The FTSE is on the back foot this morning, weighed down by corporate news from the Royal Bank of Scotland and Just Eat (LON:JE). Although the government-owned bank reported better-than-expected first quarter profits the fact that they were significantly lower than last year pushed shares into a tailspin leading to a 5.3% decline.
The worst hit part of the group was mortgage lending, with concerns over Brexit dampening consumers’ appetite for big ticket new purchases. Just Eat(LON:JE), on the other hand, blamed warm weather in February and a later Easter for a decline in orders in the same quarter.
Surprisingly the DAX is trading higher despite a slide in Deutsche Bank (DE:DBKGn) a day after a major tie-up with Commerzbank (DE:CBKG) fell through. On Friday the bank reported an increase in net profits but income at its bond trading division - which makes up more than half of the group’s income - dropped nearly 19% on the quarter.
US GDP numbers to dominate dollar trading
Dollar traders are positioning themselves for a set of strong US GDP data, due to be released later today, pushing the dollar higher towards the peak levels of this year. The number will provide some clarity over increasingly confusing US economic data which shows continued strength in some parts of the economy but also the first warning signals of a potential slowdown in other.
The Fed has already indicated that there will not be any further rate increases in the course of this year, but with President Trump exerting ever more pressure on the central bank and saying that a stimulus programme could have helped the DJIA trade higher by between 5,000 and 10,000 points this year, the Fed might be tempted accommodate some of that view.
Sterling stable ahead of local elections
The pound has recovered from yesterday’s plunge against the dollar and is trading in positive territory but the progress is fairly slim. Brexit headlines have thinned out compared with March but the fundamental lack of clarity about what comes next is keeping sterling low, just shy of $1.290.
Elections for local councillors will be the focal point next week, as will the continued wrangling between Mrs May and parts of her party.
RBS (LON:RBS) hit by Brexit uncertainty
RBS's profits in the first quarter may have beaten market expectations, but investors have been spooked by its outlook statement.Ross McEwan's departure announcement yesterday had already stoked concerns that the bank could miss its 2020 return-on-equity goals and it has confirmed those fears today by warning they could be hard to achieve.
By lowering its exposure to offshore markets, RBS has left itself more exposed to a sluggish UK economy hamstrung by Brexit uncertainty.McEwan's successor will also have to deal with increasing competition from challenger banks and fintechs, making it harder to cut costs further to prop up profits. RBS swung back to profit last year by spending almost a decade shrinking itself. The big question now is whether the bank can grow again and that will be a tough job for whoever replaces McEwan.
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