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FTSE 100 set to fall despite strong HSBC profits as India’s Covid woes hit sentiment

Jim Armitage
·4-min read
A sign for a branch of HSBC (PA Wire)
A sign for a branch of HSBC (PA Wire)

The FTSE 100 was today set for another mixed session as India’s appalling Covid pandemic kept a lid on share price gains expected from strong HSBC profits.

Wall Street put in another strong performance last night, particularly from the tech-heavy Nasdaq, and HSBC topped City forecasts with a 79% jump in quarterly profit, but shares were set to remain on edge.

The FTSE 100 was being called down 4.3 points at 6962 by traders on the IG platform.

HSBC chief executive Noel Quinn said: “The economic outlook has improved, although uncertainties remain.”

The bank is one of the most heavily-weighted stocks on the FTSE 100 and is currently in the middle of a major overhaul to scale back underperforming businesses in Europe and the US to focus on its core Asia business. Around 35,000 jobs are being cut.

Talks to sell its French operations have been dragging on and today’s first quarter earnings figures brought little “new” news.

Jefferies analyst Joseph Dickerson was first out of the traps to comment, declaring the figures “strong”, beating forecasts easily on revenue and credit. Credit costs were way lower than expected, largely thanks to the UK. That said, he still only rated the stock “Hold.”

Quinn’s relative optimism on the economy were echoed by a survey from Consensus Economics, which averages forecasts, showing economists are being more rosy about their outlook for the UK economy thanks to the vaccines rollout.

Top economists now reckon the economy will grow 5.4% this year compared with their view in February which was for 4.2% GDP growth in 2021. Many are even more bullish than that. EY Item Club yesterday upgraded its growth forecast to 6.8%.

Goldman Sachs last night said Britain’s GDP should grow faster than the US, pitching in with a prediction of a “striking” 7.8% this year against 7.2% for the US.

Tesla shares could be in for a mixed time of it when they open this afternoon. Figures published after the market closed last night showed strong revenue growth but weaker than expected profit margins as it was hit by higher supply chain costs. Or, as Elon Musk, CEO put it: “insane difficulties with a whole range of parts.”

Semiconducter shortages have plagued carmakers around the world, while quarantine restrictions on travel in China had also been a problem, he said.

Margins were also skewed downwards because sales of its older, more profitable, S and X models were falling as new versions were being launched which are not yet up to the old margin levels. That transitioning of the production made for a tricky set of earnings figures to read and analyse.

The shares are likely to fall, which could hit big UK investor Scottish Mortgage Investment Trust today.

Numis analysts issued a Buy note on Funding Circle, saying it had proved doubters wrong so far during the downturn. “Slaying the dragon and building the moat” was the title of the bullish research which pointed out that it had secured record new lending last year, its worst loans had performed well and it posted profits in the second half of 2020.

“We like it when the bull case builds momentum, and fundamentally doesn’t change, defeating the bear case, which is forced to evolve into something new,” Numis concluded. It has a 450p target on the shares - 10p higher than its float price of two years ago and dramatically higher than today’s 160p.

Travel and leisure sector stocks had a strong session yesterday on reports of a limited transatlantic route for tourists to the UK and Europe. Airline stocks and aero engines maker Rolls-Royce fared well, although such gains have tended to fall prey to profit taking in recent weeks.

Oil prices fell yesterday on the back of concerns for India’s tragic Covid disaster. Concerns are running high that the virus sweeping through the populous country will spread beyond its borders and form powerful new mutations. The hit to crude prices took some of the strength out of the FTSE but could see a partial reversal today. IG is pricing in a 0.8% rise in Brent crude today.

Equity markets in Asia were subdued today as the latest Federal Reserve meeting gets underway in the US. Little change in policy is expected. Likewise, Japan’s central bank left things as they were today, albeit while nudging up growth forecasts to 4% from 3.9% for this year despite new Covid outbreaks.

CMC Markets was calling the Dax in Germany down 10 at 15286 and France’s CAC 40 down 5 at 6270.

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