It’s been a stellar start to the week’s trading after US markets reversed their losses late on Friday and Asian markets got proceedings off to a good start. In Europe and the UK this morning’s corporate releases have once again revealed good numbers and it’s the banks that are leading the way.
After good trading updates from Deutsche Bank and UBS last week, already BNP Paribas has announced a great set of results and just now HSBC’s numbers have smashed expectations with a whopping $6.8b net profit.
The raft of UK bank results this week is expected to be good. If the rest of the sector follows in HSBC’s footsteps we can expect little celebrations for politicians who’ll simply call for more to be done by the banks to increase lending to small business. They know as well as investors that banks simply can’t lend more if they’ve just been told to increase their capital requirements to protect against another financial crisis. We’ve constantly pointed this out in this comment, but politicians continue to be hell bent on “bashing the bankers”. Cracks in the coalition are starting to appear, so we can expect this rhetoric to continue in order to curry favour with the voters.
The FTSE’s had one of those rare mornings so far where it’s really shown some strength. Around the mid 5300s now bulls we have an eye on the 5400 level and an attempt at 5450 to record new 3 month highs. With the earnings season showing corporations on the whole being in a much better state that has previously been expected, investors are happy to stick their money into equities. Dividends are being increased left, right and centre and there are few assets returning such good yields, so why would you have your money anywhere else?
From a technical standpoint we’re still languishing below the magic 200 day moving average which we breached back in May and there were calls for the next major bear market. But indices have failed to follow through to lower prices after the initial sell off and a couple of closes above the 5350 area (which is where the 200 day average currently sits) could put an end to this view for the bears.
The strength in equities and increase in risk appetite has served to strengthen the riskier currencies again this morning. Few would have believed if you’d said back in June the EUR/USD would be sitting comfortably back above 1.3000 in the space of 8 weeks, but this is where we are now, just finding the 1.3100 level a bit too much at the moment.
Cable is at 1.5800 this morning, being assisted by the strong numbers from HSBC and some better than expected PMI manufacturing data. This is nearly a 7 month high and bulls have got 1.6000 well and truly in their sites. Sterling is also winning the battle over the euro this morning with GBP/EUR back above 1.2000.
The PMI numbers from Europe have been slightly better than expectations which are also helping to support indices. Later ISM manufacturing data is out in the US, so investors will want to keep an eye on this.
Gold had a good bounce and has made some $20 back after recent declines. Back above the 1180 level this morning bulls will be happy to see this, but the underlying technical concern is that last week’s falls broke below the lower upward trend line which means the recent rally might be short lived.
Crude is knocking on the door of $80 and should remain well supported if the strength in equity markets continues. A break above here will really pave the way for a push upwards and a test of $82.