Banking profits jump as government actions minimise losses

Stocks are treading water today, as fears around monetary tightening grow thanks to an overnight rate decision from the RBA. Meanwhile, banking stocks in Europe are gaining ground as government measures help minimise losses. 

• Nasdaq lags as hawkish RBA highlight fears of monetary tightening
• Raft of financial earnings in Europe highlight importance of government support
• Emerging market exposure sees Standard Chartered recovery lag 

A largely mixed affair for European and US stock markets today, with the Nasdaq leading the declines despite another move lower for US 10-year yields. An overnight rate decision from the RBA further raised fears over an impending period of monetary tightening, with the bank opting to stick with the plan to begin tapering in September as inflation takes hold. Despite energy prices lifting many of the headline inflation gauges, it is growing clear that central bankers are losing their belief that this rise will simply be fleeting in nature. A somewhat quiet economic calendar has seen the US factory orders continue to grow, with new orders rising by $7.4 billion to $506 billion in June. Nonetheless, good economic news does not always translate into good news for stocks, with the threat of tightening at the Fed hurting the highly inflated growth stock valuations seen on the Nasdaq.

Today has seen yet another bout of European financial earnings, with the likes of Standard Chartered, Société Générale, and Bank of Ireland all providing impressive numbers as the economic recovery takes shape. Unfortunately, Standard Chartered have failed to really gain traction thanks to their highly internationalised profile, with the easing fears around Indian Covid cases now shifting towards another major market in Indonesia. Elsewhere, the theme seen throughout many of the banks remain the same, with the recovery of bad loan provisions providing a significant boost to the bottom line. Much of the thanks should go to governments though, with supportive measures helping to minimise the economic fallout of what could have been an incredibly damaging time for businesses. With all this cash sloshing about it should come as no surprise to see banks throughout Europe employ a mixture of share buy-backs and dividends after restrictions on such actions were finally removed.