds directly to firms’ concerns about barriers to growth created by the step up in MREL requirements as firms expand their balance sheets,” Bank of England Deputy Governor Dave Ramsden said in a statement.
The central bank has authorised 27 new banks since 2013, but Lloyds, Barclays, HSBC and NatWest continue to dominate retail lending and the so-called challenger banks have said that blunt thresholds for issuing MREL create a “cliff edge” that holds them back from building market share.
The BoE proposed replacing its indicative threshold of 15 billion to 25 billion pounds with a notice period setting out when a lender can enter transition to its MREL targets if the company grows beyond 15 billion pounds in total assets.
The central bank would assess a lender’s business plan as it approaches the 15 billion pound threshold and issue a bespoke transition path.
“The banking industry must now assess the implications of the new regime in terms of ability to compete, and highlight any potential challenges to how they serve customers or change their business models as a result,” said Tom Groom, a financial services partner at consultant EY.
The proposals for an extended transition path directly respond to calls for change, the BoE’s Ramsden said.
“They are inherently flexible and agile as they allow for a further extension if unforeseen circumstances demand it,” Ramsden said.
Challenger lenders Metro Bank, TSB and Co-op Bank did not respond immediately to requests for comment.
Liao, who was HSBC’s head of global banking for Asia Pacific, and Rosha, who was CEO of HSBC India, will continue to run the region as a single entity and be based in Hong Kong.
Wong has been CEO of Asia Pacific since February 2010. Last year he sparked a backlash from the British and U.S. governments when he signed a petition backing China’s imposition of a national security law on Hong Kong, breaking years of neutrality for the UK-based, Asia-focused lender.
Wong is to become non-executive chairman of HSBC Asia Pacific, replacing Laura Cha.
(Reporting by Rachel Armstrong, Editing by Himani Sarkar)
HSBC cautioned, however, that uncertainty about a global recovery meant it was unlikely to sustain that level of reduction in the $3 billion bad debt provision it had set aside a year ago as the pandemic took hold.
“We are still are being relatively cautious, and we’ve retained about 70% of the reserve build up we did last year,” Chief Financial Officer Ewen Stevenson told Reuters.
“Some of that you would expect to unwind over the next year or so, but we don’t know we are going to see a repeat of what we just saw,” Stevenson said.
Europe’s biggest bank by assets posted profit before tax of $5.78 billion for the three months ended on March 30, up from $3.21 billion a year ago and well above an average analyst forecast of $3.35 billion compiled by the bank.
Hong Kong-listed shares of HSBC rose as much as 2.5% to their highest since April 20.
HSBC, which makes the bulk of its profits in Asia, said its credit losses for 2021 were likely to be below the medium-term range of 30-40 basis points it forecast in February.
“We are more optimistic than we were back in February, we expect GDP to rebound in every economy in which we operate this year,” Chief Executive Noel Quinn told Reuters, citing the successful rollout of vaccines in the U.S. and Britain as a key factor.
Still, HSBC’s improved outlook and profits paled in comparison to U.S. rival JPMorgan, which earlier this month reported a 400% increase in quarterly profit and released more than $5 billion in bad loan provisions. HSBC’s fortunes are heavily tied to global interest rates. Revenue fell 5% in the quarter from a year ago as low interest rates in its main markets constrained the bank’s ability to generate large revenues from lending.
Hibor, the benchmark lending rate in HSBC’s most profitable market of Kong Kong, was near ten-year lows for much of the quarter.
FRENCH BUSINESS SALE ONGOING
HSBC in February announced a revised strategy to focus mainly on wealth management in Asia, aiming to earn more revenue from client fees rather than the difference between the interest rates the bank offers savers and charges borrowers.
HSBC said on Tuesday it was continuing negotiations for the sale of its French retail banking business, but no final decision has been taken. Reuters reported last month that HSBC had entered final negotiations to sell the business, which has 270 branches, to private equity firm Cerberus.
HSBC is the first of Britain’s big banks to announce first quarter earnings. Lloyds Banking Group is due to report on Wednesday, Standard Chartered and NatWest Group on Thursday, and Barclays on Friday.
(Reporting by Lawrence White; Editing by Tom Hogue and Jane Wardell)
Nine banks provided the facility, with Citi and First Abu Dhabi Bank having lead roles in the transaction, the first source said on condition of anonymity.
The source added that HSBC and Standard Chartered were also involved in the loan for the company, which is owned by Abu Dhabi state holding company ADQ.
