Markets dip on Fed disappointment and challenging corporate results, and Lloyds still has a pounding headache

“Reporting season is in full flow with a significant number of companies across Europe and the US updating the market on their earnings strength or weakness,” says Russ Mould, Investment Director at AJ Bell.

“The FTSE 100 dipped 0.6% to 6,092 partially as a result of disappointing results from Lloyds. That also dragged down NatWest and Barclays and knocked the life insurance sector as well.

“Healthcare and industrials were the only sectors making progress on the UK market.

“Under the circumstances Royal Dutch Shell’s latest results could have been a lot worse. Despite a backdrop of weaker oil prices and uncertain demand, Shell avoided the second quarter loss predicted by analysts. Its shares were unmoved.

“Germany’s DAX index fell 1.1% with notable weakness from Volkswagen after it reported a second quarter loss.

“Also weighing on global markets was disappointment at the Federal Reserve yesterday which emphasised how the US economic recovery was dependent on the course of the virus. It didn’t make any major changes to its monetary policy but took action to avoid an international shortage of dollars.”

Lloyds

“The banking sector has had its hands tied behind its back this year, making it almost impossible to do business normally.

“More than a million payment holidays have been granted to Lloyds’ customers because of the pandemic. Net interest margins – the difference between the money it earns from loans and that paid out on deposits – have fallen amid low Bank of England interest rates. It has also made advance payments for life and critical illness claims to support customers in financial difficulty.

“Furthermore, the bank has booked billions of pounds in provisions for bad loans because of the worsening economic outlook with lower GDP and higher unemployment.

“To make matters worse, shareholders have been denied their valuable source of income, which for many is the primary reason to own the stock. Dividends are off the menu for the entire banking sector for now.

“Lloyds needs consumer spending and the housing market to pick up before its outlook can improve.

“The latest results are thoroughly miserable, and it is certainly going to be a tough period ahead.

“However, the whole banking sector is now well versed in crisis management and will benefit from being in a stronger financial position versus 12 years ago when the global financial crisis damaged the industry.”

These articles are for information purposes only and are not a personal recommendation or advice.


The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.