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“Strong updates from FTSE 100 heavy hitters BP and HSBC weren’t enough to stop the index slipping very modestly into the red on Tuesday morning as investors digested yesterday’s big sell-off in the US,” says AJ Bell Investment Director Russ Mould.
“The rapid increase in coronavirus infections around the globe and in America itself and what seemed like the final extinguishing of any hopes a stimulus package could be agreed ahead of next week’s Presidential election put stocks firmly on the back foot.
“Oil prices made a recovery from yesterday’s losses but the continuing volatility for crude is raising the stakes ahead of a meeting of producers’ cartel OPEC next month.”
HSBC
“Third quarter numbers from HSBC were a lot better than feared, despite the 36% drop in profit, and the company hinted at plans to pay a dividend for the final quarter.
“This decision is out of its hands for now given the moratorium on dividends imposed on banks by the regulator, but this situation is up for review in the near term and the decision to mention a pay-out at all may suggest HSBC has an idea of which way the winds are blowing.
“The company can also point to a very generous capital buffer when it comes to its ability to sustain dividend payments without overstretching itself.
“Elsewhere the job of turning around the giant super tanker of a business which HSBC represents continues. It is a tough ask for CEO Noel Quinn, in post for just over a year, and one which arguably proved beyond his predecessors.
“The company is not letting up the pace on cost cuts and, in a move which may not prove popular with customers, it looks as it start charging for bank accounts in markets like the UK.
“This reflects the pressure on profitability caused by an ultra-low interest rate environment and if HSBC takes this step some of its rivals may consider similar moves with their own high street banking operations.”
BP
“Better than forecast numbers from oil major BP are just as much an indication of how low expectations had fallen ahead of its third quarter update as a sign of tangible green shoots for the company’s recovery.
“While better than the loss which had been pencilled in and a big improvement on the record loss posted for the second quarter, the uncomfortable truth is a huge amount of manpower, resources and effort was put into achieving a profit of less than $100 million.
“The recovery in oil demand which underpinned a return to profit may now be threatened again by a second wave in the covid-19 pandemic.
“Probably the most significant achievement chalked up in the period was the reduction in net debt, with the divestment of its petrochemicals business to Ineos expected to provide a further injection of funds in the near future.
“BP faces the challenge of investing in a transition to a cleaner, greener future while keeping its balance sheet under control and maintaining dividend payments.
“There still seems to be healthy scepticism in the market about CEO Bernard Looney’s pledge to keep ‘performing while transforming’. Sooner or later it feels like something has to give and it seems likely the dividend will remain in question as far as investors are concerned for the foreseeable future.”
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