FTSE 100 wobbles as BP boss laments of a ‘brutal environment’ after weak earnings

FTSE 100
FTSE 100

The FTSE 100 traded in tight range as the market reacted to the latest earning releases. HSBC sent shockwaves after its net income declined by 50%, meaning that other UK banks could see a similar trend.

HSBC earnings disappoint

HSBC reported its earnings earlier today. In the first quarter, the company said that its pre-tax profit declined by almost 50% to $3.2 billion. This was mostly because the bank increased its provisions for bad loans by more than $585 million to $3 billion. This is a sign that the lender expects a substantial amount of its loan portfolio go bad. The bank’s return on tangible equity dropped to 4.2% from 10.6% in the previous quarter. In a statement, the bank said that:

“Should the Covid-19 outbreak continue to cause disruption to economic activity globally through 2020, there could be further adverse impacts on our income,”

HSBC is not the only bank to have reported a sharp decline in profits. Two weeks ago, results from American banks like JP Morgan, Goldman Sachs, and Morgan Stanley, showed that their profits had plunged by more than 40%. In Europe, results from Credit Suisse showed that the bank had added millions of dollars in provisions. Just today, earnings from Banco Santander showed that net profit declined by 82% in the first quarter.

BP earnings crater

HSBC was not the only company to report disappointing results. BP, the giant oil giant, said that its profit declined by 67% in the first quarter to $800 million. That was below the $987 million that analysts were expecting. The company blamed the brutal environment in which it was operating in since crude oil price has been on a freefall. BP stock price has dropped by more than 35% this year.

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FTSE 100 technical outlook

Looking at the four-hour FTSE 100 chart, we see that the index has been moving sideways since the month started. The price is now trading slightly above the 38.2% Fibonacci retracement level. It is also slightly above the 50-day and 100-day exponential moving averages.

I drew this Fibonacci by connecting the YTD highs and lows.

At this point, I expect the index to remain in this holding pattern until a new trend is defined. Still, going by the upward trend that is developing, there is a possibility that the index will continue moving higher as bulls attempt to test the monthly high of £5,931. However, any move below the 100-day EMA and the blue trendline would invalidate this thesis. This would signal that there are more sellers, who could push the price to the lower support of £5,338.

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