An Earnings Blizzard on ECB Day

U.S. stocks hang back from the rebound

U.S. investors were not quite ready to return to risky assets on Thursday morning after this week’s panicked reaction to U.S. benchmark debt beginning to yield 3% for the first time in four years and alarmingly non-committal commentary from pivotal U.S. companies. The optics of the dollar hitting a three-month peak may also be immaterial for real economic impact but deepened the dent to sentiment, particularly as markets began to price how the greenback’s recovery might exacerbate other headwinds on the horizon like trade disputes and an interminably ascending U.S. budget deficit.  Two key U.S. stock index futures remained mildly on the backfoot at last check. Apart from Nasdaq futures, which were up a quarter of a percent at the time of writing, U.S. shares looked set to return to a phase of underperforming the global picture as key Asian markets, like the Nikkei and many European bourses rebounded.

European markets mixed-up by miners

These did not include Germany’s DAX or Britain’s FTSE to any great extent. An inordinately large slate of corporate earnings on Wednesday night and Thursday morning was less pivotal than the sheer volume might suggest for the mixed performance in Europe that just about edged the STOXX gauge into the black. The basic resource sector was the biggest drag, though largely due to a continuing correction of aluminium prices that dragged shares in the world’s biggest miners, like BHP Billiton, moderately lower. The car and parts sector outperformed, driven by relief that VW had engineered another sound quarter, though the part played by its newly installed CEO for that performance remains to be seen.

Facebook relief

Similar relief overnight was evident among Facebook investors, who lifted its stock 7.1% in extended trading after the group’s closely eyed quarterly earnings showed little trace of its data debacle. Quarterly revenue  zoomed 49% higher, faster than forecast, as did profits, whilst active monthly user growth quickened to 13% in line with market views. Facebook offered no direct comment on its view of how the second quarter might shape up, when the impact from any new reticence from advertisers might materialise. However, consensus forecasts in the wake of last night’s results showed confidence had revived to enough of an extent to lift expected Q2 revenue growth to 42% on the year and away from a previous average just below 38%.

Durable goods and non-binding votes

U.S. Durable Goods data at 1.30pm London time is the release to watch, though linking an expected slump in the headline reading to 1.6% growth in March from 3% in February to U.S. trade developments is problematic. What the media has implied is almost a Macron-Trump love-in revealed impetus for the U.S. President to push ahead with an exit from the nuclear deal with Iran. If that transpires it would be relevant for oil, albeit some of the impact appears to be partially priced. In the UK, with no top-tier data on the agenda, a non-binding House of commons vote on whether the UK should leave the customs union should be in the spotlight. It may at least reveal how much of the cross-party noise in favour of keeping a customs union could translate into real trouble for Theresa May's government. As sterling has clawed its way back on to the $1.39 handle, buyers of the pound may well interpret a nominal government defeat as a signal to push the pound’s rebound somewhat further.

ECB stands its ground

All the usual market soundings, hints and leaks suggest the ECB’s policy update including a press conference with its president Mario Draghi will not bring deviations from widely held assessments of the policy path ahead. So, confounding speculation that recent softening of economic indicators could trigger a delay to the end of asset purchases—currently expected in December—Draghi & Co. are likelier to signal full steam ahead. For now. The euro ticked above the flat line at the time of writing though showed no sign of the dynamism seen earlier in the year.

Deutsche’s new broom, Barclays’ new headroom

Deutsche Bank’s New CEO predictably grabbed a window of opportunity offered by the lender's quarterly report to unveil the board's latest attempt to execute a far-reaching revamp, a process they're now veterans of, if not experts. The logic of a slimmed-down investment bank has now reached a sufficient level of acceptance or desperation to be central to the new plans. Bond and equity trading will bear the brunt. Another sell-off of Deutsche’s shares showed long-suffering investors do not yet see how new savings could boost attributable returns. Deutsche's similarly troubled though recently more fortunate British rival Barclays saw more lenient shareholder treatment after first quarter earnings showed its trading businesses captured the recent upsurge in market volatility more adroitly than during other recent instances of market turmoil. Barclays is not out of the woods yet, and that shows from it booking yet another statutory loss as costs linked to past misconduct obliterated profits again. The U.S. Justice Dept’s $1.4bn fine also dragged Barclays’ key capital buffer 60 basis points lower to 12.7%, not sufficient to raise concerns about the recent full revival of its dividend, but not a comfortable situation either. Still mild shareholder applause was offered due to underlying profits pacing expectations and the additional headroom this implied for CEO Jes Staley’s dual UK retail and international investment bank strategy to be vindicated.

Shell shareholders sell

Royal Dutch Shell is another European corporate titan whose earnings can’t be ignored this morning. With a 3% loss in reaction to the group’s quarterly results, Shell stock, due to its huge weighting, is almost single-handedly keeping the FTSE 100 index in the red. In an echo a handful of market moves in the wake of earnings from large U.S. groups, investors gave the thumbs down to Shell’s best profit rise for more than three years. This looked mostly due to disappointment that the booming recovery cash flows Shell generated during a frenzied phase of deleveraging and asset sales had ended.