UK Earnings disappoint; Wall Street Under Pressure - market close commentary

UK Earnings disappoint; Wall Street Under Pressure

The FTSE struggled under the weight of disappointing earnings and a stronger pound for much of the day. Heavyweight BHP Billiton and HSBC failed to live up to expectations, pulling the sectors lower.

HSBC shares drop 3.6% as bank returns to growth

On the plus side, HSBC returned to growth for the first time in 6 years, however, it fell short of expectations, whilst failure to announce a share buy back also proved to be unpopular. Share in HSBC fell 3.6% across the day.

HSBC is the first of a string of banks to report across the week, whilst expectations had been reasonably high, HSBC’s disappointment has seen investors reassessing expectations for the week and the sector is down 2%, the biggest sectorial decliner.

BHP Billiton disappoints despite 25% increase in profits

Heavyweight miners were also under pressure throughout trading today after BHP Billiton failed to live up to expectations. BHP reported the strongest half year performance since 2015, supported by robust metal prices and even handed out an extra $800 million to shareholders as it forecast rising cash flows in the second half, however this was insufficient to compensate for the miners lower than forecast bottom line. BHP lost 4.4% from the value of its share price. The sector read across meant the mining sector as a whole was 1% lower.

Pound spike over $1.40 on Brexit optimism

The pound hit a nadir of $1.3931 in early trading, however this was quickly reversed on Brexit optimism. Following a key speech by Brexit Secretary David Davis the pound spiked higher. Previous Brexit hardliner Davis, appeared to be pursuing a much more amicable divorce and a closer alignment to the EU. Whilst there is still confusion as to what the UK position for Brexit is, the cabinet are due to meet on Thursday to try to define it once and for all.

Interestingly the spike higher was short lived and GBP/USD has since dipped back below $1.40 as dollar interest remains strong owing to higher treasury yields. Today’s choppy price action is an acknowledgment of the lack of fundamental indicators driving price action and this is set to change tomorrow. We expect tomorrow UK wage data and the FOMC minutes to act as strong determinants for GBP/USD’s near-term direction.

US returns after long weekend to a negative start

US traders returned to a negative start on Wall Street as yields climbed to multi year highs. The higher yields continue to keep US markets jittery, as concerns that the Fed will raise rates faster than anticipated are dampening investor appetite for stocks. Whilst the US markets had snapped back fairly convincingly last week, technically, this recent pull backs suggests there is a potential to retest recent lows. The giddy optimism of January, is being replaced with a certain level of scepticism, which is not a bad thing and should not be confused with outright fear, which doesn’t appear to be in the equation right now.