Market snapshot: big week for tech results and UK bank stocks 

There was an echo of previous weeks, with markets finishing strongly into the weekend, announcements undoing some of that optimism over the weekend on the stalling of talks between the US and Iran, leading to Dow futures drifting lower at the start of a new week.

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Hopes of conciliatory talks lifted the main markets in the US, only to be dashed as plans to send US representatives to Pakistan were scrapped on Saturday, amid suggestions that any negotiations could be done by phone. Meanwhile, the Strait of Hormuz is still subject to a deadlock which has all but strangled any traffic passing through, lifting oil prices once more to a level of almost $108 per barrel.

Meanwhile, a consumer sentiment survey showed a souring of optimism during April, although there was a slight improvement after the ceasefire was announced. The interest rate decision by the Federal Reserve is almost certain to see the central bank sitting on their hands, as they continue to gauge the inflationary effects of the conflict while also paying attention to the other half of their dual mandate, namely the jobs market, which has recently shown some signs of creaking.

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Even so, investors have for the most part chosen to look through the conflict and return to fundamentals, where a strong earnings season so far has been accompanied by a reignition of the AI trade. Such optimism will be strongly tested this week amid a slew of corporate earnings, most notably from five of the “Magnificent Seven” in the form of Alphabet Inc Class A (NASDAQ:GOOGL), Amazon.com Inc (NASDAQ:AMZN), Meta Platforms Inc Class A (NASDAQ:META), Microsoft Corp (NASDAQ:MSFT) and Apple Inc (NASDAQ:AAPL). In addition, the calendar remains busy with other updates ranging from Coca-Cola Co (NYSE:KO) to General Motors Co (NYSE:GM), and from Caterpillar Inc (NYSE:CAT) to Exxon Mobil Corp (NYSE:XOM).

In the meantime, the S&P500 and Nasdaq hit fresh record closing highs, taking their gains in the year to date to 4.7% and 6.9% respectively, while the Dow Jones slipped slightly but remains ahead by 2.4% so far this year.

Asian markets took the positive lead from Friday as opposed to reacting to the weekend’s events, propelled by technology stocks which rallied after a surge of more than 20% in Intel Corp (NASDAQ:INTC) shares, with the likes of Samsung being pulled higher as it projected an eightfold jump in operating profit to almost $38 billion for the quarter, with TSMC also posting record first-quarter profits.

The interest rate decision from the Bank of England this week is largely expected to be something of a non-event, as indeed is the case for the European Central Bank, with the committees choosing not to react to the impact of the conflict until it can be more accurately measured. The corporate calendar in the UK is similarly full, with first-quarter updates from Barclays (LSE:BARC), Lloyds Banking Group (LSE:LLOY), Standard Chartered (LSE:STAN) and NatWest Group (LSE:NWG) (see below), as well as from the likes of BP (LSE:BP.), GSK (LSE:GSK), AstraZeneca (LSE:AZN), Prudential (LSE:PRU) and Unilever (LSE:ULVR).

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At the open, the FTSE100 failed either to mirror the positive Asian lead or indeed reverse its own dreary end to last week, with Sainsbury (J) (LSE:SBRY) falling by more than 4% following two broker downgrades, which slightly bruised the likes of Tesco (LSE:TSCO) and Marks & Spencer Group (LSE:MKS) in turn. 

The housebuilders provided some support in a rare show of buying interest, albeit contained, while Whitbread (LSE:WTB) topped the leaderboard ahead of its full-year results on Thursday. The flatlining of the premier index nonetheless leaves the year to date performance intact, where a gain of 4.5% has been a steady show of resilience amid the wider volatility in the global environment.

UK banks

The read across from the recent quarterly reporting season for the US banks was positive, but the UK equivalents will have their own point to prove. Often viewed as solid and dependable rather than racy, UK banks are currently generating high levels of cash, which is being put to any number of uses. These include acquisitions, investment in technology and generous shareholder returns, each of which will be scrutinised over this week and next.

Amid the ongoing conflict in the Middle East, concerns have grown about higher inflation and crimped consumer spending, which has left the banking sector down in the year to date for the most part. As such, levels of customer defaults and impairment charges for possible bad debts will be central for sentiment.

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In a similar vein, interest rates are now expected to remain higher for longer which, all things being equal, should be positive for the sector. However, it also raises questions around mortgage availability and affordability, such that reported loan demand will be under the spotlight.

Despite a recent rerating of the sector which has left each of the UK banks’ share prices significantly higher over the last year, they remain undemanding in terms of valuation and are trading at a significant discount to their European, let alone US, peers. As such, a positive set of results could lead the sector higher once more.