Key events
Shares in BP have hit their highest level in over five months, after it told the City that its oil and gas production rose in the last quarter.
In a trading update this morning, BP guided that upstream production in the first quarter is expected to be higher compared to the prior quarter, with production higher in oil production and operations and slightly higher in gas and low carbon energy.
BP shares have gained 1.3% to 516p, the highest since the end of October.
Shares have been benefiting from the increase in the crude oil price this year, with Brent crude having risen from $77/barrel at the end of 2023 to over $90/barrel today.
Victoria Scholar, head of investment at interactive investor, explains:
“BP says it expects a strong first quarter for oil and gas trading as well as a quarter-on-quarter improvement in upstream production of low-carbon energy and oil & gas. It also expects an improvement to its oil refining margins this quarter when it reports results on 7th May in the first set of earnings since Murray Auchincloss became permanent CEO in January following the abrupt departure of Bernard Looney last year.
It looks like BP is poised for another strong quarterly scorecard after results in the final three months of 2023 outpaced expectations and the new CEO enticed investors by ramping up BP’s share buyback programme. Supporting BP and its rivals is an upward trend for underlying oil prices with geopolitical supply shocks and improving global demand pushing Brent crude above $90 a barrel this month, reigniting the possibility of $100 oil again in the months ahead.”
UK retail sales lifted by early Easter
Larry Elliott
An early Easter boosted consumer spending in March and gave Britain’s retailers their best month in more than two years.
Prompting hopes that the retail sector might be emerging from a protracted soft patch, the latest snapshot of spending in shops and online showed the value of sales above the current inflation rate for the first time since the early days of the cost of living crisis.
The monthly sales monitor from the British Retail Consortium and the accountancy firm KPMG said the value of sales was up by 3.5% in March on a year earlier. Inflation as measured by the consumer prices index stood at 3.4% in February and is expected to have fallen to about 3% in March.
Linda Ellett, the KPMG UK head of consumer markets, leisure and retail, said the Easter pickup in spending pointed to the possibility of “green shoots of recovery” for retailers.
US rate cut expectations for 2024 fall to lowest since October
Investors are losing faith that central banks will make hefty cuts to interest rates this year.
Futures traders have reduced bets on how much the US Federal Reserve will cut rates this year to the lowest level since October, LSEG data shows.
Traders now expect fewer than three quarter-point cuts to US interest rates this year, down from up to six cuts expected in January.
Reuters explains:
Fed funds futures contracts for December on Monday reflected expectations of around 60 basis points in rate cuts this year, compared to some 150 basis points that had been priced at the start of 2024.
The prospect of a first 25 basis point cut in June stood at 49%, down from 57% a week ago, CME Group data showed on Monday.
Fed Rate Cut Expectations for 2024 Fall to Lowest Since October
• Futures traders have reduced bets on Fed rate cut to the lowest level since October.
• Fed projected a 75 basis point cut in rates this year.
• Treasury yields have moved higher due to interest rate expectations— Kedia Advisory (@kediaadvisory) April 9, 2024
This repricing follows stronger than expected US economic data, such as last Friday’s forecast-beating US employment report showing 303,000 new jobs were created in March.
Yesterday, JP Morgan CEO Jamie Dimon warned that inflation coud be stickier than forecast, leading to higher interest rates than markets expect.
For the UK, traders expect the Bank of England to cut rates to 4.5% by the end of this year, from 5.25% at present.
Introduction: HSBC to take $1bn pre-tax loss on Argentina sale
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Argentina’s currency crisis has come back to bite HSBC, as it announces the sale of its operations in the South American country.
HSBC is selling its business in Argentina – which covers banking, asset management and insurance and $100 million in subordinated debt – to Grupo Financiero Galicia, Argentina’s fifth largest bank, for $550m.
But, HSBC will record a $1bn pre-tax loss on the sale, as it will crystallise losses it has been running on the Argentinian peso-denominated book value of HSBC Argentina when converted into US dollars.
HSBC will also recognise $4.9bn in historical currency translation reserve losses when the deal closes. Those losses swelled by $1.8bn last year because of the devaluation of Argentina’s peso.
Last December, Argentina’s libertarian government led by Javier Milei devalued the peso by about half, as part of their economic shock treatment.
Argentina’s Peso has by now reversed almost half its December devaluation in real terms. This is a disaster. Argentina needs a weak currency, so it can rebalance its economy and grow. The root of so much dysfunction in Argentina is the addiction to Dollar pegging. That must end. pic.twitter.com/Yb38VB4FxI
— Robin Brooks (@robin_j_brooks) March 3, 2024
The sale will help fund HSBC’s pivot strategy of shifting capital to India and China.
Noel Quinn, HSBC’s chief executive, says the bank is pleased to have agreed the sale of HSBC Argentina.
This transaction is another important step in the execution of our strategy and enables us to focus our resources on higher value opportunities across our international network. HSBC Argentina is largely a domestically focused business, with limited connectivity to the rest of our international network. Furthermore, given its size, it also generates substantial earnings volatility for the Group when its results are translated into US dollars. Galicia is better placed to invest in and grow the business.
“We remain committed to Mexico and the US, and to serving our international clients throughout our global network with our leading transaction banking capabilities.”
The agenda
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7.45am BST: French trade balance for February
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1pm BST: Mexico’s inflation rate for March
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3pm BST: RealClearMarkets/TIPP index of US economic optimism
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6.30pm BST: IMF to publish chapter 3 of its Global Financial Stability Report
