HSBC slides after earnings, weighing on European banks

HSBC slides after earnings, weighing on European banks
(Cash-market closes are for Monday, 26 October, US Eastern time; futures, European-market and commodity prices are data verified through compliant sources before 16:30 Hong Kong time on 27 October; this edition has not obtained US dollar index or spot gold quotes for 16:30 verified through compliant sources.)

On Monday, the S&P 500 rose 0.70% to 7677.03 points, the Dow gained 0.28% to 52361.76 points, the Nasdaq climbed 0.83% to 26169.38 points, and the equal-weight S&P ETF (RSP) rose about 0.35% to $217.29 (Reuters, as reported by another outlet). US stock futures were broadly flat before Tuesday’s open: Nasdaq futures were flat and European stock index futures fell about 0.2% (Reuters, as reported by another outlet). The 10-year US Treasury yield closed Monday at 5.00%; Brent crude fell 1.0% on Tuesday to $114.63, and WTI fell 0.95% to $100.79 (The Wall Street Journal, as reported by another outlet); spot gold rose about 0.5% on Monday, regaining $4000 an ounce (Reuters); and the US dollar index edged higher on Monday, moving above 102 (Reuters).

Market themes
At Tuesday midday, markets are waiting: for tonight’s durable goods orders and consumer confidence, tomorrow night’s FOMC decision, and Microsoft and Alphabet’s earnings early Wednesday. Before those answers arrive, Europe, the only major market already open, has chosen to fall first. HSBC’s results, featuring a sharp profit rise and a steep share-price drop, pulled European banks lower, while continuing protests in France added another layer of caution in Europe. Meanwhile, Asian chip stocks surged on momentum from Anthropic, with Japan and South Korea leading and Hong Kong and mainland Chinese stocks lagging. The same day, the same AI story: Asia rises and Europe falls. The difference is who must first face earnings and central bank decisions. Tonight’s focus narrows accordingly: before the open, Boeing, Coca-Cola and UPS first test real-economy consumption and freight; after the close, Visa and Robinhood test payments and retail-investor sentiment. Each $1 retreat in oil prices also eases the pressure ahead of Thursday’s GDP and PCE reports.

I. Israel’s election and Iran: voting and counting on election day, but no clear path to 61 seats for either side

• Israel votes Tuesday with Benjamin Netanyahu’s political survival at stake. Reuters reports that voters are weighing his leadership after the Hamas attack in 2023, the Gaza war and the war with Iran; he remains a “formidable survivor,” and the fragmented party system may leave him best placed to form a government (Reuters). Polls show a tight race between Netanyahu’s Likud and its right-wing allies and a rival bloc led by Gadi Eisenkot. Neither side has a clear path to a 61-seat majority; if both fail to form a government, Netanyahu could stay on in a caretaker capacity until another election next year.
• The voting timetable itself is long: polling stations are open from 7 a.m. to 10 p.m. local time, the final count is expected on 30 October, and official results on 4 November; coalition talks could last weeks or even months (Reuters). That means there will be no “election result” as a trading catalyst tonight. Markets will still be trading the Tehran dialogue and oil prices, rather than the count in Jerusalem.
• The oil-price logic on the Iranian side has not changed: Brent retreated from Monday’s close of $115.81 to $114.63 on Tuesday, while WTI fell below $101, a move of about 1%. This is still a loosening of the risk premium, not the removal of risk. As long as Houthi attacks and the option to “finish it” remain on the table, oil will struggle to return below $110 in one move—and that is precisely the inflation backdrop Wednesday’s FOMC least wants to see.

II. Europe and Asia: HSBC drags down banks, French protests continue; Asian chip stocks surge in the opposite direction

• Europe fell first on Tuesday: the pan-European STOXX 600 dropped 0.2% to 639.64 points at 08:05 GMT (16:05 Hong Kong time), after rising nearly 0.8% on Monday. HSBC fell 6.9%, and the bank index lost 1.3% (Reuters). In a single day, one stock, HSBC, gave back much of Monday’s rebound—today’s European decline is about earnings, not macroeconomics.
• HSBC’s results were a textbook case of strong profits and a weak share price: third-quarter pretax profit rose 32% year on year to $9.6 billion, meeting expectations, and the bank announced a buyback of up to $1 billion. But wealth management revenue was flat at $2.7 billion, after year-on-year growth of 15% and 23% in the preceding two quarters, respectively (Reuters, as reported by another outlet). Its Hong Kong-listed shares fell 5% after the results, while its London shares fell 6.9% (Reuters). The market punished the stalling growth engine, not profit—the same grading standard applied to Verizon on Monday, when better-than-expected earnings and a revenue miss accompanied a 3.5% fall.
• The situation in France has not eased either: Reuters reports that French student leaders vowed to continue protesting despite government concessions on education, deepening concern that protests could spread to unions and other activists. French stocks had already fallen more than 2% last week (Reuters). Swiss drugmaker Novartis raised its full-year core operating profit guidance and gained 3.1%, one of Europe’s few bright spots on Tuesday (Reuters). Europe’s mix today is falling banks, rising pharmaceuticals and a drag from France—no systemic panic, but no concerted rebound either.
• Asia led in the opposite direction on Tuesday: South Korea’s Kospi rose more than 4% intraday, on course for its largest one-day gain since February; the Nikkei gained 1.9%, and the MSCI Asia-Pacific ex-Japan index rose 1.2%. Yet the Kospi was still down 17% this month, showing that the rally was only one step out of a deep hole (Reuters, as reported by another outlet). Asia rose on chip orders, while Europe fell on bank earnings—on the same day, the AI story was a tailwind in Asia and did not even get a chance to appear in Europe.

