Stress test excitement rapidly fades

An early pop for markets has faded, as investors look towards a heavy week of earnings and macro data. In mid-morning trading the FTSE 100 is trading marginally higher around 6390. 

ECB headquarters
Source: Bloomberg

Last week saw a substantial turnaround in both equity markets and investor sentiment. However there has been little over the weekend to prompt further gains, with the stress test results mostly priced in and elections in the Ukraine serving more to highlight the ongoing problems there than reassure investors. However, a lack of Ebola news over the weekend has at least removed one cause for worry.

Given the almost laughable standards imposed by previous eurozone stress tests, the bar had been set pretty low for this round of exams for Europe’s big name financial institutions. However, the ECB seems to have done its job with a degree of rigour and this is helping European indices to start the day on a positive note, helped along by a strong finish in the US on Friday.

In London, Standard Chartered (the one major UK bank not tested) is the sole upward mover in the sector, with class dunce Lloyds down around 2% following news that it had squeaked through its exams. The news will weaken Lloyds’ position as it negotiates with the FCA about restarting dividend payments, and the share price fall reflects a hasty recalculation among investors about the chances of an income stream from the bank in the future.

US services PMI and pending home sales are on the agenda for today, but it will be the steady stream of earnings that animates markets, and in particular social media firm Twitter, which reports after the bell. Earnings of 1 cent per share are expected, but given the hefty forward multiple on which the stock trades the risk of disappointment is very high. The last earnings report saw the stock price skyrocket, but a lack of successful user monetisation will be received very poorly by the market.

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