14 July 2020

Investors Bank on Q2 Results of Major Financial Stocks

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News shaping
the markets today

     

What’s happening: The biggest US banks are scheduled to kickstart the second-quarter earnings season today.

What happened: The first-quarter earnings season is usually a key one for the markets. This year, however, the first quarter reflected only a few weeks of the coronavirus impact, with January and February proving to be solid months for major US banks.

Investors look forward to the second-quarter results, as these will reflect the full impact of the virus outbreak on the country’s banking sector. JPMorgan Chase & Co, Citigroup Inc. and Wells Fargo & Co. are set to report their earnings before the opening bell today.

What are the expectations: All three banks are expected to report a significant decline in quarterly earnings versus the same quarter last year, although there are hopes of JPMorgan Chase reporting some sequential growth.

  • JPMorgan Chase’s earnings are expected to improve to $1.04 per share, from 78 cents per share reported in the first quarter this year. Revenue is projected at $30.29 billion.
  • Citigroup is expected to report its quarterly sales and earnings at $19.11 billion and 28 cents per share, respectively.
  • Wells Fargo is likely to report revenue of $18.40 billion and a loss of 20 cents per share, versus a profit of $1.30 per share in the same quarter last year.

Why it matters: The earnings reported by major banks is widely considered as a barometer for the economy, since these financial institutions conduct transactions with every segment of the industry.

Banks have recently been setting aside higher capital to cover defaults on loans as well as unforeseen business losses as they will earn much less from lending given the low interest rates.

Major banks may be able to earn from other aspects of their business, like equity and debt underwriting, and are far less vulnerable than regional players to default risk on various loans amid the pandemic.

Much to the relief of investors, most big US banks have fared well in the Federal Reserve’s latest stress tests and sensitivity analyses. In fact, Vice Chairman of Fed’s Board of Governors Randal Quarles had said in a statement, “The banking system has been a source of strength during this crisis…and the results of our sensitivity analyses show that our banks can remain strong in the face of even the harshest shocks.” Uncertainty remains, however, as banks are yet to submit their new capital plans to the central bank with some dividend restrictions.

How shares performed so far: JP Morgan Chase’s shares are trading mostly flat in the last three months, while Wells Fargo’s stock has tumbled more than 19% in the same period. Citigroup’s stock has been a top performer, gaining around 12% in the period.

What to watch: Although the banking sector is expected to report a decline in earnings for the second quarter, investors will be focusing on their near- and long-term outlooks and their plans post the pandemic era.

The Markets Today

     

Crude oil will be in focus today, ahead of the OPEC’s (Organization of the Petroleum Exporting Countries) Joint Technical Committee meeting and the API’s (American Petroleum Institute) report on crude stockpiles.

Context: Oil futures settled lower on Monday after major oil-producing nations were reportedly considering easing production curbs after some rebound in global crude demand.

Details: An alliance of major crude producers, led by Saudi Arabia, is reportedly exerting pressure on the OPEC+ (OPEC and its allies) group to relax their production restrictions starting August. The alliance said there were signs of oil demand returning to normal after tumbling due to the coronavirus-led lockdowns, the Wall Street Journal reported.

OPEC and its allies had agreed to lower global output by 9.7 million bpd (barrels per day) for May and June. The cuts were further extended till the end of July. Saudi Arabia is now reportedly proposing to relax the curbs by 2 million bpd to 7.7 million bpd from August.

WTI (West Texas Intermediate) crude for August delivery declined 1.1% to close at $40.10 per barrel on the NYMEX (New York Mercantile Exchange). September Brent crude lost 1.2% to settle at $42.72 per barrel on ICE Futures Europe.

August natural gas dropped 3.7% to settle at $1.739 per million British thermal units on Monday.

What to watch: Investors will be keeping an eye on the OPEC’s Joint Technical Committee meeting, which is expected to provide some insights on the group’s plan to ease production cuts. Markets also await the API’s report on crude oil stockpiles scheduled for release later in the day.

Other Markets: European indices were trading lower at 8:30am GMT, with the FTSE 100, French 40 and Dax 30 index down by 0.8%, 1.3% and 1.1%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

China’s foreign direct investment as well as the US NFIB small business optimism index, annual inflation rate and Redbook index.

 

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