Focus turns to US tech after banking earnings underwhelm

(Alliance News) - The reaction to corporate earnings on Tuesday displayed a divergence between consumer goods and banking stocks, with investors taking confidence in the former, but digging deep to pick apart the latter.

There will be the first clue as to where US tech shares fit into the equation after Google owner Alphabet Inc and Microsoft Corp report following the closing bell in New York on Tuesday.

A big week for banking sector earnings kicked off with a whimper. Shares for European banking stocks were largely weaker as investors picked apart earnings from Santander and UBS.

Banco Santander SA fell 6.0% in Madrid. It posted a profit hike though windfall taxes in Spain kept a lid on growth.

Weaker profit in its Brazil division also spooked investors.

UBS Group AG lost 2.2%. In its first quarterly report since the hastily-arranged takeover of stricken compatriot Credit Suisse, UBS reported a profit miss.

The Swiss bank reported a net profit of USD1.03 billion in the first quarter of 2023, down 47% from USD1.94 billion in the previous year, and falling short of consensus of USD1.7 billion.

Over in New York, a sharp share price fall for First Republic was one of the major stories. The stock plunged 30%.

First Republic – which announced a major employee downsizing to cut costs – reported deposits of USD104.5 billion at the end of March, a drop of nearly USD72 billion from the level at end-2022.

It is the bank's first batch of earnings since Silicon Valley Bank's dramatic collapse in March raised alarm bells about the vulnerabilities of regional lenders.

Things were better for consumer goods firms, however.

"Prices have been hiked for another quarter and for the most part consumers have been willing to keep on paying for the stuff they really want to buy. Both Pepsi and Nestle have made share price gains after updating investors that sales have remained robust despite double-digit increases in the cost of some of the world's most popular brands," AJ Bell analyst Danni Hewson commented.

Nestle rose 0.8% in Zurich and PepsiCo was up 2.3% in New York on well-received quarterly figures.

Between them, they own brands such as KitKat, Nescafe and Doritos.

"Consumers are finding the cash for those little luxuries; trading down for the things that don't matter so much to them and, in some cases, likely putting the weekly shop on credit," Hewson added.

Focus shifts to US technology shares. Microsoft and Alphabet report on Tuesday, Meta Platforms Inc on Wednesday and Amazon.com Inc on Thursday.

"Despite the decline in e-commerce demand, Amazon's revenue keeps growing due to its cloud-computing arm, subscription services, and rapidly expanding advertising business. However, rising costs are outpacing revenue growth and impacting margins, leading to an anticipated seventh consecutive quarter drop in [earnings per share] during the first three months of 2023." Forex.com analyst Matthew Weller predicts.

By Eric Cunha, Alliance News news editor

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