US banks slip on profits, oil prices help support FTSE100

Europe

It’s been a choppy week for European equity markets, with weakness in US equity markets translating into a negative weekend as speculation over the pace of US rate hikes keeps investors nervous. Speeches from various Fed policymakers that up to 5 rate hikes may be needed before the end of the year are creating additional volatility and some anxiety, especially when it comes to the Nasdaq.

The FTSE100 continued to outperform and is expected to close higher for the fourth week in a row, despite today’s disappointing close, unlike the FTSE250 which has underperformed since the start of the year, like the rest of the European markets.

The DAX also had a bad day, retreating after the latest estimates from Germany’s statistics office showed the German economy likely shrank 0.5% to 1% in the fourth quarter as a combination of supply chain disruptions Omicron’s supply and restrictions reduced economic activity, a trend that is expected to continue in the first quarter.

The energy sector helps keep the FTSE100 afloat, helped by another two-month high for Brent crude prices, which maintains a floor under BP and Royal Dutch Shell, with BP shares expected to end the day higher for the ninth day in a row, its best winning streak since July 2016, and up more than 16% since the start of the year.

After seeing a number of positive retail reports already this week, today’s statement from Currys went against the grain, after the retailer warned of its earnings outlook, due uncertain demand and supply chain disruption.

On a like-for-like basis, sales for the quarter were down 5%, and while demand was strong for game consoles and home appliances, last year’s tough comparisons were still going to be tough to match. Currys says it expects to deliver adjusted pre-tax profit of around £155m for the full year, down slightly from £160m, a fall that helped push shares higher to a one-year low.

B&M European Retail also saw its shares fall today after Goldman Sachs announced it had sold 40 million shares in the name of SSA Investments at 585p each, reducing the company’s stake to 7%.

Shares of Royal Mail also fell after being placed on negative watch by JPMorgan Chase amid concerns over rising costs and ahead of its annual pay round.

Cineworld got a welcome respite from its recent woes after announcing that the group’s December revenue was 88% of 2019 levels, up from 56% in November despite various restrictions imposed as a result of Omicron. Its US operation led the way with 91% and the UK at 89% of 2019 levels. Following improvements in December, Cineworld said it was able to have cash flow positive in the fourth quarter.

The movie chain also said it intends to appeal the Ontario Superior Court’s decision that ordered it to pay C$2.1 billion, for its decision to pull out of the movie. Cineplex deal.

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US markets continued to look weak following yesterday’s big sell-off after some pretty appalling US retail sales numbers, while the latest figures from the US banking sector also pointed to weaker demand from American consumers.

With the US shut down on Monday, it looks like US investors may be risk averse over the long weekend, although the Nasdaq 100 hit daily lows, while the Dow Jones struggles due to weak banks.

US retail sales for December fell 1.9% in December, while November was revised down to 0.2%. The bigger-than-expected decline may well be because US consumers bought all their Christmas gifts in early October, when sales rose 1.8%, on concerns about chain disruptions. supply.

The disruption caused by the spread of the Omicron variant is also likely to have played a role in today’s low figure with lower spending across the retail sector. On the control group measure that is tied to US GDP, we saw a decline of 3.1%, while November was also revised down to -0.5%.

Shares of JPMorgan Chase fell after fourth-quarter earnings showed revenue was $30.35 billion, beating expectations of $30 billion, while profit hit $3.33 billion, the bank releasing an additional $1.8 billion in reserves. In terms of overall activity, FICC sales and trading revenue came in below expectations at $3.33 billion, as did stocks and sales, which recorded $1.95 billion, and it So are concerns about rising costs and demand for loans that appear to be weighing on the stock price.

The investment bank performed better at $3.21 billion, roughly in line with expectations, but shares slipped on higher costs to $17.9 billion, up by 11%, pushing the total number of expenses for the year to 71 dollars. billion. The bank attributed the increase to higher compensation costs as it seeks to retain staff. In total for all of 2021, JPMorgan made a profit of $48.3 billion.

On the personal side, bank lending operations recorded a decline in housing loans and personal loans. Reportedly, higher rates led to a 26% drop in home loan revenue to $1.1 billion, with credit card and auto loan application revenue falling 9% to $5 billion.

Wells Fargo, which is more focused on the US domestic economy, performed slightly better, beating expectations for fourth-quarter revenue of $20.86 billion. Profits hit $1.38c, helped by an $875m release of loan loss reserves. Turning to underlying business demand for loans paints an interesting picture of the US economy. Home loans fell 8%, while credit card loans increased 3%, while auto loans increased 17%. Business loans rose the most, rising 13% year-on-year to $272 billion. Total lending for 2021 was $875 billion. The main takeaway from today’s numbers appears to be an improved appetite for lending in the second half of the year, largely driven by corporates. The consumer market remains difficult.

Citigroup’s fourth quarter numbers were also mixed, with FICC sales and trading, and equity sales and trading revenue falling short of expectations at $2.54 billion and $785 million respectively. . Investment banking and consulting performed better, hitting $1.85 billion and $571 million, helping to push total revenue above expectations to just over $17 billion. Retail also saw a sharp decline in revenue, with income falling to $1.3 billion in services, while mortgage lending also fell. Costs were also higher than expected, partly due to taking on a $1.2 billion charge on its South Korean operations, although earnings were better than expected at 1.99. $CAD.

CEO Jane Fraser, who took office last March, has decided to revamp the bank, creating a new unit called Legacy Franchises which will bring together all the business units they are looking to exit. The rest of the business is expected to be split into two divisions, Personal Banking and Institutional Banking. Personal banking is expected to be split into US personal banking and global wealth management, while the institutional side will include investment banking, markets, and services.

Effects

The U.S. dollar slipped to a two-month low this week, despite growing speculation of an acceleration in U.S. rate hikes on concerns that the U.S. central bank may have lagged the curve.

This opens up the possibility that other central banks may also have room to tighten policy, which has led to a reduction in long positions in the US dollar ahead of the US long weekend. Simply put, the markets did not expect monetary policy tightening from the Bank of Japan, as well as the European Central Bank, and that is something that is now being considered.

It was good news for the pound at the start of the day, as the latest GDP figures for November showed the UK economy had recovered above its pre-pandemic levels, up 0 .9%, although the various restrictions imposed in December may well take some of the shine. out of performance in December. The economy rebounded strongly in November after a weak October.

Industrial and manufacturing production increased by 1% and 1.1% respectively, while construction production increased by 3.5%. Services grew 0.7%, helping the economy grow 0.9% in November, while October GDP was revised up to 0.2%.

This strong performance means that the fourth quarter should see a much better result, even taking into account the possibility of an Omicron-induced slowdown in December. It’s been a good week for sterling; however, today’s gains were somewhat dampened by some late US dollar buying, which saw the pound pull back from two-month highs.

Merchandise

Crude oil prices continued to look resilient, with concerns over geopolitical risk and a Russian incursion into Ukraine raising the stakes, while maintaining a bottom below prices. With some OPEC+ members already struggling to ramp up production to meet new production targets, worries about supply shortages have grown.

Gold prices have rallied after last week’s tumble, with US dollar weakness offering support, as well as weakness in US equity markets prompting capital inflows and safe-haven buying, as from its December highs.


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Felix J. Dixon