Victoria Scholar, interactive investor's head of investment, runs through today's big stories and how financial markets are reacting.
European markets are trading higher, with oil and gas at the top of the basket. The FTSE 100 is playing catch up after the long weekend, bucking the trend for broader strength to shed more than 50 points, breaking back below support turned resistance at 7,500. However, BP (LSE:BP.) is outperforming, trading near the top of the basket after reporting its best quarterly profits in a decade.
The 10-year US treasury yield has hit 3% for the first time in over three years, doubling since the start of the year as the market gets set for the Fed’s two-day policy meeting, which kicks off tomorrow and should result in a 50-basis point rate hike as well as some clarity around its own economic outlook via its projections.
In a week focused on central bank action, the Bank of England is expected to follow suit with another rate hike on Thursday, lifting rates to the highest level since 2009. Plus, overnight in Australia, the RBA lifted its official cash rate to 0.35% in first rise since 2010 in a week that highlights the global inflationary pressures and the broad shift from monetary accommodation to monetary tightening.
Shares in BP are trading higher after it reported underlying replacement cost profit in the first quarter of $6.2 billion, ahead of forecasts for $4.5 billion and the highest level in over 10 years. It also boosted its share buyback programme to $2.5 billion thanks to its surplus cash flow which has now reached $4 billion. However, it faced a $24 billion charge from exiting operations in Russia including the abandonment of its near 20% stake in Rosneft.
Oil majors like BP have been among the key beneficiaries of the sharp rally in crude prices during the quarter, laid bare by its sky-high profits and surplus cash flow during the quarter, allowing the company to return cash to shareholders via an accelerated share buyback scheme. While the stock is trading higher, investors are still weighing up the strength of its bottom line against the cost of exiting Russia, which accounted for 3% of its cash flow last year, resulting in hefty write downs in today’s report. There have also been renewed calls for a windfall tax on energy giants like BP this morning following its eye-watering profit figure which sits uncomfortably as the country faces a cost-of-living crisis.
Shares in HSBC Holdings (LSE:HSBA) are trading higher following reported calls from its biggest shareholder, Chinese insurer Ping An to spin off its Asian business or find other ways to break up the bank in an attempt to boost returns.
Given that two-thirds of its profits are earned in Asia, and HSBC’s CEO has been looking to focus the bank on wealth management in Asia over the last two years, calls for a spin-off could be in alignment with the C-suite’s own ambitions for the lender. The stock has also been under pressure since the February highs after abandoning its share buybacks this year amid pressures from inflation and geopolitical uncertainty, prompting this activist investor to speak up. Perhaps this is the start of fresh conversations about whether the bank will review its 2016 decision to keep its headquarters in London.
TWITTER / TESLA
Elon Musk is reportedly engaging with investors in an attempt to find a way to put less of his own money into the $44 billion Twitter Inc (NYSE:TWTR) acquisition. This helped to boost shares in Tesla Inc (NASDAQ:TSLA) by 3.7% on Monday on hopes that he would rely less on his stake in the electric vehicle giant to fund the social media deal.
Shares in Tesla have been under pressure lately amid concerns about what the Twitter purchase could mean in terms of Musk’s stake in Tesla, as well fears he may become less focused on electric vehicles and more on social media instead.
Tesla shares have shed more than 20% since the April high. However if he can secure funding to be less dependent on his Tesla shares for the acquisition, that could prompt a retracement of some of the stock’s recent declines.
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