Market snapshot: UK banks under pressure

Stronger-than-expected economic growth was enough to offset any lingering doubts about NVIDIA Corp (NASDAQ:NVDA)’s blow out numbers, propelling both the Dow Jones and S&P500 to record closing highs.

Revised GDP numbers for the second quarter came in at 3.3% annualised growth, surpassing the 3% which had been forecast. At the same time, jobless claims fell last week, implying that companies are still for the most part retaining staff rather than reacting to any clouds on the economic horizon. 

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As ever, the current path is strewn with obstacles. The release of the Personal Consumption Expenditures index later today, the Federal Reserve’s preferred measure of inflation, is expected to show a rise of 0.2% for July, annualised to 2.6%, with any upward deviation likely to dampen hopes of a September interest rate cut, even though that remains the most likely outcome.

The recent uptick in producer inflation adds to the jitters, while further concerns were raised by industrial bellwether Caterpillar Inc (NYSE:CAT), who upgraded the impact from tariffs to a range of between $500 million and $600 million for the third quarter, up from previous guidance of between $400 million and $500 million.

Nvidia shares drifted after missing the highest of earnings expectations by a sliver, despite a breathtaking 56% rise in overall quarterly revenues to over $46 billion (£34.1 billion). Nonetheless, the decision not to offer any outlook guidance on revenues from China, despite the recent lifting of restrictions, leaves the door ajar to a potential earnings beat in the current quarter. At the same time, the numbers seemed to confirm that the AI trade is still in rude health, and a number of broker upgrades limited share price losses.

The main indices continue to climb the wall of worry, with the Dow Jones now ahead by 7.3% so far this year, with even stronger gains of 10.5% and 12.4% for the more tech-focused S&P500 and Nasdaq respectively.

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Asian markets were mixed to lower overnight, with Japan taking centre stage. The Nikkei 225 dipped as industrial production succumbed to the weight of tariffs. A fall of 1.6% month-on-month contrasted to a gain of 2.1% previously, while there were also disappointing updates in both retail sales and inflation. A tight labour market added to expectations of an interest rate hike to come in October, and if the tariff effects are now in train, the economy could yet suffer further.

Overnight weakness in sterling would normally support the FTSE100 given its proliferation of overseas earnings, but reports of a potential windfall tax on the banks more than offset any hopes of a bright open. The domestic banks were worst hit, with NatWest Group (LSE:NWG) and Lloyds Banking Group (LSE:LLOY) losing around 3%, while the more diversified groups such as Barclays (LSE:BARC) and HSBC Holdings (LSE:HSBA) limited losses to around 1%.

Unfortunately, any such rumours are likely to have an exaggerated impact given the government’s obvious need to raise more income in an attempt to mitigate its financial difficulties.

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As a result the premier index failed to make any meaningful progress in opening exchanges, although a gain of 12.7% in the year to date is for the most part evidence of the increasing attraction which UK blue-chips are offering international investors. Further confirmation of this trend has come from the performance of the more domestically focused FTSE250 which, despite the overarching economic concerns, is also ahead by 5.6% so far this year.