UK earnings season is in full swing, and dramatic moves in individual stocks largely evened each out as the FTSE 100 dropped marginally on Tuesday.
The FTSE 100 was down 0.2% at the time of writing, having started the session in positive territory. Tuesday was the first opportunity for UK equity traders to react to First Republic’s demise over the weekend, but after only minor declines in the US yesterday, the fallout seemed contained.
JP Morgan agreed to acquire First Republic’s assets after US authorities stepped in to avoid a disorderly collapse of the bank.
“JP Morgan boss Jamie Dimon was quick to dismiss any comparison with 2008 – despite the regulator-brokered deal representing the second largest collapse in banking history,” said AJ Bell investment director Russ Mould.
Mould continued, “For now, the system has been able to absorb the shock of the collapse of Signature Bank, Silicon Valley Bank and now First Republic. If another domino was to fall, then the relative calm seen in the market could soon break.”
With minimal market volatility in the wake of First Republic’s takeover, attention quickly shifted to tomorrow’s Federal Reserve interest rate decision.
The Federal Reserve are in a predicament. First Republic’s failure and SVB’s collapse in March are being seen as a direct consequence of higher interest rates. Yet, the US central bank still has to tackle persistently high inflation rates and will likely raise rates further.
FTSE 100 movers
Pearson was the standout faller, down 9%, after reporting a relatively robust set of results on Friday. Pearson was up 4.8% on Friday, but those gains were more than eradicated by heavy selling after the bank holiday weekend.
On Tuesday, housebuilders were surging higher on signs of improvement in the UK housing market. Nationwide said house prices surprisingly rose by 0.5% in April, helping Persimmon, Taylor Wimpey, Barratt Developments, and Berkeley Group Holdings all higher.
Persimmon shares had jumped over 7% earlier in the session before falling back to trade 5% higher at the time of writing.
“UK housebuilders have been signalling some green shoots recently, and house price growth picking up in April is just the tonic for a sector which has looked decidedly sickly for some time now,” said AJ Bell’s Russ Mould.
BP
BP shares were deep in the red on Tuesday after the oil giant revealed lower profits as oil prices fell. BP’s replacement cost profit fell to $5bn in Q1 2023, down from $6.2bn in the same period a year ago.
BP shares were down around 5% despite outlining a fresh wave of share buybacks.
HSBC
After reporting a bumper set of Q1 results, HSBC was storming ahead on Tuesday. Profit before tax tripled as the global bank reaped the rewards of higher interest rates and the reversal of impairment charges.
“HSBC has seen profits soar, and investors should be reasonably happy with the restored quarterly dividend and $2bn buyback that looks likely to be completed over the next quarter,” said Matt Britzman, equity analyst at Hargreaves Lansdown.
“Whether this is enough to quell the voices of those adamant that splitting HSBC up is the best course of action for investors remains to be seen, but certainly, one gripe had been the lack of returns given the strong capital position.”
These calls may be quietened momentarily as HSBC reinstated their quarterly dividend and announced a $2bn share buyback.
HSBC shares were 5% higher at the time of writing.