After a turbulent week for stocks the FTSE 100 was back heading in the right direction on Thursday (25 October). By the close, the index was up 0.6% at 7,004.10.
Next Monday (29 October) Chancellor Philip Hammond will deliver his latest Budget amid swirling fears about the risks of a no deal Brexit (see Economic update). Tuesday (30 October) sees a reading of US consumer confidence released. In the early hours of Wednesday (31 October), the Bank of Japan announces its latest decision on monetary policy. Next Thursday (1 November) the Bank of England is set to unveil its position on interest rates with Governor Mark Carney also offering an updated view on the outlook for the economy and inflation. The most likely scenario is that Carney will take a cautious stance until the outcome of Brexit negotiations is known. Friday (2 November) sees the influential US non-farm payrolls number published.
Amid the global market volatility, banks have actually provided some moments of calm. The first third quarter updates from the UK banking sector have been broadly reassuring. Barclays (BARC) kicked things off on Wednesday (24 October). From a top-down point of view the results weren't stellar and loans and deposits, the basic banking business, still showed almost no growth from this time last year. As a result net interest income, the amount the bank makes on loans minus the interest it pays on deposits, was slightly down as competition for customers is pushing down returns. Fortunately, pre-tax earnings were boosted by lower than expected impairment charges (money put aside to cover bad and non-performing loans) and full year forecasts were reiterated. The investment bank arm enjoyed a strong showing from its markets division.
On Thursday (25 October) Lloyds (LLOY) third quarter pre-tax earnings topped expectations at £1.82bn thanks to higher income from non-banking activities such as credit cards, insurance and wealth management. According to a consensus compiled by the bank, analysts were estimating pre-tax profits of £1.7bn compared with almost £2bn last year.
Chancellor Philip Hammond may be spared some more difficult decisions at next week’s Budget (29 October) after reports in the Financial Times that revisions to the Office for Budget Responsibility’s forecasts for public finances would reduce the 2018-19 deficit by £13bn. The risk of the Budget being voted down by the Conservative Party’s partners in the Democratic Unionist Party (DUP) also seems to have eased for now after the recent EU summit on Brexit came and went without any of the DUP’s so-called red lines being crossed.
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29 October – Europe’s largest bank HSBC (HSBA) will hope to deliver a similarly robust update to those of its UK peers Barclays (BARC) and Lloyds (LLOY) (see Sector in focus) when it reports on third quarter trading. Though it is worth noting the company is a very different animal to both these companies with much greater exposure to fast-growing markets in Asia.
30 October – Oil major BP (BP) will update on its third quarter performance amid a recent fall in the oil price from the multi-year highs seen in early October. Revenue, earnings and cash flow should have benefited from a significantly higher average price for the three-month period in focus. One area of the business which may not have seen a boost from higher oil prices is its refining arm, where the wider industry has been under some pressure.
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