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AmEx shares shorted despite upbeat earnings

 

Monday, July 24, 2023

Today’s headlines

What’s happening: Shares of American Express Company declined on Friday, after the company released results for its second quarter.

What happened: The card issuer reported upbeat quarterly results, driven by record spending on its credit cards.

However, AmEx kept its annual guidance unchanged, while also announcing that it had set aside a higher amount to cover for potential bad debts.

How were the results: The New-York based company reported low double-digit growth in sales for the three months ending in June.

  • Revenues (net of interest expenses) rose 12% year-over-year to $15.05 billion, missing the consensus estimates of $15.48 billion.
  • Earnings rose 9.3% to $2.89 per share, beating Wall Street expectations of $2.81 per share.

Why it matters: AmEx saw a sharp rise in spending during the quarter, led by a double-digit surge in US consumer and international card member spending, despite the increase in borrowing costs due to the Federal Reserve rate hikes. Spending on travel and entertainment continued to grow, rising 14% during the latest quarter.

Card member spending surged to fresh record highs. Total network volumes rose 8% year-over-year to $426.6 billion.

US consumer services revenues climbed 17% year-over-year to $6.9 billion, while revenues from international card services rose 10% to $2.6 billion. The company’s total expenses increased 7% year-over-year to $11.1 billion, due to higher customer engagement costs.

AmEx increased its provision for credit losses to $1.2 billion, from $410 million in the year-earlier quarter.

The company reaffirmed its fiscal 2023 guidance of revenue growth of 15%-17% and earnings of $11.00 per share to $11.40 per share.

How shares responded: Shares of American Express fell 3.9% to close at $170.22 on Friday, following the release of quarterly earnings. The stock added around 11% over the past six months.

What to watch: Investors will watch this week’s interest rate decision by the US Federal Reserve.

The markets today

The Japanese yen will be in focus today ahead of this week’s policy meeting

Context: The JPY/USD forex pair fell sharply on Friday, as investors digested inflation data from Japan.

Details: Data released on Friday showed Japan’s annual headline and core inflation rates rising in June, remaining well above the central bank’s target of 2%.

The annual inflation rate accelerated to 3.3% in June, from 3.2% in May. However, the figure was lower than market expectations of 3.5%. Food prices rose by 8.4% year-over-year in June, following an 8.6% increase in the previous month. The latest reading marked the 22nd consecutive month of food inflation following a rapid downturn in the Japanese yen.

The core consumer price index increased 3.3% year-over-year in June, versus a 3.2% rise in May, with both numbers remaining above the central bank’s target for the fifteenth straight month.

The Bank of Japan had kept its policy of ultra-low interest rates without making any adjustments to its yield curve control at last month’s meeting.

Strength in the US dollar also exerted pressure on the yen. The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained around 0.2% at 101.09.

The JPY/USD pair fell 1.24% to ¥141.81, after declining to ¥141.95 earlier in the session. The US dollar recorded its strongest weekly percentage increase versus the yen since October.

In Nikkei 225 fell 186.27 points, or 0.57%, to close at 32,304.25 on Friday, extending losses from the prior session.

What are expectations: Traders will watch the Bank of Japan’s policy decision on Friday, with markets expecting the central bank to keep its key yield control policy unchanged. Markets will also monitor policy meetings from other major central banks, including the US and Europe.

Other Markets: US trading indices closed higher on Friday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.01%, 0.03% and 0.20%, respectively.

The news shaping the markets

Polish authorities said around 33,700 more Ukrainians had arrived in Poland over the last 24 hours, taking the total number of refugees surging to more than 13 million. The news sent the safe-haven US dollar index slightly lower this morning.


Japan’s au Jibun Bank composite PMI came in at 52.1 in July, unchanged versus a reading of 52.1 in the earlier month. The country’s private sector activity expanding for the seventh straight month lent support to the JPY/USD forex pair.


Australia’s Judo Bank flash manufacturing PMI climbed to 49.6 in July, from 48.2 in the prior month. This being the strongest reading in five months sent the AUD/USD pair higher in forex trading this morning.


New Zealand’s trade surplus contracted to NZ$9 million in June, from NZ$52 million in the prior month. The figure was also significantly short of expectations of a surplus of NZ$235 million. Despite this, the NZD/USD forex pair rose slightly following the news.


Canada’s new home prices came in unchanged at 0.1% in June, slightly above market expectations of a flat reading. This sent the CAD/USD pair higher in forex trading this morning.

What else to watch today

France’s manufacturing PMI, services PMI and composite PMI, Germany’s manufacturing PMI, services PMI and composite PMI, UK’s manufacturing PMI, services PMI and composite PMI, Eurozone’s manufacturing PMI, services PMI and composite PMI, Central Bank of Brazil’s focus market readout, Mexico’s consumer prices, Canada’s wholesale sales, US Chicago Fed national activity index, manufacturing PMI, services PMI and composite PMI, as well as South Africa’s SACCI business confidence index.


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