Weaker Banks and Stronger Pound Weigh On FTSE

The FTSE dropped lower on Tuesday as it collapsed through 7200 under the weight of weaker banks and a stronger pound. The FTSE dived to a nadir of 7163, before a slightly stronger start on Wall Street helped the index pick itself up off the lows.

HSBC Drags Banks Lower

The banking sector was the largest declining sector following disappointing figures from HSBC. Whilst profits at the bank were up over 15% in 2018 compared to the year earlier, weak performance in the fourth quarter meant that results missed expectations. Concerns are also brewing over the outlook for the bank which focuses on Asia and the UK. With Chinese growth concerns and fears over Brexit growing, dark clouds are forming on the horizon. HSBC dropped over 4.3% across Tuesday’s session wiping out any gains from the year so far. The disappointment spread across the sector with the likes of Standard Chartered and Lloyds also trading lower.

Pound Rallies Over 0.9%

A stronger pound was also weighing on the FTSE. The pound charged 0.9% higher versus the dollar and 0.6% higher versus the euro even after average weekly earnings data disappointed. Lifted by Brexit optimism the pound pushed through $1.30 to a high of $1.3050. 7

Average weekly earnings increased 3.4% year on year in the three months to December. This is still a solid level of growth, even though it was just below the 3.5% forecast. Employment also climbed to a record high in December, up 167,000 versus the 152,000 forecast which offered some support to the pound. However, hopes of Parliament taking more control over Brexit has lifted the pound far higher than any strong data. Let’s not forget, the BoE’s next steps depend first and foremost on the type of Brexit that the UK achieves. The fact that the pound is rallying is because traders believe that Parliament will secure a softer more business and therefore pound friendly version of Brexit, if it happens at all.

German Economic Sentiment Slowly Improving

The euro was also putting in a strong performance as data showed economic sentiment was slowing improving on the continent. The ZEW sentiment index for Germany rose to -13.4 points in February, up from -15 in January. Clearly sentiment is still soft, however the fact that it wasn’t as bad as the markets had been expecting meant the euro experienced a relief rally versus the dollar, through $1.13.

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