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After US markets were closed yesterday, the week begins in earnest today. US futures are steady with the SPX and DOW unmoved around 2,775 and 25,880. European markets are opening on the flat. Looking ahead to this morning’s FTSE session, HSBC figures will likely weigh after the shares dipped in Hong Kong following a disappointing set of annual results. HSBC missed on both the top and bottom line as profits came in more than $1bn short and revenues were also c$1bn short despite rising 5% year-on-year. Pre-tax profits came in at $19.9bn versus $21.3bn expected as the market came off in the final quarter. Nevertheless profits jumped 16% from 2017 levels and the bank is still producing cash.

Big numbers to consider –   

  • Jaws were negative at -1.2% and this is a worry if you are looking at how the shares might perform over the medium term. 
  • CET1 ratio down to 14% from 14.5% a year before, against the trend we have seen but still a healthy number. 
  • Return on average tangible equity rose to 8.6% from 6.8%, which is encouraging but doubts remain around the 10% target.

Clearly HSBC’s focus on China and Asia is a double-edged sword. There are still huge returns and opportunity in these markets, but the bank’s exposure to this region means the recent slowdown in China in particular, as well as fears about what the trade landscape will look like going forward, can bite.

BHP – H1 missed forecasts, with revenues flat at $21.59bn and EBITDA -3%, but management sees a stronger H2. Supply disruptions hit BHP hard in the first half, with management having warned in Jan of a $600m hit to earnings as a result of problems at copper and iron ore sites. Improved iron ore prices because of the Vale disaster suggest a better second half of the year is coming. Risks remain from a slowdown in China.

Greggs – on a roll, of course.

The vegan sausage roll is proving to be a marketing masterstroke. Total sales were up 14.1% in the first seven weeks of the year, with LFL sales up 9.6%. Management has called the performance ‘exceptionally strong’ and this means full year underlying profits will be ahead of expectations. There is such a thing now as Veganuary and Greggs tapped into this trend with precision. More importantly the core offering remains strong and the focus on delivering value is still there, meaning consumers are continuing to head to Greggs. This could be even more important should food prices rise after Brexit.

In currencies, the dollar has firmed, with DXY back to 96.70 having sunk to 96.50. A recovery above 87 again depends on the twin factors of the FOMC minutes and a slew of EZ PMI data later this week. EURUSD has eased back off the 1.13 handle having failed the test around 1.1340. Support on the round number 1.13 level and then at 1.1290 before the lows at 1.1240.

Sterling was unmoved by the political drama for once, and remains supported at 1.29 for the time being. All quiet on the Brexit front for now as the Independent Group take the headlines away from the government’s floundering – a welcome distraction for some but this won’t last. The pound still looks overly sanguine on the risks ahead. On tap this morning is the UK wage data at 09:30.

Bitcoin ramped yesterday and is showing signs of recovery. Futures were last changing hands at 3,887.50, marking a 9% recovery in the last week, but there does seem to have been a rejection of anything close to $4,000. This is a notable resistance area now, therefore a break on the upside would be meaningful.”

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