Our head of investment rounds up the morning's big news.
European markets are bouncing back after a volatile week for financials. Support from the Swiss National Bank for Credit Suisse Group AG (SIX:CSGN) has catalysed a major rally for the Swiss lender and has spurred broader risk-on sentiment.
On the FTSE 100, HSBC Holdings (LSE:HSBA), Barclays (LSE:BARC), and Lloyds Banking Group (LSE:LLOY) are trading towards the top of the index, while Rentokil Initial (LSE:RTO) has taken the top spot up nearly 7% thanks to forecast-topping annual earnings.
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Focus turns to the European Central Bank (ECB) at lunchtime in which the outcome looks highly uncertain. Last week, a 50-basis point hike was almost an inevitability. However, the collapse of SVB Financial Group (NASDAQ:SIVB) and Credit Suisse's turmoil have seen markets wind back their ECB expectations. Financial markets are now pricing in an increased chance of a 25-basis point hike, but whether the SNB’s support for Credit Suisse could embolden the ECB to continue with its hawkish path is yet to be seen.
US futures are also pointing to a rebound after the Dow and the S&P 500 closed lower while the Nasdaq managed to log a small gain.
The Swiss National Bank has offered to support Credit Suisse after shares tumbled as much as 30% on Wednesday after its biggest shareholder the Saudi National Bank said it will not be providing further financial support. The embattled Swiss lender will borrow up to CHF 50 billion ($54 billion) from the Swiss central bank and buy back CHF 3 billion to improve its liquidity and boost confidence, lifting shares by more than 20% this morning. JPMorgan said a takeover is the most likely scenario, especially by UBS. According to Bloomberg, CS’s CEO told staff the bank would continue to focus on its transformation.
On Tuesday, Credit Suisse said it found ‘material weakness’ in its financial statements, just weeks after it reported the largest annual financial loss since the 2008 global financial crisis of CHF 7.3 billion for 2022. Credit Suisse has been embroiled in scandal after scandal in recent years, punishing its share price and causing painful client outflows. The Swiss lender was linked to the collapse of Greensill Capital as well as the US hedge fund Archegos. It was also found guilty of helping to launder money tied to the Bulgarian mafia in 2021. Last year rumours on social media swirled about the risks around Credit Suisse, prompting tens of billions of outflows.
It has been undergoing a major restructuring, slashing thousands of jobs, shrinking its investment bank and focusing more on wealth management but this has done little to assuage the bears. The events of this week catalysed another major sell-off in the stock, raising concerns about the existential future of the bank, causing a painful ripple effect across broader markets.
Thankfully, there appears to be a lifeline for the beleaguered lender, which should prevent another Lehman moment, much to the relief of markets and Credit Suisse’s investors. The bank which has been around since 1856 has been instrumental in supporting growth of the Swiss economy with the SNB clearly judging that the bank’s systemic important overrides any moral hazard argument.
The collapse of SVB bank coupled with the turmoil at Credit Suisse have created a perfect storm for the financial sector which has been in disarray over the past week. The Stoxx 600 banks index in Europe has shed more than 14.5% over the past five trading days until Wednesday’s close while Credit Suisse’s losses spiralled. However, the sector is staging a major rebound this morning.
Deliveroo (LSE:ROO) reported a 2022 adjusted core loss in 2022 of £70.5 million, line with expectations. Revenues rose by 14% to £1.975 billion. The food delivery business said it expects to be in the black this year with core earnings of up to £50 million thanks to a pick-up in margins in the second half of 2022.
Deliveroo has been growing its market share in the UK and international markets and has been focusing on grocery delivery – a key growth frontier for the delivery business. However, the economic backdrop has been tough with falling real incomes, sluggish economic growth and cost inflation. When household budgets are squeezed, non-essential expenses such as on grocery deliveries or takeaways can be among the first to go, putting pressure on Deliveroo after its surge in popularity during the pandemic. On top of that, Deliveroo faces intense competition in the sector from Uber Eats, Just Eat Takeaway and q-commerce players like Go Puff.
Deliveroo’s IPO in March 2021 was widely seen as a disaster with shares shedding almost 70% since over its lifetime as a public company. This has added to the sense of unease towards London as a key destination to float among tech businesses.
DFS Furniture (LSE:DFS) reported half-year underlying profit before tax of £7.1 million versus £23.3 million year-on-year. It reduced its annual profit forecast to between £30-35 million versus its previous forecast for £30-40 million. While cost increases have hit margins, CEO Tim Stacey said some pressures were easing.
Shares in DFS are down 16% year-to-date and down 38% over a one-year period, underperforming the wider market. Home furnishings enjoyed a boost during the pandemic when most people were stuck at home and spent more on home improvements, while restaurants, bars and holidays were out of reach. However post-Covid, the revival of inflation has increased business costs and the cost-of-living crisis has dampened consumer spending, weighing on DFS and its share price.
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