Abu Dhabi Ports, FAB, HSBC and Standard Chartered did not immediately respond to Reuters requests for comment. Citi declined to comment.
Issuers in the Gulf have been raising debt, seeking to benefit from low rates as the region emerges from an economic downturn caused by the COVID-19 pandemic and last year’s oil price plunge.
Abu Dhabi Ports was also likely to issue bonds soon, the second said. Fitch Ratings and S&P Global Ratings both assigned the company an A+ credit rating on Thursday.
ADQ, which sovereign wealth fund tracker Global SWF said last month was worth $110 billion, has gained prominence in the past year as Abu Dhabi consolidated several government assets under its banner.
Another ADQ subsidiary, power utility TAQA, raised $1.5 billion in a bond deal last week. Food and beverages group Agthia, also owned by ADQ, mainly used bank debt to finance its acquisition of three quarters of Egypt’s Ismailia Agricultural and Industrial Investment.
(Reporting by Yousef Saba; Editing by Edmund Blair)
Federal Reserve officials are due to issue new economic projections on Wednesday, with an upgrade to GDP growth. Markets predict the Fed may be forced to act sooner than expected in raising rates.
Benchmark 10-year Treasury yields have jumped from 0.953% at the beginning of the year to 1.67% on Wednesday, in the midst of the two-day policy meeting that began on Tuesday. The rise in yields in recent weeks came on optimism about the economic recovery and as the United States readied new fiscal stimulus.
However, a rapid rise in yields can ripple through to other assets, affecting everything from tech and financial stocks to the housing market.
Investors hoping for action from the Fed to cap rising yields on longer-dated Treasuries may be disappointed. While Powell has said he is watching recent Treasury market volatility, he brushed off concerns that the move up in yields might spell trouble for the Fed.
Here are what analysts are saying as the Fed meets:
MIZUHO SECURITIES USA
“There is a risk that the markets will again be disappointed by the post-meeting policy statement,” wrote Steven Ricchiuto, U.S. chief economist at Mizuho Securities USA LLC.
“The Fed’s new operating procedure of targeting maximum employment to finally achieve its 2% average inflation target is designed to see inflation expectations and long-term rates rise. This means policymakers are supportive of recent market developments, i.e. rising long-term rates,” he wrote.
“The risks are… that long yields react further to all this “running hot,” wrote Michael Every, senior macro strategist, Rabobank. Even “a moderate move higher in yields could be painful – and not just to bonds,” Every wrote.
“Bond investors will be wary of perceptions that the Fed could potentially allow the economy to run too hot for too long,” wrote https://think.ing.com/articles/us-what-to-watch-at-the-march-fed-meeting James Knightley, Padhraic Garvey and Chris Turner, at ING, noting that inflation is “set to accelerate to well above 3%.
“We expect the FOMC’s economic and rate projections will be in line with the bond market’s expectations,” wrote Lawrence Dyer, head of U.S. rates strategy and Shrey Singhal, fixed income strategist. “And, we do not expect the FOMC statement or press conference to provide pushback to the recent increase in yields. Thus, there should be a moderate market reaction to the announcement and press conference.”
STANDARD CHARTERED BANK
“We think the FOMC will have a hard time expressing concern about asset markets,” wrote Steve Englander and John Davies at Standard Chartered, while adding that if the Fed’s policy-setting committee and Powell do not “push back against current yield levels, investors are likely to take yields higher as better data arrives.”
“Broader financial conditions remain easy, and luckily for (Powell) the U.S. rates market just got through a week of long supply relatively unscathed, at least until Friday, and Friday’s move did not negatively impact risk,” wrote John Briggsglobal head of strategy, NatWest Markets.
“What I do expect is for Powell to push back against the recent rise in the front end, dot move or not, which has pushed market pricing for the first hike to December 2022, from September 2023 at the beginning of the year.”
BANK OF AMERICA
“The Fed likely hopes market pricing is right, since it implies a faster recovery and more rapid attainment of its inflation and employment goals,” wrote Michelle Meyer, Mark Cabana, Ben Randol, Meghan Swiber and Stephen Juneau at Bank of America.
“Powell is likely to reiterate that higher rates are consistent with a re-pricing of fundamentals… Limited pushback on rate hike pricing will also likely be a disappointment for those expecting a continued ultra-dovish Fed, supporting higher belly rates.”
Intermediate-dated notes, known as the “belly” of the Treasury curve, are more sensitive to rate increases.
