European Equities, US Futures Dip as Earnings Continue

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Principal Points

• UBS presents outstanding results
• Optimism reigns among investors in the US

European stocks fell on Monday along with US equity futures on Tuesday. The European market retreated on Monday as investors became increasingly worried over the eurozone economy and a possible double-dip recession in some countries across the old continent. US stock futures fell on Tuesday as the negotiations for the US stimulus package may take longer than expected. The possible delay in the proposed fiscal spending stoked fears in premarket trading and caused major indexes to go into negative territory. On Monday, the new Senate Majority Leader Chuck Schumer said that it is unlikely for the relief package to be approved before mid-March.

Adding to the downside pressure, the US surpassed 25 million Covid-19 infections or about 8% of the population this week. Even though daily cases have declined from their peak of nearly 300,000, the nation still has an average of about 175,000 cases per day for January, and Covid-related deaths have exceeded 417,000 in the US. According to data from the CDC, some 20 million Americans have received at least one shot of vaccination.

On Monday, the US market was led by gains in the tech sector as investors are optimistic about the anticipated results from tech giants reporting this week. Facebook, Tesla, and Apple release their fourth-quarter earnings on Wednesday. The Nasdaq Composite on Monday closed higher by 0.69%, while the S&P500 rose by 0.36%. The Dow was trading relatively flat, closing moderately lower by 0.12%.

More Instability Dominates Italian Politics

Elsewhere in the markets, UBS pledged to return $4.5bn to shareholders in a buyback operation. Despite the pandemic, the Swiss bank reported a sharp rise in profits in 2020 and announced it is planning to return capital to investors. UBS reported a 137% jump in net income for 4Q20 compared to the same period during the previous year. The results are the first under the leadership of Ralph Hamers who succeeded Sergio Ermotti on Nov 1.

As the world’s largest wealth manager, the bank continues to take on a cautious approach towards the market and the economic outlook. According to CEO Ralph Hamers, the real damage to the global economy will be revealed once the heavy lockdowns are lifted. On the bright side, he said in an interview following the report, “there is some light at the end of the tunnel with the vaccination program”.

Italy’s Prime Minister Giuseppe Conte is expected to brief ministers today and hand in his resignation. The country took another heavy hit by the coronavirus pandemic followed by a looming recession. In turn, the developments created chaos in the realm of politics as political instability increased, putting Prime Minister Conte under pressure to resign. After offering his resignation to President Sergio Mattarella, Mr. Conte intends to form a new government after his coalition lost the majority last week when he narrowly survived a vote of confidence in Italy’s Senate.

Prime Minister Conte’s decision to resign this morning will enable him to avoid a potential defeat on Wednesday when the upper house is set to vote on his departure. The manoeuvre today will offer him a chance to form a new government.