Monday, October 26, 2020

American Express Slows with Change in Spending Habits


News shaping
the markets today


What’s happening: Shares of American Express fell on Friday despite the American multinational company reporting third-quarter sales that surpassed the consensus view.

What happened: Credit card companies have been hurt by pandemic-induced travel restrictions and people significantly lowering their discretionary spending due to job insecurity.

Although American Express reported underwhelming spending on credit cards for the third quarter, there was a bright spot that might provide some support to the company in the upcoming period.

How were the results: The credit card giant reported a decline in both revenues and profits for the third quarter.

  • Total revenues contracted 20% to $8.75 billion, but managed to beat the consensus view of $8.66 billion.
  • Net income plummeted to $1.1 billion, or $1.30 per share, from $1.8 billion, or $2.08 per share, in the same quarter last year. The figure missed the market expectations of $1.35 per share.

Why it matters: American Express announced plans to significantly increase its marketing spend to attract more card customers, while other companies held back to focus on saving amid the pandemic. AmEx’s third-quarter marketing spend was not only higher sequentially, but also on a year-on-year basis.

The company reported a 19% decline in spending on credit cards to $248.7 billion, with spending on travel and entertainment plunging 69% from the year-ago levels.

Despite the overall gloom, AmEx said its online consumer retail spending had surged 32%, with an increase in online shopping. Excluding travel and entertainment and the effect of currency fluctuations, spending rose 1% year-over-year.

“While our business continues to be significantly affected by the impacts of the pandemic, our third quarter results have increased our confidence that our strategy for managing through the current environment is the right one,” CEO Stephen Squeri said during the earnings call.

How shares responded: Shares of AmEx slipped 3.6% to close at $100.98 on Thursday following the release of mixed quarterly results. The stock has declined more than 18% year to date, although adding around 5% in the last three months.

What to watch: With AmEx increasing marketing spend, investors will keep an eye on new customer adds. Markets will also look for further news related to the gradual reopening of restaurants and entertainment and the easing in travel restrictions, hoping for a rebound in the company’s earnings in the upcoming quarters.

The Markets Today


Gold will be in focus today, after the yellow metal recorded a loss for the second consecutive week.

Context: Gold prices closed slightly higher on Friday with markets monitoring talks on the stimulus package, while keeping an eye on the US Presidential elections and rising covid-19 cases.

Details: The yellow metal ended a volatile session with modest gains on Friday. Gold moved higher early in the session with hopes of a fresh relief package from the US supporting the bullion. Prices soon moved lower, following higher readings for the US service and manufacturing sectors.

The IHS Markit PMI for services jumped to 56.0 in October, versus 54.6 in the previous month, recording its highest level in 20 months. The manufacturing index also jumped to a 21-month high to 53.3 in October, from a reading of 53.2 in September.

Gold futures for December delivery gained 60 cents to close at $1,905.20 an ounce on Friday, after declining 1.3% in the prior session. The precious metal slipped 0.1% last week, notching losses for the second consecutive week.

Meanwhile, silver for December delivery shed 0.1% to settle at $24.675 an ounce on Friday, following a 2.1% decline. However, the white metal still recorded a 1.1% gain for the week.

What to watch: Investors will closely monitor the ongoing stimulus talks in the US as well as the number of infections in the US and Europe.

Other Markets: European trading indices closed higher on Friday, with the FTSE 100, German DAX 30 and French 40 up 1.29%, 0.82% and 1.20%, respectively.

Support & Resistances
for Today


market snapshot


Futures at 0400 (GMT)

What else to watch today


Spain's producer prices, Germany’s Ifo business climate index, Mexico's economic activity, Brazil’s loan growth, Russia’s business confidence and corporate profits, Argentina’s retail sales as well as the US Chicago Fed National Activity Index, new home sales and Dallas Fed manufacturing index.