21 Feb 2017
By Ipek Ozkardeskaya
FTSE, GBP softer into inflation hearings
HSBC shares gapped 5% lower at the London open, after losing up to 4.3% in Hong Kong following the announcement of disappointing fourth quarter results. The fourth quarter profit missed estimates, as the bank printed $2.62 billion adjusted pre-tax profit versus $3.78 billion estimated by analysts. On unadjusted basis, HSBC published $3.4 billion loss in Q4.
Moreover, the announcement of an additional $1 billion worth of share buyback plan, in addition to $2.5 billion already spend, also disappointed investors.
Although the bank’s multi-year long cost cutting program has proved inefficient so far, prospects of higher global interest rates, combined to HSBC’s diversified business portfolio, and especially its solid presence in Asia, could provide an important competitive advantage compared to the UK banks through the Brexit years. HSBC’s restructuring efforts could finally translate into better performance in 2017.
Still, the demand in HSBC stocks remain relatively balanced, despite the Trump-triggered reflation rally in global banking stocks. According to Bloomberg, only one analyst out of four recommends buying HSBC stocks, as 55% prefer to stay sideways.
FTSE downbeat despite soft pound
FTSE 100 opened downbeat, as HSBC shred 28 points off the index. Banking stocks lost 0.50%.
Barclays (-1.05%), Standard Chartered (-1.97%) and Lloyds (-0.68%) joined the bears.
UK’s mining lead gains on firmer oil and commodity prices.
BHP Billiton (+1.61%), Rio Tinto (+0.97%) and Anglo American (+2.21%) diverged positively.
Cable is offered heading into the Bank of England’s (BoE) inflation report hearings. Today, BoE governor Mar Carney will testify on inflation and the economic outlook before Parliament’s Treasury Committee. Despite the recent rise in the UK’s consumer prices, the BoE Governor Mark Carney could talk down the rising inflationary pressures by insisting that the positive pressures on wages could ease, as the UK’s labour market nears the full-employment. If this is the case, we could see a pound recovery above the $1.25 against the greenback. The key resistance stands at $1.2575 (minor 23.6% retracement on post-Brexit decline).
Lower hedge fund liquidity is a rising risk in US stock markets
The US dollar was better bid against all of its G10 counterparts. The US 10-year yields advanced to 2.4486%, as the Philadelphia Fed’s Harker said there is a ‘strong case for March rate hike if PCE supports’.
The Dow Jones and the SPX futures were little changed as the US prepares to return from the President’s Day bank holiday, while the Nasdaq futures (+0.41%) were well bid in Asia. Recent researches warn that drying hedge fund liquidity could amplify a downside correction in the US stock markets.
The US stocks are set for a flat-to-soft open in New York.
AUD-appetite swings between rising commodity prices and waning carry appetite
Higher US yields particularly weighed on the yen (-0.41%) and the Antipodeans (AUD -0.48%, NZD -0.71%).
The AUDUSD rebounded lower from 0.7691 after the Reserve Bank of Australia (RBA) meeting minutes revealed rising concerns regarding the appreciation in the Aussie, which has recently benefited from the recovery in commodity prices. The RBA minutes stated that the steady rates are appropriate and warned of significant downside risks to the global growth due to Donald Trump. Despite a weak carry appetite, the sell-off in AUDUSD remained capped by the 3.76% rally in iron ore prices. Resistance is eyed pre-0.7700, before 0.7730 and 0.7775/0.7800 area, while a pullback towards the 0.75 mark could encourage short-term buying interest, should the appetite in the US dollar steadies, or wanes.
EURUSD set for a deeper sell-off toward 1.05
In Europe, the single currency is subject to rising selling pressures due to the upcoming European election worries, the eventual rise of anti-European leader Marine Le Pen in France and Greek debt talks.
Released this morning, the divergence between the German and French PMI figures also revived concerns regarding wider political disparities at the heart of a union in crisis. As the EURUSD’s negative trend gains pace, upside attempts could be interesting top selling opportunities, as long as the pair trades below the critical 100-day moving average resistance (1.0666). The key short-term support is eyed at 1.0520 (last week’s dip), before a deeper sell-off to the 1.05 mark.