Market Overview

21 September 2020

European Banks Are at Investigation Gunpoint Amid the Pieces of the Global Market Puzzle


It suddenly seems as if a conjoint "fabric" of the market has been transformed into a puzzle, with some pieces temporarily falling into random places. Despite the clear reassurance by the US Federal Reserve (Fed) of a very long period of near-zero interest rates - including at least the entire year of 2023, when keeping the stimulus "money printer" on - only a few stocks, like Johnson & Johnson or UnitedHealth Group, allowed themselves to moderately rise during Friday's New York session. 

A wave of profit-taking was not too strong for a broad spectrum of assets, but the capitalisation of most companies fell lower, and the shares of the rest of them did not attract enough optimists who were eager to buy at current levels and at the moment. The whole context of macro statistics was still rather positive. After the U.S. jobless claims and the Philadelphia Fed business survey were upbeat on Thursday, and the housing starts figures didn't spoil the day too much, the last numbers from that side of the Atlantic were also bright on Friday. The Michigan sentiment set of indexes included a current conditions component at 87.5 points and a consumer expectations component at 73.3 points, plus the consumer sentiment at 78.9 points, with all the three showing the highest readings since April. 

However, a significant part of the investment community still seems to not see enough reasons for hasty judgments on the potential end of September's downward correction within arm’s reach, still fearing but hoping at the same time for a deeper potential entry point into various stock assets. This cautious market sentiment is amplified by Big Tech shares, like Amazon and Google, which are running out of steam. However, this tech group of assets also has no common matter for complaint or for their price to dive critically, except for the fact that they were devotedly bought up earlier, week by week, for five months without a break. In fact, each of these companies just has its own small reason for a momentary hesitation or a relative weakness. 

For example, Google CEOs were questioned about an advertisement sector of their business in a Senate hearing last week, with a focus on whether the giant internet service platform misused its dominance to drive profits by elbowing its way through the crowd of rivals. At the Judiciary Committee's antitrust panel, some senators said the company's policy is  not transparent enough in its pricing advertising services, as its critics complain. They also blamed Google of using its own search services to tout its own shopping, mapping and other products rather than giving neutral responses. Google made a series of purchases, including DoubleClick and AdMob, which might help it to become the dominant player in online advertising grasping over each step between an advertiser looking to place an announcement and a website looking to host it. So, the U.S. Department of Justice is expected to file a lawsuit against Google within weeks, Reuters wrote citing some "sources familiar with the matter". 

Regarding Facebook, several top bloggers implemented a 24-hour boycott under the pretext of allegedly insufficient efforts of the resource to struggle against the so-called "hate speech" in some users' posts. The U.S. presidential 2020 election campaign is winding up, which may lead again to some new accusations for the Facebook policy as both of the political wings may check thoroughly if CEO Mark Zuckerberg and all his team are doing a good job when it comes to  protecting the election from the real or imaginary threats of an external influence, or against manipulations. 

The EU officials are considering arming themselves with "new powers to penalise" big tech companies too, the Financial Times reported on Sunday. The proposed plan includes "forcing tech giants to break up or sell some of their European operations if their market dominance is deemed to threaten the interests of customers and smaller rivals," the newspaper wrote. The authorities are reportedly going to propose new rules called the Digital Services Act by the end of the year to strengthen social media's responsibilities concerning content. 

Apple has postponed the release of the new iPhone. The potential profits of online sellers, such as Amazon and Alibaba, could be overestimated by the market. There are various reasons behind some concerns linked to  each of the Big Tech companies. Therefore, some potential investors might prefer to see the current market prices as rather initial targets rather than entry points. As a possible result, the U.S. high tech Nasdaq index fell to around the 10,700 area, while the broad market S&P500 index fell to 3,250 level after the European Monday's noon on expectation of a wait-and-see attitude of most of the market participants. Investors may want to firstly see how others start broad investments before investing again themselves. 

Some of the European companies also had their own reasons to doubt and to have lasting expectations. Shares in HSBC, which is still the largest bank in Europe by total assets, fell almost 6% today, showing its lowest level since the Asian crisis of 1998, after media reports that they and other banks, including Barclays and Deutsche Bank were moving large sums of allegedly illicit funds over nearly two decades. So, those accusations should be investigated now by the U.S. Department of Treasury's Financial Crimes Enforcement Network. BuzzFeed and other media articles were based on allegedly leaked suspicious activity reports filed by some other banks and other financial firms, and later the information was shared with the International Consortium of Investigative Journalists (ICIJ). 

In a statement to Reuters on Sunday, HSBC said that "all of the information provided by the ICIJ is historical." The bank said that as of 2012 it had embarked on a "multi-year journey to overhaul its ability to combat financial crime." Standard Chartered, also mentioned in the media investigation, said in a statement it took its "responsibility to fight financial crime extremely seriously and have invested substantially in our compliance programmes". Barclays said it believes it has complied with "all its legal and regulatory obligations, including in relation to U.S. sanctions." 

One way or another, the STOXX European banks index (SX7P) was down almost 5%, and all the major composite stock indexes of European countries have also dropped today to the area of two-month lows. This news agenda may worry the European investment community at least until the publication of data on business activity as traders are expecting updates on business confidence from fresh September Purchasing Managers Indexes (PMI) and the German Ifo institute data, on Wednesday and Thursday.

 

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