European markets weaken despite UK reopening

UK stocks are on the back foot despite today’s widely-heralded first stage of the reopening plan. Meanwhile, the focus shifts towards US earnings, with banks first up. 

• European markets decline as markets prepare for Q1 earnings season. 

• Banks in focus after recent Archegos volatility.

• UK markets weaken despite reopening.  

European markets are kicking off a new week in a somewhat subdued fashion, with the recent focus on vaccination efforts and relative levels of lockdown giving way to a week where earnings seen to take precedence. With US Q1 earnings season underway this week, we finally see a measure of just how far companies have come since the onset of the crisis. Certainly, the virus only really took hold towards the latter part of Q1 2020, yet that ability to gauge how firms are faring a year on from that initial shock will provide a useful barometer of who has been able to adjust most effectively. The US banks take centre stage for this first week, and whilst the incessant rise in US markets would ordinarily indicate outperformance for the investment banks, we are instead focusing on the likes of Goldman Sachs and Morgan Stanley for a very different reason. While initial accounts highlight a swift and clean exit from their Archegos Capital Management positions, there will be plenty of interest in just how well they have managed to avoid the kind of losses seen at the likes of Nomura and Credit Suisse. Banks are progressively likely to garner the interest of investors as we move through this crisis, with expectations of rising interest rates and economic rebound meaning that we could see an increasing interest in the pro-cyclical sector.  

The UK markets appear to be showing signs of ‘sell the fact’ move today, with high-street names weakening on reopening day. The reopening of non-essential stores, pubs, gyms, and hairdressers provide hope that the worst is now behind us. Certainly, Boris Johnson will be desperate to ensure that there are no more lockdowns from here on in. Certainly, with the UK now having over 70% of the population protected through vaccination or having caught and recovered from Covid, the basis is there for the UK to finally enter a new pathway towards normality.  

Ahead of the open we expect the Dow Jones to open 95 points lower, at 33,705.