London Quick Take - 29 April

Key Notes:

• HSBC underlying profits rise 11%, announces $3bn buyback, BP profits halve on weaker crude prices with another miss that could force further change
• Sterling hits over 2-year high against USD as FTSE tries for 12th day of gains
• Pakistan says Indian military incursion imminent – is this the next front on the multi-year proxy war between East and West?
• Former Bank of England governor Mark Carney wins Canadian election

The FTSE 100 chalked up an 11th straight day of gains on Monday, its best run in eight years, but is struggling to carry on the momentum this morning. The blue chips ticked lower early doors as heavyweights were not exactly putting shoulders to the wheel despite HSBC and AstraZeneca topping first quarter earnings expectations. In contrast, BP and ABF missed estimates. Still some ways to go until we beat the 14-day rally from late December 2016/Jan 2017. Monster earnings day today for the FTSE - more below.

Calm returned to Wall Street as the trade tensions easing/Trump blinked narrative dominated sentiment - the S&P 500 notched a tiny gain, the Dow Jones was up 0.3% and the Nasdaq fell as Nvidia dropped. Volatility is lower. Key moment whether it’s going to kick on higher or selling will resume...pain trade is drift higher. Now Trump says he’s going to ease tariffs for automakers, providing a little more detail to his plans on that front, which had already been mooted. This seems to be supporting sentiment in Asia overnight and follow-through to European trade. China was reported offering an olive branch – with the commerce ministry apparently saying Beijing was willing to support normal cooperation with American firms. Tsy Sec Bessent was talking about an escalation ladder for tariffs...so lots of noise. But Temu is hiking prices...consumer yet to feel the impact. Dallas Fed survey weakest since 2020 but hard data still holding up - we have Jolts job openings today, ahead of GDP and PCE inflation tomorrow in the US.

Profit plunge, debt up, buybacks cut... BP shares tumbled after the oil major posted a near halving in profits in the first quarter, underlining the challenges facing the company as it tries to mollify disgruntled investors. Underlying replacement cost profit, a proxy for net profit, of $1.4 billion for the first three months of the year, falling short of analyst expectations of $1.6 billion – after expectations had come down about 30% in three months already. It heaps more pressure on management. BP is under intense pressure to turn the tanker around and while captain Murray Auchincloss is doing his best, there’s something of a mutiny onboard led by ‘Fletcher’ Elliott Management...In February it pledged to slash renewable energy investments and focus on core oil & gas production. But Elliott is pressing for more and rumours of a takeover are circulating. We’ve been here before with BP and it’s hard to see the British government letting it go, but the chatter remains. Interesting to note that head of strategy Giulia Chierchia - architect of the green agenda - will leave in June and it looks like the company is disbanding the strategy, sustainability and ventures team she ran as she is not to be replaced. Another victory for investors it seems. 

Key point about BP with these results is that it seems to back the idea that it’s not just the strategy that it’s got wrong – management are struggling to deliver on it as well. This latest miss could stoke further changes. Shares -33% in 12 months. Shell 1% lower in sympathy.

HSBC - China/tariff exposed - posted a 25% drop in profits but the headline last year was flattered by $3.7 billion from the sale of its banking businesses in Canada and Argentina. Excluding these, adjusted profit before tax made a healthy 11% gain to $9.8 billion, driven by its Wealth business and capital markets divisions. This increase in adjusted profit came despite a 15% drop in revenues and –4% in net interest income which points to better capital efficiency and efforts to make a leaner bank are paying off. Management warned of higher credit losses and revenue impact from macroeconomic uncertainty – ie tariffs. Nevertheless, the bank announced a $3 billion share buyback. Net interest income target for 2025 reaffirmed at $42bn but this could be affected by volatility.

 AstraZeneca core EPS of $2.49 was above the $2.26 expected, while it stuck to previous guidance for the year. Exposed to tariff drama and revenues missed expectations, which seems to have hit shares. But it’s mending fences in China after some scandals there. China sales up 5% but were still a little light...though this seems down more to lower flu numbers this quarter than anything related to the anti-corruption stuff. Tariffs and drug pricing remain headwinds to shares. Astra reiterated full-year guiance and longer-term ambition to to grow revenues to $80bn by 2030.

Associated British Foods sank about 9% on weaker sugar guidance due to tariffs.

Make Europe Great Again trade: Deutsche Bank reports highest profit in 14 years. Q1 after-tax profit €2.01b vs €1.84b est. The bank’s trading unit saw a 17% jump in Q1 revenue due to market volatility. Fixed income and currencies also post record revenue. The group is on track for delivery on all 2025 targets. On Monday, Rheinmetall, Europe’s top ammo maker, posted a 46% rise in sales and 49% rise in profits. Shares rose some 6% on preliminary 1Q results and now up 73% this quarter as Europe increases defence spending. Lufthansa and Adidas both confirmed guidance for the year – both likely to take a hit from tariffs.

Looking to the US, today we have earnings from Coca-Cola (KO), General Motors (GM), Paypal (PYPL), Spotify (SPOT), Mondelez (MDLZ), Snap (SNAP), Starbucks (SBUX), Visa (V) and Super Micro (SMCI). Visa is interesting – how many consumers are making just the minimum payment? Apollo says 11.1% of credit card accounts are currently only making the minimum payment – the most in history.

Sterling rose to its best in over two years against the US dollar. Politico reported the UK and EU have outlined a “new strategic partnership” which a draft it saw stated a commitment to “free and open trade”...nice leak just before the local elections to chivvy up the Brexiteers.  GBPUSD traded above 1.3440 earlier for its best since Feb 2022. I don't know if this is really a strong UK, weak dollar narrative or part of a bigger reallocation story...British economic prospects and rate outlook seems to be more bearish on the pound than the price action suggests.

Oh, Canada 

Mark Carney has led one of the most remarkable turnarounds in political history. His Liberals were out of the running a couple of months back but the anti-Trump mood in Canada saw their fortunes turnaround, particularly with older voters. The Canadian Dollar weaker post-election results as Liberals heading for a slim victory in an economy facing recession & trade tensions with US remain top of mind. Hedge funds turned least bearish on CAD since April last year according to Commodity Futures Trading Commission for week ending April 22. Rate cut almost fully priced in for July.

Elsewhere...

Spain and Portugal tried net zero 25 years early. Yesterday's power failure underlines the massive amount of power demand we are going to see, which is a powerful long-term support for copper, and is a wake up for renewable energy. It does highlight that the current mix of renewables is not really working.

Pakistan said an Indian military incursion was imminent...I have talked before about the way we’ve broken down into a multi-polar, fragmented world and that we may already be in the early stages of WW3...is this the latest proxy front between East and West. Pakistan is broadly China-aligned while India looks increasingly US-aligned. One to watch with trepidation.