HSBC profits fall while Next retail still languishes

The FTSE 100 is expected to open 7.5 points higher on Wednesday, after closing down 0.73% at 6,645.40 on Tuesday.

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HSBC Holdings' profits fell by more than a quarter amid difficult conditions in the first half of the year that look unlikely to diminish soon, though the bank sweetened the pill with news of a $2.5bn (£1.8bn) share buyback thanks to the sale of its Brazilian business. In the six months to 30 June, pre-tax profits of $9.71bn were down 28.7% from the same period last year earlier and short of the City's expectations of around $10bn.

Fashion retailer Next posted a trading update for the 26 weeks to 30 July on Wednesday, with full price sales in the second quarter up just 0.3% on a year ago. The FTSE 100 firm said of that, Next Retail sales fell 3.3%, with Next Directory adding 5.7%, with new space adding 1.5% to brand sales during the quarter and the year to date. Total sales, including markdown, were down 0.7% at Next Retail in the year to date and up 5.4% at Next Directory, for a total increase of 1.8%. Next also commented on the effect of the EU referendum, with its board saying it would be “unwise to draw any firm conclusions of the effect the decision to leave the EU will have on UK consumer demand, particularly as the week after the referendum was an unusually strong week the previous year.

FTSE 250 temporary power provider Aggreko posted a drop in first-half profit and revenue as weak oil prices took their toll on the company. For the six months to the end of June, pre-tax profit slid 31% to $61m on revenue of £685m, down 12% from the same period in 2015. Chief executive officer Chris Weston said: “"The trading environment in this first six months has been difficult, with the lower oil price continuing to impact a number of our markets. We are holding our guidance for the full year while recognising the importance of securing key contract extensions and the seasonal weighting of our North American business to the second half.”

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The Bank of England’s rate setters on Thursday will offer their latest assessment on the outlook for the British economy. Coming seven weeks after the country’s vote for Brexit, monetary authorities are forecast to cut interest rates for the first time since 2009. Economists and interest-rate futures markets both expect the Monetary Policy Committee to cut the bank’s benchmark rate a quarter point to 0.25 per cent, which will be the first move from the MPC since early 2009. - Financial Times

Sir Charlie Bean, a former deputy governor of the Bank of England, has warned that the impact of monetary stimulus was likely to be limited. “The world is very different from where we were during the financial crisis,” he said. “Rates are already at very low levels. The reason we stopped at 0.5pc in early 2009 was because we were concerned that cutting further would be counterproductive –the squeeze on bank margins might in itself reduce the extension of credit.” - Telegraph

Cutting interest rates this month would have little economic impact and could store up problems for the future, the shadow monetary policy committee of The Times has warned before the Bank of England’s decision on Thursday. Seven out of eight members urged the Bank to hold rates at 0.5 per cent at its meeting, when it is expected to unveil a cut as part of its Brexit response alongside downgraded growth forecasts. The majority argued that the Bank should do nothing at all and instead pass responsibility over to the government. - The Times

The UK could be forced to process 140 years’ worth of visa applications in just one year if there is a rush by 3.5m European citizens to secure residency rights once the process of Brexit begins. While ministers have said they expect to protect the long-term status of European migrants already in Britain if free movement comes to an end, keeping this promise would mean clearing a number of logistical hurdles. - Financial Times

US close

US stocks fell on Tuesday as investors digested economic data and quarterly earnings.

The Dow Jones Industrial Average ended down 0.5%, the S&P 500 fell 0.6% and the Nasdaq closed 0.9% lower.

Oil prices settled lower following a choppy session. West Texas Intermediate was down 1% at $39.66 a barrel and Brent crude was off 0.5% at $41.92.

On the macroeconomic front, the personal consumption expenditure index, the Federal Reserve’s preferred inflation barometer, increased 0.9% year-on-year in June, unchanged from in the prior month and in line with expectations. The annual rate of core inflation was flat at 1.6%, as expected. The Federal Reserve is targeting 2% inflation.

Personal spending rose 0.4% in June, beating estimates of 0.4% growth, while personal incomes climbed 0.2%, missing forecasts for a 0.3% increase.

The data came ahead of Friday’s all-important non-farm payrolls report. Analysts believe the Fed needs to see a strong jobs report and upbeat economic data before raising interest rates.

Dallas Federal Reserve Bank President Robert Kaplan on Tuesday urged caution on trying to increase rates amid global risks that could affect the US.

"I am closely monitoring how slowing growth, high levels of overcapacity and high levels of debt to GDP in major economies outside the US might be impacting economic conditions in the US," Kaplan said at an event in Beijing.