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Banks higher despite poor earnings

We are in the thick of earnings season now with 24% of companies having already reported in the US, 22% in Europe and 10% in Japan.

Despite speculation that the BOJ will act agressively in a bid to stoke inflation, Japanese stocks fell for a third day withToshiba announcing $6.2 billion operating loss on year to March  and safe haven buying keeping the yen stronger against the greenback.

Energy and oil markets are consolidating gains, while commodities slumped in Asia. Chinese authorities have clamped down on excessive speculation – the main driver for the price boost in iron ore and other metals of late. Dalian iron ore lost up to 4% , coming off a 20-month high after the authorities raised transaction costs to temper the recent price volatility. Hence, the direction of AUDUSD is the main casualty here. It trades at 0.7697 against the greenback.

Equity markets are trading between a rock and a hard place –with one eye on earnings and another on FOMC action, the major US indices are trading below their 2016 highs but could push higher based on some of the technical indicators. For example, the S&P is showing a golden cross (positive cross of the 50 DMA thrpugh the 200DMA)

Apple and Twitter release their results today and expectations are nothing short of gloomy. Apple may have seen a down turn in iPhones sales for the first time in its history. The first year-on-year decline in iPhone sales is however majorly factored in the share price, down by 20% over the last twelve months. Broker estimates on Apple earnings have been lowered substantially since the beginning of the year – the tech giant is expected to post declines in revenue and earnings for its quarter ended March 31 and it faces tough year-over-year comparisons in the June and September quarters. Revenue is expected to drop 10% to $52 billion on earnings of $2 per share, compared with $2.33 in the year-ago quarter.

The two-day FOMC meeting starts today. The last dot plot hinted at two Fed rate hikes before the end of the year. Regardless of the Fed outlook, the US sovereign markets price in less than 50% probability for a rate hike to happen within this year.

Some are however expecting that in line with the word ‘gradual’, a hike as early as June or July cannot be ruled out.
Later sees the release of US services PMI (exp. 52.3, prior 51.3) and Consumer confidence (exp. 95.8, prior 96.2) – both of which might provide some additional colour on the state of the economy for Fed members.

European markets are marginally higher on the day with mining sector continuing yesterday’s theme and maintaining its drag on the index

The financial sector, is leading the charge nevertheless with StanChart elbowing its way to the top of the index despite profits in the first three months of this year falling around 59% from a year ago. Revenue fell in every single business line coming in at $3.35bn – marginally short of the $3.49bn expected. The stock is up 8%, ultimately undoing the losses from yesterday. In context, the stock has essentially gone nowhere year to date and now trades at its 2016 opening level.

BP (+2.64%)
a surprise first-quarter profit as a stronger-than-expected refining and trading performance has helped mitigate the impact of sliding crude prices.

Whitbread (+3.57%)
top of the index - pre-tax profit for the year ended March 3, was up 5% to 487.7 million pounds ($701.2 million) compared with GBP463.8 million, as revenue notched GBP2.92 billion from GBP2.61 billion. The company raised its full-year dividend by 10% to 90.35p  from 82.15p.

British American Tobacco (+1.18%)
In the three months to 31 March, revenue rose 1.7%. The cigarette maker also stated that profit growth could be weighted H1 owing to the timing of the effect of transactional foreign exchange headwinds and higher selling prices.

Land Securities (+2.68%)
has sold more of its land at Ebbsfleet Garden City to house builder Taylor Wimpey (+2.68%). Taylor Wimpey has snapped up 539 residential plots at Castle Hill, joining Ward Homes and Persimmon, which in total are building 1,550 homes in this area of the Garden City, of which 375 are affordable.