Banking on good results

Banking on good results

Mike van Dulken, Head of Research at Accendo Markets commented to clients this morning:


FTSE 100 Index called to open +5pts at 7420, continuing its 7405-7430 consolidation following Wednesday’s bullish breakout. Bulls need a break above 7430 to start the second leg of a bullish flag – and give a second wind to a bullish triple bottom reversal – towards 7480. Bears are waiting for a breach of 7405 support to allow a re-test of Wednesday’s 7385 breakout. Bullish 7430,Bearish 7405.


Calls for a flattish open follow a slightly positive US close (record highs) and a mixed showing in Asia overnight. This as traders prepare for the start of US earnings season and digest an unconvincing testimony from Fed Chair Yellen that leaves markets guessing about the timing of the next US rate hike and the start of its great balance sheet unwind.


FTSE corporate news includes Dixons Carphone selling its Spanish unit for €55m. Hays reported operating profits just above expectations which may allow it consider a dividend hike. DCC says it expects another year of profits growth and reiterates guidance. Ashmore says Q4 assets under management grew 5% to $58.7B thanks to strong net inflows and investment performance.


Japan’s Nikkei underperforms on continued Yen strength hurting exporters and disappointing industrial production data. Australia’s ASX fares better thanks to oil holding its rebound, helping Energy and Miners, along with gains for financials ahead of US sector earnings.


US equity markets closed higher on the penultimate trading session of the week, as Retail names benefitted from well-received Target results. Wal-Mart led the Dow Jones to a fresh record closing high alongside Goldman Sachs and Apple, while Retail space helped the S&P500 0.2% higher. Once again, the Nasdaq outperformed as large-cap Tech stocks continued recent strength.


Crude Oil benchmarks are trading around Wednesday’s highs having rallied from support just below key price levels. US crude is trading back above $46 while global benchmark Brent approaches a $48.50 handle. Both measures are being helped by the US dollar remaining subdued around recent 9-month lows, however the prospect of both rising US and OPEC production has kept a lid on prices below the $50 mark.


Gold remains in its tightening pattern between $1205-$1230 having failed to overcome June falling highs resistance at $1225 despite US dollar weakness. A non-committal two days of testimony from Fed Chair Janet Yellen compounded with the Bank of Canada raising interest rates for the first time since 2010 paints a mixed picture of global monetary policy, leaving the precious metal without a driver.


In focus today will be the start of Q2 earnings season in the US. The big Banks open proceedings via JPMorgan (11.50am), Wells Fargo (1pm) and Citigroup (1.20pm), all rallying in recent weeks on expectations of big dividends/buybacks following Fed approval.


Consensus has been guided lower as per usual, so prepare for consensus/guidance beats. But Wall St still expects a mixed showing amid pressure on trading from very low market volatility, limited deal-making (M&A/IPOs) and slower lending volumes. Are Fed hikes helping net interest margins and profitability? Outlook will likely be key.


On the data front, top tier releases begin with this afternoon’s simultaneous release of US Inflation and Retail Sales numbers (1:30pm). Headline inflation is seen extending its cooling from January highs while the Fed-preferred Core measure remains unchanged around 2-year lows. Retails Sales are expected to bounce back in June after the worst monthly reading since January 2016.


US Industrial Production is forecast returning to growth in June alongside Manufacturing Production (both 2:15pm), the University of Michigan Sentiment (3pm) is seen virtually unchanged before the week is rounded off, as always, by the Baker Hughes Rig Count (6pm), looking for its 24th increase in the last 25 weeks.


Speakers today include the ECB’s Nowotny (9am) at the release of the Austrian National Bank’s half-year stability report, while the Fed’s Kaplan (neutral voter; 2:30pm) undertakes a moderated Q&A session in Mexico City.

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