III. Bonds, the dollar and commodities: the 10-year yield stuck around 5%, oil retreats $1, gold holds $4000

• Tuesday’s mix was a degree milder than Monday’s, but none of the components had truly turned: the 10-year yield closed Monday at 5.00%, and no updated premarket quote verified through compliant sources was available Tuesday; Brent and WTI each fell about 1%, but remained above $114 and $100, respectively. After spot gold regained $4000 on Monday, this edition did not obtain a Tuesday 16:30 quote. A $1 drop in oil eases the constraint, but does not resolve it—ahead of Thursday’s PCE release, pressure on inflation expectations has only come down one notch from its high.
• The interest-rate outlook has not shifted: a Federal Reserve hold this week is almost consensus, and the real question remains whether Wednesday’s statement and press conference will open or narrow the door to a rate hike in December. Reuters reported in Tuesday’s Asian session that money markets were broadly calm ahead of decisions from the Fed, the ECB and the Bank of Japan. All three were expected to hold rates, with attention on what officials’ remarks might imply for the rate outlook (Reuters, as reported by another outlet). Three central banks holding in the same week, with only their tone to compare—that is why the bond market is stuck around 5%: nobody wants to move first on the eve of the decisions.

IV. Stock and sector moves, including earnings: technology led Monday, communication services lagged; consumer and industrial companies report tonight

• First, Monday’s backdrop: 7 of the S&P 500’s 11 sectors rose and 4 fell. Technology led with a 1.5% gain, while communication services came last, down about 1.4%. Tesla rose 5.2% to $391.62 after a Barclays upgrade, Microsoft gained 1.5%, and Verizon closed down 3.5% after earnings beat expectations but revenue missed (Barron’s). Monday’s grading standard is already set: computing power and chips rose, while revenue misses were punished—tonight’s results will be graded by the same standard.
• Three companies report before the open tonight: Boeing, where production and delivery progress are in focus; Coca-Cola, for pricing power and volumes; and UPS, for parcel volumes as a proxy for goods demand. After the close, Visa takes over with payment volumes as a consumer barometer, followed by Robinhood with retail trading activity. These five companies speak to how much Americans are still spending and how much freight is moving. On the eve of the FOMC, they are a more tangible economic thermometer than chip stocks.
• Apple’s foldable-screen controversy continues to develop: Bloomberg reported that some users of the $1999 iPhone Duo saw cracks appear on the inner screen within hours or days of unboxing. Apple said it was aware of inner-screen issues affecting a “small number” of devices and advised affected users to contact AppleCare for a replacement, but did not specify the number affected or the cause. Apple shares fell about 1% intraday Monday to $343.13 (Bloomberg, as reported by another outlet). A quality-control issue with one new product is not enough to shake Apple’s valuation, but it reminds the market that hardware stories leave far less room for error than software stories.

V. AI news: Anthropic ignites Asian chip stocks, but the evidence markets demand has become more demanding

• Reuters’ assessment on Tuesday was that Anthropic’s IPO filing boosted risk appetite, but investors’ focus has shifted from revenue growth to returns on AI spending. The filing’s disclosure of huge losses alongside booming revenue comes precisely at that turning point (Reuters, as reported by another outlet). US chip stocks rose 2.8% on Monday, their largest one-day gain in a month, while Nasdaq futures were broadly flat Tuesday (Reuters, as reported by another outlet). Tuesday’s gains in Asian chip stocks essentially caught up with Monday’s gains in US chip stocks, rather than reflecting a new positive catalyst.
• Anthony Saglimbene, chief market strategist at Ameriprise, offered a warning worth recording as stated: amid increased scrutiny of AI and circular trading arrangements, investors want to see demand “broadening beyond these interconnected relationships” to support infrastructure expansion. Aggressive capital spending must reflect “durable business demand,” and profitability must “hold up” once new infrastructure comes online (Reuters, as reported by another outlet). That is the grading standard for Microsoft and Alphabet’s Wednesday results: whether cloud revenue can cover the bill, rather than how much it has grown.
• Saxo chief investment strategist Charu Chanana’s assessment on Monday also applies today: “Strong AI demand alone is no longer enough; the market wants evidence of monetization, margins and cash flow” (Reuters). From Monday to Tuesday, the market’s demands for AI have not eased; they will only rise. The early Wednesday results are the first formal test.

VI. Forward calendar (Hong Kong time)

• 27 October (Tuesday), tonight: Israel’s general election voting, with polls open until 22:00 local time and official results on 4 November; first day of the FOMC meeting; 20:30 durable goods orders for September; 21:00 Case-Shiller home price index for August; 22:00 Conference Board consumer confidence for October, new home sales and Richmond Fed manufacturing index; before the open: Boeing, Coca-Cola, UPS and PayPal; after the close: Visa, Robinhood, NXP, Seagate and Teradyne.
• 29 October (Thursday), 02:00: FOMC decision, with the market expecting rates to remain at 3.75–4.00% and no dot plot this time; probability of a hold this week above 90% and probability of a hike in December about 80%; 02:30 press conference by the Fed chair; Microsoft and Alphabet report after the close early the same day, following Wednesday’s US Eastern close.
• 29 October (Thursday): 20:30 preliminary Q3 GDP, with the market expecting annualized growth of 3.2%, above the previous 2.2%, and PCE for September; 21:15 ECB rate decision; before the open: Eli Lilly and Mastercard; after the close: Amazon and Intel.
• 30 October (Friday): Bank of Japan decision; 20:30 employment cost index, with the market expecting 0.8%, below the previous 0.9%; before the open: Exxon Mobil and Chevron.
• 31 October (Saturday): another march in France, called by unions and the Yellow Vests; 3 November (Tuesday): US midterm elections; 5 November (Thursday): major strike by French unions.