Hargreaves Lansdown’s Steve Clayton reports improving market sentiment on ceasefire progress, though HSBC and Lloyds weigh on the FTSE.
Steve Clayton, head of equity funds, Hargreaves Lansdown:
“News that a likely hostage returns deal and ceasefire has been agreed between Israel and Hamas helped market sentiment overnight, with both Wall Street and Asian bourses making progress. Tech shares quickly forgot about yesterday’s reasons for caution. AI led the way, with chip designer AMD posting double-digit gains, up 11.4% to $235 and Nvidia 2.2% better at $189. Only Hong Kong went backwards, dragged lower by weakness in HSBC. In London however the FTSE100 index is on the slide in early trade, dragged down by weakness in HSBC and Lloyds. The index is down around -0.2% at the time of writing.
HSBC shares slid in Hong Kong overnight, with the weakness following through into London trading this morning, after the banking giant announced plans to further increase its focus on the fast-growing Asia region. HSBC already owns 63% of Hong Kong’s Hang Seng Bank and is now buying out the minority investors to make Hang Seng a wholly-owned subsidiary of the group. The plan will cost $14 billion. HSBC’s shares fell 6.6% in Hong Kong not least because HSBC said it would suspend its own share buy-backs to preserve capital for the next three quarters whilst it digested the deal. Gaining control of Hang Seng comes at a premium, with HSBC offering to pay almost 30% above the previous market value of the listed minority shares in Hang Seng, prompting some investors to argue that the deal will be dilutive to the group’s returns.
Taiwanese chip giant TSMC is benefiting hugely from the boom in AI demand. TSMC is the most technologically advanced manufacturer of the chips that designers like Nvidia and AMD are creating to power AI technology. Robust demand from these clients and others saw TSMC report revenue growth of 30% in the latest quarter compared to the same period a year ago. TSMC sales were $32.5 billion in the quarter, a little ahead of the average of analyst’s forecasts. The sales release helped TSMC shares to power to a new high of TWD1,440 on the Taipei exchange overnight. TSMC will report full financial results for the quarter on 16 October.
Lloyds Banking Group has announced that it is likely to have to make a further provision, potentially a material one, against the costs of Motor Finance customer redress. This comes just a day after the FCA announced an industry-wide scheme that saw compensation levels set at what were thought to be the lower end of expectation for industry costs. The statement from Lloyds was not in the market’s playbook and the shares have reacted badly, erasing yesterday’s gains, with Close Brothers similarly impacted.
Oil markets have reacted nonchalantly to the apparent outbreak of peace in the Middle East. Brent crude futures were barely changed at $66.36 this morning, with traders having already discounted the likelihood of a deal being reached. Sterling however is struggling, pretty much across the board against other major currencies this morning, trading lower to $1.3364 and €1.1504.”
