Evening market comment: Wall Street Rebounds On Corporate Earnings, FTSE Follows

Wall Street Rebounds On Corporate Earnings, FTSE Follows.

The FTSE lacked direction across the morning session but as Wall Street opened higher, rebounding after Thursday’s selloff, the FTSE followed suit. Disappointing results from Intercontinental, a broker downgrade for EasyJet and a stronger pound were later overshadowed by a strong opening rally on the Dow.

Big names Proctor & Gamble, PayPal and Schlumberger posting better than expected earnings soothed and lifted the market after a volatile week of trading. There is no denying that US earning season is off to a strong start. With over 15% of S&P firm having reported an impressive 83% have surprised to the upside according to FactSet. Whilst the markets were expecting a solid earning season even before it started, the concerns surrounding forward guidance so far haven’t materialised.

More wiggle room for Hammond

The pound was showing some signs of life after falling for the past two sessions. News that the government deficit has fallen to its lowest level in 11 years nudged the pound higher. The news will be well received by Chancellor Philip Hammond as he prepares for the Autumn Budget in 10 days. The extra coffers will be a token gesture towards the extra spending that Theresa May promised with the end of austerity but will not be anywhere near enough to cover the shopping list. Hammond has limited room for manoeuvre, the reality is that Hammond is unlikely to unveil huge spending plans just 5 months prior to Brexit, particularly given that we have no idea what shape Brexit will take.

Italian banks lower: Downgrade for Italy next week?

As the European Commission criticised Rome’s draft budget proposal as a clear deviation from budget rules, Italian debt came under renewed selling pressure. Italian banks have tumbled across the week and are trading at their lowest level in 18 months as fears over the country’s debt and its financial sector refuse to go away. Italian banks such as UBI Banca, Banco BPM and UniCredit declined between 3.5% - 5.5% as they are directly exposed to sovereign debt through their holdings of Italian bonds.

The spotlight on Italy, its debt and the FTSEMIB will continue on Monday, when the Italian government is expected to respond to the European Commission. With neither side showing any sign of backing down it could in fact be the market that decides. With concerns of another debt crisis rising and S&P Global widely expected to downgrade Italy’s credit rating, the Italian government could find themselves backed into a corner by market forces rather than succumbing to the European Commission.