18 January 2019

Iain Gibson

18 January 2019

Good morning,

No one likes January. It is home to the post-holiday comedown, officially the saddest day of the year, temporarily packed gyms and, if the past few days are anything to go by, the onset of really, really cold weather. As someone who repatriated from the Middle East last year, this reminder of what January entails in western Europe has been less than welcome.
 
There is one January tradition however that we sometimes overlook. Every year around this time (and virtually all at once), global investment banks report their Q4 and full year earnings to expectant capital markets. The lack of hoopla belies the significance for global investor sentiment.
 
Only this time it might be different. A number of Wall Street giants have lifted the curtain on their latest numbers this week, presenting us with, frankly, a mixed picture.
 
Leading the way was Bank of America, who reported record quarterly earnings of $7.3bn – to round out a none-too-shabby-annual profit of $28bn – and Goldman Sachs, who withstood the furore around its alleged participation in the largest corruption scandal in Malaysian history, to more than double its annual net earnings to almost $10bn, albeit with a disappointing last quarter. BoFA’s CEO reminded me of Lucy Kellaway’s sadly defunct corporate jargon awards when he thanked his “teammates” for delivering stellar numbers, conjuring up images of bankers donning helmets and shoulder pads as they took to the trading floor.
 
Not everyone was smiling though. JP Morgan, the biggest US bank of them all, missed its profit expectations for the first time in over four years. While Citigroup beat net profit expectations, a hefty drop in its markets revenues year-on-year meant it missed overall revenue predictions. The biggest surprise was Morgan Stanley however, which has been a solid performer in recent years. Both its revenue and earnings missed analyst estimates and the bank also posted the weakest fixed-income trading results of its peers, plunging 30% year-on-year, leading to CEO James Gorman branding the numbers “not satisfactory”.
 
Usually a clear pattern emerges from investment bank disclosure season, but the variability between divisions and between banks presents a confusing picture, perhaps in-keeping with the times. This lack of a clear story only adds to the uncertain global mood. With the full impact of Brexit, if it happens, yet to be felt and a slowdown in China clearly gathering momentum, these banking behemoths are no doubt setting the tone for a mixed year ahead.

News

House of Commons Speaker John Bercow could become the first speaker in 230 years to have his expected peerage blocked by government ministers, following what they perceive as his biased behaviour during recent Brexit debates. Some senior Conservatives have briefed The Times that senior ministers, including Theresa May, are incredibly angry at his alleged behaviour and are examining potential “punishments” as retribution.
 
The Duke of Edinburgh was involved in a car crash while driving a Range Rover near the royal family’s Sandringham estate yesterday, in which his car overturned. While he was not injured in the incident, two women in the other vehicle party to the collision were taken to hospital and later discharged.
 
The African Union – the continental bloc consisting of the 55 countries which make up the continent of Africa – has called for a suspension of the proclamation of Democratic Republic of Congo’s presidential-election results, saying there were “serious doubts” about their authenticity. The move has surprised many, with one analyst describing it as “a historic unprecedented intervention”.

Business & Economy

Japanese company Hitachi has frozen plans to build a nuclear power station at Wylfa in Anglesey, in a move that could lead to the loss of 400 jobs. Hitachi added it would write off its 300bn yen (£2.1bn) investment in the project. The firm's UK arm, Horizon Nuclear Power, blamed a failure to find investors despite exhaustive negotiations with the UK government.
 
Netflix reported its latest results yesterday, which have been described as mixed. The company added 8.8m net new subscribers in the last quarter, with revenue jumping up 27% year-on-year to $4.19bn. This was slightly below analyst estimates however. Net income for the quarter was $134m, down from $186m a year ago.
 
Taiwan Semiconductor Manufacturing Company, the largest semiconductor foundry company in the world, disclosed its latest earnings, which saw net income of $3.2bn, up slightly from a year earlier. However, its revenue projections for the coming quarter of $7.3bn is significantly below analyst estimates and has unnerved investors. TSMC is a key supplier to Apple and counts troubled Chinese firm Huawei as its second-largest customer.
 
Meanwhile Germany is considering ways to block Huawei from its next generation mobile phone network, according to reports. The country is exploring stricter security requirements which may prevent Huawei products being used in its 5G network. The Chinese company, one of the world's biggest producers of telecoms equipment, has faced resistance from foreign governments over the risk that its technology could be used for espionage.

Markets

What happened yesterday?

Morgan Stanley’s poor results unsettled Wall Street in the early hours of trading, but by close of play the S&P 500 was up 0.8%, with the Dow Jones Industrial Average and the Nasdaq Composite rising 0.7%.  The Europe-wide Stoxx 600 ended fractionally higher, as Frankfurt’s Xetra Dax slipped 0.1% and the FTSE 100 in London was down 0.4% in the end.
 
In forex, sterling was up 0.8% against the dollar and the euro. The yield on the 10-year Treasury was up 2 basis points at 2.75%, and the 10-year gilt yield rose 3bp to 1.34%.
 
The oil price swung back and forth all day, eventually ending with Brent crude on $61.18 and West Texas Intermediate on $52.41.

Trading Announcements
Bakkavor Group
Henry Boot
Record
 
AGMs
Character Group
Ironveld
Ixico
Kazera global
Management Resources Solutions

UK Economic Announcements
(09:30) Retail Sales
 
International Economic Announcements
(09:00) Current Account (EU)
(14:15) Capacity Utilisation (US)
(14:15) Industrial Production (US)

Columns of Note

Writing in the Financial Times, Nick Butler suggests that yesterday’s decision by Hitachi to halt investment into its nuclear plant in Wales is very bad news for the UK government’s energy strategy. At present, only one project out of a number of efforts to update the UK’s nuclear capabilities is going ahead and that project – Hinkley Point – is already a decade behind schedule and billions over budget. He opines that, even before Brexit has taken place, international business already distrusts the UK as a place to invest.
 
In The Times, Philip Collins suggests that Theresa May should force a series of votes in the House of Commons relating to a number of different possible Brexit scenarios. His main point is that she is stuck in her current position and now needs to find the type of imagination that is not normally attributed to her. Whilst the downside is that it would likely expose the lack of a parliamentary majority for any kind of Brexit, it would also almost certainly rule out no deal, which would perhaps then force hardline Conservative MPs to start considering alternatives and gradually move the process along that way.

Did you know?

Upon having heard that King Edward VII was fond of golf, an Indian maharaja sent the British monarch a specially manufactured golf bag – made from an elephant’s penis.  

Parliamentary highlights

TODAY

House of Commons

No business scheduled

House of Lords

Civil Partnerships, Marriages and Deaths (Registration Etc.) Bill - Second reading - Baroness Hodgson of Abinger

Stalking Protection Bill - Second reading - Baroness Bertin

Parking (Code of Practice) Bill - Second reading - Lord Hunt of Wirral

Scottish Parliament

No business scheduled