Tuesday preview: HSBC begins bank reporting season

London's big banks begin reporting results on Tuesday, while macro attention turns to UK public sector borrowing and European manufacturing and services data.

As part of the Treasury Committee’s latest Inflation Report hearings, four members of the Bank of England's monetary policy committee will provide testimony at 10:00 GMT, namely governor Mark Carney, Andy Haldane, Ian McCafferty and Gertjan Vlieghe, which is likely to be reflected in the movement of the pound around this time.

HSBC, the largest company on the FTSE 100, has risen more than 50% since the Brexit vote and 8.4% since 2017 began to stand at its highest level in over three years.

Its prelims in Tuesday precede Lloyds on Wednesday, Barclays on Thursday and RBS and Standard Chartered on Friday.

A massive international business and improved prospects for the Chinese economy have proven powerful tailwinds in the second half of 2016, said analyst Laith Khalaf at Hargreaves Lansdown, with both factors offering potential to continue to drive performance going forwards.

"2016 full year results should hopefully mark the end of the group’s protracted restructuring programme, and with litigation largely in the past hopefully provide a platform from which the bank can grow," he said.

"However, the bank’s turnaround has been a long one. Not so long ago it was targeting a return on equity of 10% in 2017, it was just 4.4% in Q3 2016, so HSBC still has a long way to go."

In its preview, UBS said the bank ticked the top down boxes of non-sterling earnings, excess liquidity and capital, gearing to US$ interest rates and an expected share buyback adding to a decent yield, making its re-rating "easy to rationalise" in the uncertain environment.

But valued at 12.5 times UBS' current year EPS forecasts of $0.64 and a 4.5% net dividend yield, analysts said the stock looked fairly valued "unless our earnings estimates prove much too cautious".

Consensus forecasts for the fourth quarter are for $12.25bn total income and adjusted profit before tax of $3.5bn.

Anglo American is also due to report preliminary results, having reported a strong fourth-quarter in Kumba iron ore, diamonds, and copper.

The consensus forecast is for earnings before interest, tax, depreciation and amortisation of $5.8-5.9bn.

Deutsche Bank analysts said the results announcement "will likely be all about delivery of cost-cutting".

European PMIs

In Europe, France published flash manufacturing and services purchasing managers' index surveys at 0800 GMT, followed by Germany at 0830 GMT and Eurostat's eurozone numbers at 0900 GMT.

France's manufacturing PMI is expected to inch up to 53.7 from 53.6 last month, with services also up to 54.2 from 54.1.

Germany is forecast to show manufacturing slipping down to 56.0 from 56.4 in January, with services picking up to 53.6 from 53.4.

For the eurozone as a whole, manufacturing is seen slipping to 55.0 from the 69-month high of 55.2 in January, while services edges up to 53.8 after easing to 53.6 last month.

HSBC economists said they expect rising inflation and underlying political uncertainty will "begin to put a dampener on the recent swathe of positive survey data", pointing to more timely national indicators such Germany's ZEW survey, which in February declined at the steepest rate since July 2016.

"This, coupled with some recent setbacks in the hard data, such as eurozone industrial production, which fell by 1.6% month-on-month in December, should start to weigh on private sector sentiment."

UK deficit

After public finances continued to improve in December, with a 5% reduction in borrowing over the year, public sector net borrowing is expected a surplus of £14bn.

To meet the Officer of Budget Responsibility’s November forecasts, borrowing over 2016-17 needs to fall by £7.2bn over the full year and has so far already fallen by over £10bn.

January normally sees a surplus as receipts from capital gains tax, corporation tax and self-assessment are collected.

Economists at Pantheon Macroeconomics said self-assessment receipts this January should be more plentiful than a year ago because the deadline fell on a Tuesday versus Sunday last year.

"That said, the government’s plans suggest that investment will be £3.3bn higher in the final three months of this fiscal year than last year.

"Accordingly, we expect a surplus of £13.5B, only just bigger than last year’s £12.6B."

Tuesday 21 February

UK ECONOMIC ANNOUNCEMENTS
Public Sector Net Borrowing (09:30)

INTERIMS
BHP Billiton, Galliford Try, Green Reit, Netcall, Vernalis plc

FINALS
Anglo American, HSBC Holdings, InterContinental Hotels Group, Lighthouse Group, Synectics, Vitec Group

ANNUAL REPORT
HSBC Holdings

AGMS
Blackrock North American Income Trust , Image Scan Holdings

TRADING ANNOUNCEMENTS
Safestore Holdings

FINAL DIVIDEND PAYMENT DATE
Titon Holdings