Banks drag FTSE lower as HSBC starts the barrage of bank releases this week

Despite a selloff in Asia overnight, the FTSE edged over the starting line this morning and is trading more or less flat within the first hour of today’s session. All the FTSE sectors are in positive territory apart from the heavyweight banks and miners, which are acting as a drag on the index. 

HSBC shares drop as bank reports first revenue growth in 6 years  

The banks are dominating the lower reaches of the FTSE in trading on Tuesday, as investors digest fourth quarter and full year results from HSBC, the first of a slew of banking results this week. The results from Europe’s largest bank in terms of assets, were decidedly mixed. 

On the plus side, HSBC showed the first revenue growth in 6 years with adjusted revenue at $51.5 billion, a solid 5% increase on the year before as the pivot to Asia strategy was seen paying off. Profits were also on the up, by a good 11% to $9.7 billion, whilst return on equity was at 5.9%. 

Whilst these figures are show an impressive turnaround at the bank under Chief Executive Stuart Gulliver who will now hand the reins to John Flint; results are about performing up to expectations and HSBC missed expectations on these measures, leaving investors disappointed. 

The other disappointment that HSBC shareholders are contending with this morning is the absence of a share buyback. Expectations had been running high that the “world’s local bank” would announce another round of share purchases. Instead HSBC confirmed that it would buy back shares “as and when appropriate”. The bank has brought back $5.5 billion in shares from investors since August 2016. 

HSBC selloff over done? 

In response to the HSBC’s failure to live up to expectations the share price closed down 3.1% in Asia and is down 4% in early trade in London. This reaction is looking a bit overdone; with interest rates set to increase, the outlook or the bank remains encouraging, performance in Asia has been exceptional, with pre-tax profits up 89.3% from a year earlier in the region. 

This bank is in better shape than most is competitors, yet it remains undervalued in the sector. Banks will remain under the spotlight, with Lloyds due to report tomorrow. Investors will be watching the dividend strategy closely, with hopes for an increase running high. 

GBP/USD falls below $1.40 

Not even the pound falling below the important psychological level of $1.40 is enough to push the FTSE into the black. 

Whilst GBP/USD is not falling on any particular news, rising US treasury yields are boosting the buck. 

Meanwhile the pound is under pressure as market participants focus on Brexit uncertainties rather than the prospect of a rate rise sooner rather than later from the Bank of England. 

With no data to digest, the pound has been drifting lower, dwelling on the prospect of a confused vision from Theresa May’s Brexit cabinet and concerns over the post Brexit transition period. However, UK wage data tomorrow and GDP data on Thursday are the next key events for sterling.