HSBC to post weaker first quarter earnings as it tackles China slowdown

The day ahead includes first quarter earnings from HSBC and the all-important US non-farm payrolls report

Market volatility caused by a US-China trade dispute hit HSBC's fourth quarter performance

HSBC Holdings PLC (LON:HSBA) is on Friday expected to post a 6% drop in pre-tax profit for the first quarter as it navigates a slowing Chinese economy.

UBS sees the Asia-focused bank reporting a pre-tax profit of US$5.7bn for the quarter, compared to US$6.0bn a year ago, on a 233% surge in impairments to US$566mln.

The investment bank predicts total income of US$13.7bn, a 1% dip on the prior year, with net interest income up 3% to US$7.7bn and non-interest income down 5% to US$6.0bn.

UBS pointed out that with more than 50% of its earnings coming from Asia, HSBC's relative price and forward earnings per share historically have tracked the relative performance of China vs Europe GDP growth.

However, UBS added that a weak start to the year for capital markets has likely weighed on earnings expectations for the first quarter while risks include growth expectations for China and any developments with respect to global interest rates and Brexit.

In February, HSBC reported 2018 profits that missed forecasts after a poor performance in the fourth quarter amid market turmoil created by US-China trade tensions.

READ: HSBC tells shareholders to vote against resolution to change controversial pension clawback policy

Adding to its woes, the bank’s net interest margin (NIM)– the difference between interest earned on loans and money paid on deposits – was squeezed by sector-wide competition in UK mortgage lending.

UBS estimates the NIM was flat at 1.66% in the first quarter despite a boost from the Federal Reserve’s decision to hike interest rates.

US jobs report in focus

Away from corporate news, the US Labor Department releases the latest non-farm payrolls numbers.

In March, the US economy added 196,000 new jobs, bouncing back after disappointing growth in the previous month, and the consensus forecast for April is for growth of 190,000.

As always, the Federal Reserve will be keeping a close eye on the report to gauge the health of the labour market to help determine the appropriate path for interest rates.


Major announcements due: 

Trading update: HSBC PLC (LON:HSBA), ConvaTec Group PLC (LON:CTEC), Intu Properties PLC (LON:INTU), Merlin Entertainments PLC (LON:MERL), Smurfit Kappa PLC (LON:SKG)

Interims: Numis Corporation PLC (LON:NUM)

AGMs: Symphony Environmental Technologies PLC (LON:SYM)

Economic data: UK services PMI; US non-farm payrolls; US ISM non-manufacturing; US services PMI


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