Banks out of favour following earnings

Heading into the close the FTSE 100 is five points higher, as US bank earnings fail to inspire a meaningful rally says Chris Beauchamp, chief market analyst at IG.

Banks out of favour following earnings

It looks like the bulls are slowly losing control this afternoon, as early gains slip away in the US and the FTSE 100 flirts with fresh losses. This afternoon’s two big earnings reports, from Goldman Sachs and Citigroup, have not contributed to the mood, even if both enjoyed a bounce in trading activity due to the election.

However, the rally in the sector means that the share prices of US financials are essentially pricing in jam today, jam tomorrow, and jam for an indefinite period to come. As a result, we could see further losses here, Goldmans having hit a one month low yesterday.

The wheels look to be coming off the US stock market rally, although we may have to wait until after  Inauguration Day for real downside momentum to materialise. We have seen the pound edge back from overnight highs at $1.24, but the UK’s still robust employment picture should continue to encourage buyers here; Brexit may, thankfully, take a back seat for a change, with the focus on immediate economic fundamentals leading to a short squeeze in sterling.

The usual Wednesday excitement of oil inventories has been delayed by a day due to the US holiday on Monday, but OPEC’s monthly report has filled the gap admirably. The group seems to suggest that the deal agreed late last year may not be sufficient to deal with the supply overhang. The reference to rising US supply should come as no surprise to anyone that has watched the rise in US drilling activity, but it is just another issue that could upset the delicate trio of rising oil prices, higher stock prices and a strong dollar that has dominated since the US election.


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