European markets have got off to a positive start today ahead of the latest US Q2 GDP announcement which is due later today and is expected to come in at its highest level in years, boosted by build-ups in inventory and the January tax cuts by the Trump administration.
BT Group (LON:BT) is leading the gainers after reporting Q1 numbers which came in better than expected. Revenues came in at £5.72bn, down from the £5.8bn in Q1, but above expectations of £5.7bn, while pre-tax profits rose to £816m. While these numbers are an improvement, and the company’s outlook was left unchanged, we still have no clues as to a succession plan for departing CEO Gavin Patterson.
BP (LON:BP) shares have slid back after it announced it was buying BHP's (LON:BLT) US shale assets for $10.5bn, ahead of next week’s trading update where there is some concern that it might fall short of expectations given this week’s disappointing update from sector peer Royal Dutch Shell (LON:RDSa). Any thoughts that BP might be looking to pay down its $40bn debt pile appear to have reduced on the back of this acquisition and while oil prices remain in their current sweet spot, one can’t help thinking that BP management are leaving it late to do so. This remains the company’s Achilles heel in the event of another downturn.
With UK banks set to start reporting next week, Spain’s fourth largest bank Banco de Sabadell (OTC:BNDSY), and its UK subsidiary TSB has had a quarter to forget, its shares sliding to a one year low after reporting a €138.7m loss for the quarter, with investors expecting a profit of €63m.
Not only has it had to contend with the low and negative interest rate environment of the European Central Bank, but it is still in the process of offloading a good proportion of its non-performing loan portfolio. This month alone the bank has sold real estate assets of a gross book value of €12bn, €9bn of which went to hedge fund Cerberus Capital, and the remaining €3bn which went to Deutsche Bank (DE:DBKGn) and Carval Investors for an undisclosed amount.
If the recovery in the housing market continues we can expect this run down in bad loans to continue, but with the recovery looking as if its plateauing, this could prove challenging, with lending likely to be constrained by the fall in its CET ratio.
Add in the problems at UK subsidiary TSB (LON:IL0A)and the botched IT rollout, where the effects are still being felt, and it is no surprise the bank has had to set aside a charge of €203m (£176m) in respect of fraud losses and customer complaints. The problems here are likely to hang over the business for a while, given the reputational damage to the bank in its UK market, which is likely to limit customer growth for quite some time. A slowdown in lending isn’t likely to help either given recent warnings by the Bank of England as a tightening of credit standards along with a slowdown in the mortgage market inhibits its ability to restore confidence in its brand.
Not for nothing did it become known as Total Shambles Bank and it will take some time and effort on its part to shake this moniker off over the coming months.
Last night’s Amazon (NASDAQ:AMZN) numbers have tempered some of the pessimism behind the disappointments from Facebook (NASDAQ:FB) and Netflix's (NASDAQ:NFLX) recent numbers. Amazon beat expectations on profit and should see yesterday’s 3% decline in the share price reversed when it reopens later today.
On the earnings front oil majors Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) are due to report their latest numbers while the latest US Q2 GDP number could be a key bellwether in assessing the glide path for the next moves in US interest rates, with the US 10 year edging back towards that 3% level that has thus far proven to be a tough nut to crack, on a sustained basis.
Dow Jones is expected to open 50 points higher at 25,577
S&P 500 is expected to open 7 points higher at 2,844
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