(Reporting by Karen Brettell; Additional reporting and editing by Megan Davies; Editing by Andrea Ricci)
New reports of widespread financial corruption likely triggered the current sell-off.
Watch out for market support levels to see if this is a short-term correction or the start of a downtrend.
Support for the DOW is just above 26,000.
Support for the SP500 is around 3,100.
US and global markets were already under pressure over the past few weeks related to COVID-19 issues and global economic expectations. The technology sector had driven valuations to levels not seen since the DOT COM bubble near the end of August and many of the US Indexes has reached or breached all-time highs again. My research team and I warned followers to “stay cautious” throughout much of the price rally as our proprietary price modeling systems suggests the rally was isolated and not organic. The US Fed has spewed capital into the markets and speculative traders piled into the “excess phase” of the market to drive price levels higher. Take a moment to review these recent research posts to learn more:
Before we get into the price charts, we want to highlight the news that is driving much of this selloff in the markets. Early Monday reports (or late Sunday, depending on your location) were published highlighting illegal and nefarious activity by many global banks related to money laundering and supporting criminal rogue elements throughout the globe. The names of the banks implicated include Deutsche Bank, Standard Chartered, Barklays, Commerzbank, Danske Bank and HSBC Holdings. It appears the European and Asian banks had the largest exposure to this activity and risk. There is some talk that Russian banks may have been involved as well (unconfirmed at this time by our research).
What this means for traders is that a broad, global financial crisis may be starting to unfold – this time vastly different than the 2008-09 credit crisis. This event will be centered around illegal and corrupt actions at some of the world’s largest financial institutions and the far-reaching aspects of rogue government or private elements involved in this activity. We believe the markets will attempt to find support after the shock of this news is digested. Longer-term, I believe a broader market downtrend may continue – it’s just a matter of what happens next and how fast global authorities are able to engage in a proper form of legal resolution (indictments).
At this point in time, the news that global banks were acting illegally and improperly may prompt a much broader market downtrend over time. Right now, we believe the initial “shock-wave” will be processed in price and support levels will be found fairly quickly.
This Daily YM chart below highlights the support level near 26,000 that we believe will become the first floor for price as this selloff continues. Our proprietary Fibonacci price modeling system is also suggesting support levels just above the 26,000 are valid (see the RED and BLUE SQUARES on the right side of this chart). My research team believe price will attempt to find support near the 26,000 level as this broad market selloff matures.
This ES Daily chart also highlights the support levels near 3,090 (the lower YELLOW line) and aligns with our proprietary Fibonacci price modeling suggested support levels just above 3,100. We believe this will be the first level of support for the ES if the downtrend continues.
Yes, my team has been warning to stay cautious throughout much of the uptrend and we have highlighted a multi-year Head-and-Shoulders pattern that we believed could prompt a broader market decline. But we were not aware of this illegal activity related to the global banking system. Our research helps to confirm that technical analysis and our proprietary price modeling/research systems can act as clear forward-looking techniques for any skilled traders. The theory that price always internalizes news before or as the news happens suggests that technical analysis will, in almost all cases, highlight the most probable outcome before the news is known. Only in very rare “acts of God” is technical analysis sometimes delayed in reacting to the news.
As a technical analyst and trader since 1997, I have been through a few bull/bear market cycles in stocks and commodities. I believe I have a good pulse on the market and timing key turning points for investing and short-term swing traders.
If you want to survive the trading over a long period of time, then you learn fairly quickly how important it is to protect against risk and to properly size your trades. Subscribers of my Active ETF Swing Trading Newsletter can ride my coattails as I navigate these financial markets and build wealth. My research and trading team are here to help you find better trades and navigate these incredibly crazy market trends.
While most of us have active trading accounts, our long-term investment and retirement accounts are equally at risk. We can also help you preserve and even grow your long term capital when things get ugly (likely now) with our Passive Long-Term ETF Investing Signals. Don’t wait until it is too late – subscribe today!
Chief Market Strategies
Founder of Technical Traders Ltd.
NOTICE AND DISCLAIMER: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research. It is provided for educational purposes only.
The S&P500 chart shows that the recovery been heavily overbought and probably due for more downside correction. The market is not going to recover to previous highs any time soon, and with deflationary pressures in the economy, it is more likely to have a larger move down over the next year to 18 months.
