FTSE 100
The FTSE 100 traded in tight range as the market reacted to the latest earning releases. HSBC sent shockwaves after its net income declined by 50%, meaning that other UK banks could see a similar trend.
HSBC reported its earnings earlier today. In the first quarter, the company said that its pre-tax profit declined by almost 50% to $3.2 billion. This was mostly because the bank increased its provisions for bad loans by more than $585 million to $3 billion. This is a sign that the lender expects a substantial amount of its loan portfolio go bad. The bank’s return on tangible equity dropped to 4.2% from 10.6% in the previous quarter. In a statement, the bank said that:
“Should the Covid-19 outbreak continue to cause disruption to economic activity globally through 2020, there could be further adverse impacts on our income,”
HSBC is not the only bank to have reported a sharp decline in profits. Two weeks ago, results from American banks like JP Morgan, Goldman Sachs, and Morgan Stanley, showed that their profits had plunged by more than 40%. In Europe, results from Credit Suisse showed that the bank had added millions of dollars in provisions. Just today, earnings from Banco Santander showed that net profit declined by 82% in the first quarter.
HSBC was not the only company to report disappointing results. BP, the giant oil giant, said that its profit declined by 67% in the first quarter to $800 million. That was below the $987 million that analysts were expecting. The company blamed the brutal environment in which it was operating in since crude oil price has been on a freefall. BP stock price has dropped by more than 35% this year.
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Looking at the four-hour FTSE 100 chart, we see that the index has been moving sideways since the month started. The price is now trading slightly above the 38.2% Fibonacci retracement level. It is also slightly above the 50-day and 100-day exponential moving averages.
I drew this Fibonacci by connecting the YTD highs and lows.
At this point, I expect the index to remain in this holding pattern until a new trend is defined. Still, going by the upward trend that is developing, there is a possibility that the index will continue moving higher as bulls attempt to test the monthly high of £5,931. However, any move below the 100-day EMA and the blue trendline would invalidate this thesis. This would signal that there are more sellers, who could push the price to the lower support of £5,338.