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London Quick Take - Wednesday - Lloyds earnings soar, FTSE 100 drops to month low, AI trade faces Mag7 gut check
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
UAE leaves OPEC from 1 May, which will enable it to pursue production growth. This has been on the cards for some time as they want to hit production capacity of 5mn bpd by 2027, but it comes at a moment of sky-high regional tensions and a split within OPEC only clouds the outlook further for the market, destabilising the cartel and raising questions about its ability to adjust supply to control prices. Brent crude jumped sharply on Tuesday and remains firmer north of $112.
Finally, UK 10yr gilt yields above 5% to 2008 levels and yield premium for UK over rest of G7 rising – reflecting inflation premium due to energy but also perhaps some mounting risks that the forthcoming May elections will provide the excuse to get rid of PM Starmer; a move that poses a clear risk of a more leftwing government that would raise spending commitments and see gilt yields move higher still – and could see a fresh tax raid on the banks. But is Mr Market overstating the risks here?
Lloyds earnings soar – pre-tax profits rose 33% year-over-year in the first quarter to £2bn with interest income driving the rise in earnings. Underlying net interest income rose 8% to £3.6 billion, reflecting a higher banking net interest margin of 3.17%, up 14 basis points year-on-year, as a structural hedge to reduce the bank’s exposure to falling rates provided a boost. This is set to deliver £7bn in income this year and the bank raised its forecast for net interest income to be above its previous estimate of £14.9bn this year. The return on tangible equity was a strong 17% in the quarter, ahead of the bank’s target of at least 16%, while it’s not set aside any further provisions relating to the motor finance mis-selling scandal. While interest income is driving the strong performance the bank is also near the end of an effort to diversify income streams away from the interest rate cycle – progress here with underlying non-interest income +11%. Expanding the corporate and institutional banking business is the next phase of the diversification strategy pursued by CEO Charline Nunn since 2022 – lending here grew 10% in the quarter. This business has already seen growth in recent years - +7% in 2025 and +35% since 2022 - and is it seems could generate further returns. Income from managing pensions, investments and insurance rose +22%. Shares have come off a bit to below 98p despite the headline strength in the numbers as management cut its outlook for UK growth due to the Middle East conflict and rise in energy prices. Banks could also be ripe for a tax grab soon - see below.
Elsewhere, AstraZeneca, GSK and Haleon were all lower after they all stuck to full-year guidance. Jet2 sounded ok about the summer season with sales ahead of last year and good hedging in place for fuel costs...no alarm. But the fallers have pushed the FTSE 100 down half a percent to trade below 10,300, its weakest level since 1 April when the market turned more positive on Iran. The lack of progress on peace talks and continued closure of the Strait is gnawing away at confidence.
Tech and AI have been saviours for US stocks and driven a powerful V-shaped rally, but yesterday AI-related stocks dragged on Wall Street as the S&P 500 declined 0.5% and Nasdaq fell –0.9% after OpenAI missed forecasts on revenue and user growth, per a report. Today Alphabet, Amazon, Meta and Microsoft report earnings to deliver a gut-check for the entire AI trade from capex plans to ROI. Qualcomm also reports.
Meanwhile it’s Fed Day. No drama is expected from what is most likely going to be Fed chair Jay Powell’s final meeting and press conference, with markets pricing in no change in policy. Forward expectations for Fed rates are flat through to the end of the year as markets await the arrival of Kevin Warsh. The DoJ has dropped its investigation of Powell, so the path looks clear now for Warsh. On today’s meeting they will likely note higher inflation and better labour market data but leave policy unchanged. Markets will be watching if Powell gives any indication he will stay on as a governor for two more years.
Elsewhere, AstraZeneca, GSK and Haleon were all lower after they all stuck to full-year guidance. Jet2 sounded ok about the summer season with sales ahead of last year and good hedging in place for fuel costs...no alarm. But the fallers have pushed the FTSE 100 down half a percent to trade below 10,300, its weakest level since 1 April when the market turned more positive on Iran. The lack of progress on peace talks and continued closure of the Strait is gnawing away at confidence.
Tech and AI have been saviours for US stocks and driven a powerful V-shaped rally, but yesterday AI-related stocks dragged on Wall Street as the S&P 500 declined 0.5% and Nasdaq fell –0.9% after OpenAI missed forecasts on revenue and user growth, per a report. Today Alphabet, Amazon, Meta and Microsoft report earnings to deliver a gut-check for the entire AI trade from capex plans to ROI. Qualcomm also reports.
Meanwhile it’s Fed Day. No drama is expected from what is most likely going to be Fed chair Jay Powell’s final meeting and press conference, with markets pricing in no change in policy. Forward expectations for Fed rates are flat through to the end of the year as markets await the arrival of Kevin Warsh. The DoJ has dropped its investigation of Powell, so the path looks clear now for Warsh. On today’s meeting they will likely note higher inflation and better labour market data but leave policy unchanged. Markets will be watching if Powell gives any indication he will stay on as a governor for two more years.
UAE leaves OPEC from 1 May, which will enable it to pursue production growth. This has been on the cards for some time as they want to hit production capacity of 5mn bpd by 2027, but it comes at a moment of sky-high regional tensions and a split within OPEC only clouds the outlook further for the market, destabilising the cartel and raising questions about its ability to adjust supply to control prices. Brent crude jumped sharply on Tuesday and remains firmer north of $112.
Finally, UK 10yr gilt yields above 5% to 2008 levels and yield premium for UK over rest of G7 rising – reflecting inflation premium due to energy but also perhaps some mounting risks that the forthcoming May elections will provide the excuse to get rid of PM Starmer; a move that poses a clear risk of a more leftwing government that would raise spending commitments and see gilt yields move higher still – and could see a fresh tax raid on the banks. But is Mr Market overstating the risks here?
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