Market snapshot: Covid, Brexit, HSBC and UK banks

As if markets didn't have enough to contend with, now another scandal threatens to damage the bank sector.

With no confirmed vaccine for the coronavirus as autumn approaches, there is likely to be additional strain on government resources as they attempt to stave off a second wave, as the colder weather inevitably brings further cases to contend with.

Prospects for a sharp economic recovery have all but disappeared, as global growth receives the new threat of a resurgent pandemic. In addition, with talks for a further fiscal stimulus in the US seemingly in deadlock, investors have been choosing to vote with their feet over recent trading sessions given the deteriorating outlook.

The third-quarter reporting season will begin in earnest over the next few weeks, and it remains to be seen how companies on the ground have been dealing with the restraints the pandemic has already enforced. The previous high-flyers of the investment universe in the form of the tech stocks will also have high expectations to deal with as they report quarterly numbers.

In the year to date, the major indices continue to drift, with the Dow Jones index now down 3.1%, the S&P 500’s gains being eroded, although still ahead by 2.7% and the Nasdaq up by 20%.

In the UK, the pandemic also continues to add to concerns for general economic health, including the hospitality sector where further lockdowns would pile on additional pressure. The end of the furlough scheme will likely lead to another spike in unemployment and Brexit negotiations are at a critical point. The FTSE 100 is now down 22% in the year to date.

Meanwhile, weekend reports alleging illicit activity and the possibility of being added to a Chinese list of firms deemed to be a threat to national security, weighed heavily on HSBC (LSE:HSBA) shares.

The beleaguered stock has now seen its share price halve in the year to date. The bank had also previously taken the decision to increase its credit impairment charge to $6.9 billion from $3 billion at its half-year numbers and, based on its projections, guided that the full-year number could sit anywhere between $8 and $13 billion.

With the banks generally under pressure and with interest rates at historically low levels, the immediate outlook is bleak, and investors are gravitating towards any of the banks with more obvious prospects, as opposed to those in full firefighting mode. The market consensus of the shares as a 'sell' has been in place for some time and is likely to be consolidated following the reports.