The FTSE is gently higher and the pound is mixed against the majors as Britain is still counting the votes from yesterday’s local elections. After months and months of high-pitch Brexit drama this was the first chance for voters to show what they think and that they did, punishing both major parties with significant losses.
On the count so far the Conservatives have lost 350 seats while Labour yielded 80 of theirs, mostly to the Liberal Democrats and to independents.
London stocks were largely unperturbed by the results as clearly bigger decisions await between now and October. HSBC took the lead among the gainers, having reported a 31% increase in pre-tax profits and rising income from its Asian operations. Miners, resources companies and other financials were also among the top risers this morning.
Trade talks cap Asia progress, Fed comment hits US stocks
In Asia, Japan remains closed for holidays but the other markets nudged lower on some weariness over the outcome of the latest round of US-China trade sparring. The trade talks, which were held in Beijing, ended Wednesday possibly with less progress than the markets hoped for. Very few details about the actual results were released which led commentators to speculate that little has been achieved in the round.
In US markets, one word from the Federal Reserve chairman Jerome Powell – calling inflation transitory - triggered a selloff on Wall Street and hit US bonds Wednesday. Investors read this to mean that if inflation really is not under control as the comment implied, this could prompt the Fed to go back to raising rates later in the year - despite saying now that there is no need for it - thus capping US equity rallies that have seen the three main indexes riding at record highs.
That’s why US jobs data later today will be looked at more closely than usual for signs about where the US economy is really at. The dollar is oscillating in a narrow range against the majors, barely stronger against the pound and the euro but unchanged against the yen.
HSBC’s growth in Asia
Strong growth in Asia has helped drive a forecast-beating profit performance for HSBC in the first quarter.
The Asian division accounted for 79% of pre-tax profit over the period, indicating just how much HSBC is benefiting from its exposure to the Chinese economy compared to its more domestically-focused British peers.
Chief executive John Flint is starting to get a better handle on expenses, cooling concerns that he'll have to trim crucial investments in digital technology this year to balance the books.
To be sure, there are a few negatives to note in today's earnings update.
Credit impairments have jumped to $585m as Brexit uncertainty hurts businesses in the UK. The bank's net interest margin is also under pressure, slipping 8 basis points to 1.59%, amid increasing competition from challenger banks and fintechs.
Continuing to invest in technology will be a key requirement for Flint if HSBC is to remain competitive long into the future, particularly as China's economy cools.
Trade talks between the US and China appear headed in a positive direction and the IMF recently upgraded its GDP growth forecast for China this year to 6.3%. But the Chinese economy can't grow at a blistering pace for ever and the IMF also downgraded its outlook for GDP growth in 2020 to 6.1%.
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient.
Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.