HSBC shares spike on upbeat earnings

The news shaping the markets today

US announced $550 million in military aid for Ukraine, including ammunition for rocket launchers and artillery guns. The US dollar index traded lower after the news.

Sri Lanka recorded a trade surplus of $21 million in June, versus a $652 million deficit in the year-earlier period. Despite this being the first trade surplus since August 2002, the LKR/USD forex pair remained under pressure due to political unrest.

Australia’s building permits fell by 0.7% to 16,461 units in June, versus expectations of a 0.5% decline, which sent the AUD/USD pair lower in forex trading this morning.

Iran’s annual inflation rate accelerated to 54.0% in July, from 52.5% a month ago, hitting the highest level since June 1995. However, the IRR/USD forex pair remained flat after the news release.

South Korea’s consumer prices surged 6.3% year-over-year in July, following a 6% rise in the prior month. The KRW/USD pair rose in forex trading this morning.

What’s happening: Shares of HSBC Holdings plc gained on Monday, despite the company reporting a 15% decline in its first-half profits.

What happened: The UK-based bank reported better-than-expected profits for the quarter and the first six months of the year.

Despite uncertainty around the global economic growth, HSBC raised the near-term projection for one of its major metrics.

How were the results: The London-headquartered lender reported a small rise in sales for the three months ended June 30.

• Quarterly revenues grew 2% to $12.8 billion, while pre-tax profits came in at $5 billion, beating the consensus estimate of $3.9 billion.
• Pre-tax profits for the first six months of the year fell to $9.2 billion, from $10.84 billion in the year-ago period, but surpassed market views of $8.15 billion.

Why it matters: HSBC has been under pressure from its biggest shareholder Ping An Insurance Group Co of China Ltd to evaluate strategic options, like spinning off its Asia business to provide higher value to shareholders, after the cancellation of dividend raised concerns. The suggestion also gained support from some retail investors in Hong Kong.

The lender reported that the share of profits from its Asia business accelerated to 69% in the first half of the year, from 64% in the year-ago period.

The pre-tax profits from its global banking and markets segment climbed 36.6% to $1.68 billion in the quarter, while pre-tax profits from its wealth and personal banking segments declined by 1.7% to $1.77 billion.

Amid rising economic uncertainty and surging inflation, the bank recorded a charge of $1.1 billion for expected credit losses.

Net interest income climbed 13.6% to $7.5 billion during the quarter. Net interest margins widened 15 basis points to 1.35%.

“We also intend to revert to paying quarterly dividends in 2023, although we expect the quarterly dividend for the first three quarters to initially be reinstated at a lower level than the historical quarterly dividend of $0.10 per share paid up to the end of 2019,” HSBC said.

The bank announced plans to pay an interim dividend of 9 cents a share while saying that share repurchases remained unlikely this year.

HSBC remains confident of its ability to improve profitability, despite economic uncertainties around the world. The bank increased its near-term return on tangible equity forecast to at least 12% from next year.

How shares responded: HSBC’s US-listed shares gained 6.5% to close at $33.44 on Monday, after the release of results. The stock has gained around 10% year to date.

What to watch: Investors will keep an eye on discussions between HSBC and significant shareholders. Markets will also monitor the effect of rising interest rates and surging inflation on the bank’s business.

The markets today

The Japanese yen will be in focus today after recording sharp gains on Monday

Context: The JPY/USD forex pair moved higher on Monday, recording gains for the fourth session in a row.

Details: The US dollar tumbled to a new six-week low versus the Japanese yen on Monday, with traders expecting the US Federal Reserve to ease its monetary policy tightening to fend off risks of a recession.

The US dollar index, which measures the greenback’s performance versus a basket of major currencies, became volatile after manufacturing activity data from the US. The ISM manufacturing PMI fell to 52.8 in July, from 53 in the previous month, but topped market estimates of 52.

The index, which lost more than 0.4% to reach 105.45 on Monday, has gained around 10% so far this year amid prospects of aggressive rate hikes by the Fed.

The JPY/USD forex pair gained over 1.1% to close at 131.61 on Monday.

What to watch: Traders await data on services and composite PMIs from Japan on Wednesday. The au Jibun Bank services PMI for Japan is expected to decline to 51.2 in July, from a final reading of 54.0 in June, while the composite PMI is projected to ease to 50.6 in July, from a final 53.0 in the previous month.

Markets will keep an eye on the US jobs report, scheduled for Friday.

Other Markets: European trading indices closed mostly lower on Monday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 down by 0.13%, 0.03%, 0.18% and 0.19%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

UK’s Nationwide house price index, Spain’s unemployment change, consumer confidence indicator and number of foreign tourist arrivals, Italy’s car registrations, Brazil’s industrial production, India’s balance of trade, exports and imports, US Redbook index, number of job openings, Logistics Manager’s Index and API’s crude oil stocks change, as well as Canada’s manufacturing PMI.