Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
There’s a barrage of company results today. Lloyds Banking Group, one of Britain’s big highstreet banks, has reported a £1.9bn pre-tax profit for the first quarter, better than expected and up from £74m a year earlier – an increase of more than 2,000%.
Profits were boosted by the release of £459m of provisions it had set aside for expected loan defaults during the pandemic. It’s the last set of results from chief executive António Horta-Osório, who is leaving after a decade in the job to become chairman of crisis-hit Swiss bank Credit Suisse. HSBC executive Charlie Nunn will take the helm at Lloyds in August.
The US Federal Reserve will announce its latest monetary policy decision tonight and is expected to stick to near-zero interest rates and its massive bond purchases strategy.
Ipek Ozkardeskaya, senior analyst at Swissquote, says:
There are rumours that the Fed could gently start talking about the tapering of its bond purchases, as the US jobs market recovers at an encouraging speed, the economic growth seems robust, and higher inflation is knocking loudly at the door.
But I believe that Jerome Powell will avoid having that taper talk at this month’s meeting, as Joe Biden’s plan to nearly double the capital gains tax should give another shake to the financial market, and stock investors can’t afford being slapped by Biden and by Powell at the same time. One should give in and that’s probably Powell, given how determined Biden moves on with his own policy decisions.
Also, Jerome Powell knows that bringing the taper talk on the table will be the first step in announcing a tighter monetary policy. Therefore, giving a hand would cost Powell a whole arm, because investors will immediately start pricing in the next rate hike. Given the mounting tensions from the capital gains tax front, it’s probably not the right moment to add fuel to fire.
A surge in advertising revenues helped Google’s parent company Alphabet beat Wall Street estimates last night. The tech giant posted 34% growth in first-quarter revenues to $55.3bn and net income of nearly $18bn, or $26.29 earnings per share. It also unveiled a new $50bn stock buyback, driving its share price 5% higher in after-hours trading.
Google Cloud’s revenues topped $4bn in quarterly sales for the first time and the division’s losses shrank to $974m from $1.7bn. Coming after Snap also reported strong ad sales last week, this bodes well for Facebook, which reports quarterly results later today, along with Apple and Spotify.
However, there is mounting regulatory pressure on the group: it faces antitrust suits from the US Department of Justice and two groups of state attorneys general over its search business.
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said:
Alphabet has lapped up the rewards from the pandemic like a big cat pouncing on cream. While famous for its start-up culture and offices, this tech giant is, rather unspectacularly, an advertising business. Covid means phenomenal sums of money have shifted to online shopping, so Alphabet’s impenetrable family of digital advertising businesses have seen revenue skyrocket.
The one fly in the ointment where Google is concerned is increased regulation. Alphabet has paid eye-watering amounts in fines in recent memory… Regulators are watching Alphabet like a hawk, and it’s a matter of when, not if, they swoop again. But Alphabet is hardly helpless prey – its mammoth net cash pile means it can stomach a lot. Looking long-term this is something to keep an eye on though, a worst case scenario could see a ceiling placed on revenues and profits.
The big surprise in these results is the boom in Cloud revenues. This is also a long-term growth lever as more customers and businesses will continue to rely on cloud computing in this new accelerated digital age. For now the division is still loss making, setting up the kit of a business on this scale doesn’t come cheap. But if Alphabet can continue to mushroom the cloud’s scale, this business could become a bonified cash cow.
European stock markets are expected to open slightly higher. In Asia, Japan’s Nikkei rose 0.2% while Hong Kong’s Hang Seng gained 0.1% and the Australian stock market closed 0.4% higher.
- 7.45am BST: French consumer confidence for April
- 12pm BST: US MBA Mortgage applications for week of 23 April
- 1.30pm BST: US Trade for March
- 7pm BST: US Federal Reserve interest rate decision followed by press conference