Companies are sitting on mountains of debt that is likely to be downgraded as damaged Q2 earnings reports begin to print this summer. Right now stocks are in a sideways, though highly volatile, lull until we learn the true damage that the shutdowns had on cumulative US production and the supply chain. Early winners are online retail shopping, due to closed shops in the 50 states, while early losers are the hospitality and airline industries. However, the damage will likely run much deeper than this in core pools of economic output.
We expect to see creeping damage in the commercial and residential real estate sectors. All of those millions of lost jobs will eventually result in rising evictions. Those evictions will lead to spiking defaults on real estate loans, causing lenders to beg for more bailouts from the Fed.
All of the above factors will lead to much more easing by the Fed to support a deflating economy. Lenders are beginning to tighten credit, leading to a squeeze on banks desperate to avoid escalating loan defaults that are threatening share holder equity.
Balance sheet gearing of 12-1 and much higher of bank liabilities to shareholder equity means that either the government prints trillions to bail banks out of the credit contraction cycle, or face a financial catastrophe that very well could be many times worse than what we witnessed in 2008-09.
Downstream, brick and mortar food stores will begin to come under much more pressure. The cash handouts to small business owners and hourly workers is a pittance compared with earnings. Part time workers don’t qualify for unemployment benefits in many states, though the CARES act does adjust who can apply for them.
While people are stockpiling supplies now, they will run out of money for food after they default on rent and mortgage payments if the economy doesn’t fully reopen immediately and the jobs are restored. The consumer had no savings to start off with, and the shutdowns are exacerbating existing problems with late cycle credit peak for businesses with falling revenues who cannot take on new employees due to debt service.
Economy Will Turn Up Before Beginning Stronger Contraction
We live in Texas, and our governor began a partial reopening of retail last week by allowing drive-up service. The governor is also expected to announce more reopenings this week, with other states like Georgia and Oklahoma participating.
State governments are somewhat timidly approaching business as usual while watching the COVID infection numbers published in the media. Should they begin to spike again, it is likely we will see some states tighten restrictions and implement new laws on use of masks and gloves in public.
The economies will begin to turn around a bit, but not after the damage has been done. We expect that the late cycle credit bubble has been pricked by the coronavirus, and deleveraging will start in earnest in the financial sector. The Fed will try to backstop the economy, but it would have to print trillions to do so and eventually that game ends. Other nations have already begun de-dollarizing and purchasing up their gold stocks to support central bank balance sheets with the tier 1 asset. The forces are already in place moving the world into a multi-polar economic model.
All of the foregoing is bullish for gold from a fundamental standpoint. Now we look at where gold is trading on the charts and what we expect to happen in the next year.
After the 2008-09 recession, gold rose very strongly and became overbought in 2012, as shown by the stochastic indicator. Gold has been in a bull since 2000 and had returned better than the S&P, DOW, or Wilshire stock indices in that time frame. There was likely to be some profit taking, and that occurred starting in 2011 after gold reached an all time peak.
What we see now in the gold chart is one of two things, and possibly both. We have upside momentum on recent financial fears that started with a rough Q4 of 2018 when the stock markets saw a healthy 20% correction. Since then, gold has been on an impressive run from $1200 up to its current perch in the mid-$1700s.
While the stochastic is flashing overbought, this signal is different than in 2011 when gold had been running up for over a decade. Since 2011, gold has been declining or sideways in all but two and a half of those years, forming the bottom of a cup. This indicates the market building some momentum on the downside which will propel gold forward.
For instance, we see a small head and shoulders form between 2015 to 2017, indicating gold’s run was not over. And during that time the average daily range readings don’t suggest high volatility or an over-extension in trading. In other words, gold has been quietly building momentum when coronavirus came along and provided a reason for gold to run to the upside again. Have we already fired our last shot with gold, or are we premature to the bigger move?
One may think that gold is overbought again and due for correction. Let’s examine why a short term correction in gold is still bullish. If the Fed’s plan works and their easing has a short term supportive effect, we could see banks ease up on tightening credit and businesses will begin to employ again. Anyone who thinks this will not take months for job remediation to occur; however, are banking on the government being able to push button start the economy for the first time in US history. This has never been done before.
If gold corrects, it forms a multi-year cup-and-handle formation which makes the chart immediately more bullish for the next 3-5 years. Given weakening economic fundamentals upon a deflationary wave stretching across the world economy, I expect more gold accumulation on any gold price correction. Upside momentum in gold will continue until the credit cycle resets, likely after a large number of bankruptcies and defaults. Whether that happens now, or 3-5 years from now, is just a matter of timing.