Market snapshot: bank sector results and ASOS update

Quarterly results from US banks could have a positive read across to UK peers, but ASOS has slumped after its latest update.

Global financial markets continue to grind higher even in the absence of immediate positive catalysts.

Further soothing noises from the US Federal Reserve underpinned sentiment, as Chairman Powell suggested that the current round of stimulus will continue for the moment, until such time as the recovery is fully entrenched and unemployment back to fully reduced levels.

In the meantime, the banks have kicked off the quarterly reporting season in some style, crushing estimates through a combination of M&A activity, the further release of bad debt provisions and improving economic activity, all of which could have positive implications for the UK banks reporting later this month. At the same time, the historically low level of interest rates remains a drag on margins and there is some evidence that consumers have been saving rather than spending on credit, thus crimping another revenue line.

In the year to date, the Dow Jones is ahead by 14%, the S&P500 16.5% and the Nasdaq 13.6%.

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Progress remains positive but more sedate in the UK, where the FTSE100 has added 9.6% and the FTSE250 11%. The gradual return to normality has been evidenced by job vacancies exceeding pre-pandemic levels, although employment remains lower and has not yet seen the full impact of those remaining on furlough.

ASOS (LSE:ASC) has continued to accelerate, boosted by the tailwinds of the pandemic and what the company considers to be a structural shift to online shopping, particularly among its target 20-something market. However, some subtle shifts in the trading environment may signal rather tougher times ahead.

Despite the more profitable lines of occasion wear making something of a return in recent weeks, an immediate return to previous levels of sales seems unlikely. At the same time, the reopening of physical stores reintroduces more competition and FX headwinds have worked against margins in the period, as have additional freight costs resulting from disruptions to the supply chain in key areas. 

In addition, the ramifications of the withdrawal of government assistance have yet to be seen, especially with regard to unemployment and consumer confidence, both of which could signal particular red flags for its target audience.

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In the meantime, though, the company is performing strongly, with retail sales growing by 26% in the period, driven largely by an increase of 60% from the UK operation, with active customers growing by another 1.2 million to now stand at 26.1 million. The announcement earlier in the week of a partnership with Nordstrom of the US to promote the Topshop suite of brands in particular provides the enticing possibility of further sales growth in the region. This has also accelerated of late in the US, driven by the easing of lockdown restrictions, stimulus cheques for consumers and a wider stock offering.

The challenges which are likely to come have taken some of the froth from the share price of late, as evidenced by a 13% dip over the last three months. However, over the last year the shares remain ahead by 40%, in line with the hike seen in the wider FTSE AIM 100, and the market consensus has not diminished on longer term prospects, still coming in at a strong buy.