European shares dip as HSBC results weigh on banks ahead of Big Tech earnings

Oct 27 : European shares slipped on Tuesday, dragged down by banking stocks, after disappointing results from HSBC, while investors also turned cautious ahead of US tech earnings, seen as a key test of the AI trade, and central bank meetings that could shape near-term interest-rate outlook.

The STOXX 600 banking sector slid 1.3 per cent, with shares of Europe's largest lender down 7 per cent after missing revenue expectations for the July-September quarter due to slower growth at its wealth business, while pretax profit was in line with estimates.

The pan-European STOXX 600 dipped 0.2 per cent, while London's FTSE 100 index declined 1 per cent, largely as a result of the drop in HSBC shares.  

"Banks have been the winners of the latest quarter before this one, reporting record results because of high volatility and because of AI financing," said Ipek Ozkardeskaya, a senior market analyst at Swissquote Bank.

"But right now, they are coming under pressure because we do see the interest rate rise, short-term yields rising more than long-term; that's basically eating into the income revenue," she added.

"But I still think that the banks are in a good position to outperform the other sectors, especially sectors that are more vulnerable to directly rising living costs."

Quarterly earnings are the central focus globally, as investors weigh up the impact of the conflict in Iran, including higher costs and interest rates, on corporate performance.

EARNINGS DELUGE

In the US this week, more than a third of S&P 500 companies are expected to report and the scrutiny of AI hyperscalers including Microsoft, Amazon and Alphabet will be intense, as investors seek signs that these companies' billion-dollar investments are yielding returns as expected.

"We remain medium-term bullish on the 'picks and shovels' trade. We see capex cycle remaining strong and the earnings remaining robust," Mohit Kumar, an economist at Jefferies, said.

"However, we do admit that, as with any cycle, there would be winners and losers in the AI trade and a number of companies will not remain profitable and even go bust."

Big Tech earnings could determine appetite for the eagerly awaited public debut of AI bellwether Anthropic and Meta Platforms' $95-billion equity fundraising.

Claude-owner Anthropic disclosed a steep loss, but red-hot revenue growth, in its filing for a US initial public offering on Monday and is expected to list before the end of November.  

The enthusiasm around Anthropic lifted stocks in Asia and helped MSCI's broadest index of Asia-Pacific shares outside Japan rise 0.1 per cent. Nasdaq futures were muted after strong gains in the previous session.

CENTRAL BANKS EXPECTED TO STAY ON HOLD

Policy decisions from the Federal Reserve, European Central Bank and Bank of Japan are due later this week, with economists expecting all three to stand pat on interest rates, leaving the focus on comments from policymakers to gauge the rates outlook.

Fed policymakers have telegraphed they will not raise short-term borrowing costs again on Wednesday, but with inflation concerns still front and centre, investors believe a rate-hike pause will not last for long. Traders are pricing in a 25 basis point hike from the Fed in December, the CME Group's FedWatch Tool showed.

The euro eased 0.1 per cent and at $1.115 it was near the May low it hit two weeks ago.

The yield on the US 10-year Treasury note was steady at 4.986 per cent, staying below 5 per cent which it breached in September as investors scurried to Treasuries for safety during stock market tumult over AI worries. 

The outlook for interest rates could depend on the outcome of ongoing talks with Tehran, even as Yemen's Houthis continue to attack Saudi Arabia. Brent crude prices rose 0.6 per cent to $116.82 per barrel. 

Spot gold prices eased 0.6 per cent to $3,992.70 per ounce.