Bank of America’s shares surge amid upbeat Q3

The news shaping the markets today

A Russian fighter plane hit a residential building in the southern city of Yeysk, killing six people. The safe-haven US dollar index rose this morning.

New Zealand’s inflation rate eased to 7.20% year-over-year in the third quarter, from 7.30% in the second quarter, sending the NZD/USD forex pair to its highest level in around two weeks this morning.

Brazil’s IBC-Br index of economic activity fell by 1.13% in August, following a 1.67% rise in the previous month, which sent the BRL/USD pair lower in forex trading this morning.

Turkey’s government deficit widened to ₺78.6 billion in September, from ₺23.6 billion in the year-ago month. However, the TRY/USD forex pair rose after the news release.

Sri Lanka’s manufacturing PMI declined to 42.6 in September, from 49.6 in the previous month, sending the LKR/USD pair lower in forex trading this morning.

What’s happening: Shares of Bank of America spiked on Monday, after the company reported results for its third quarter.

What happened: Bank of America reported upbeat earnings for the third quarter, driven by an increase in profit margins in its consumer lending business.

The bank also said one of its major metrics had risen sharply to reach the highest level in at least 10 years.

How were the results: The Charlotte, North Carolina-based bank reported a decline in profits for the third quarter, but the figure still exceeded market views.

• Revenues grew 7.6% to $24.5 billion, topping market expectations of $23.6 billion.
• Net income contracted by 7.9% to $7.08 billion, or 81 cents per share, but came in better than the consensus estimate of 78 cents per share.

Why it matters: Big banks in the US had kickstarted the earnings season on Friday, with JPMorgan Chase, Citigroup, Morgan Stanley, and Wells Fargo recording a surge in net interest income. Some even raised their NII guidance for the fourth quarter.

Bank of America recorded its strongest net interest income in at least a decade in the third quarter. NII, which is a major source of the bank’s revenues, grew 24% to $13.8 billion, with a rise in rates and loans. Analysts had projected growth of around 23%.

“Our US consumer clients remained resilient with strong, although slower growing, spending levels and still maintained elevated deposit amounts,” CEO Brian Moynihan said during the earnings call.

Bank of America’s non-interest expenses grew 6% year-over-year to $15.3 billion. The lender also raised its projections for non-interest expenses for the full year from the earlier $60 billion to around $61 billion.

Its bond-trading revenues climbed 27% to $2.55 billion, while equity trading slipped 4% to $1.54 billion in the quarter. Investment banking revenues contracted by a sharp 46%, while revenues from equity and debt issuance tumbled 76% and 34%, respectively.

Lending remained one of the major concerns for investors, which took the bank’s loan balances as high as $1.03 trillion at the close of the third quarter, up 12% year-over-year.

Spending across the bank’s debit and credit cards climbed 9% from the year-ago quarter. Its net interest margins widened to 2.06%, from 1.68% in the previous year.

Volatility in the markets and the continuous rise in inflation forced the bank to increase its provisions for credit losses to $898 million, from $523 million in the earlier quarter.

How shares responded: Bank of America’s shares climbed 6.1% to close at $33.62 on Monday, following the release of quarterly results. The stock has lost more than 13% over the past six months.

What to watch: Investors will keep an eye on the US Federal Reserve’s rate hike announcement at its November meeting, which will support bank earnings. Markets will also monitor economic growth in the US as well as developments around the Russia-Ukraine war.

The markets today

The British pound will be in focus today after recording sharp gains on Monday

Context: The GBP/USD forex pair rose sharply on Monday as traders digested recent news around tax cuts in the UK.

Details: The UK government took a U-turn on its fiscal plan. Jeremy Hunt, who was appointed the country’s new finance minister by Prime Minister Liz Truss on Friday, scrapped most of the policies announced in the mini budget on September 23. The mini budget announced by the recently appointed Prime Minister and former Chancellor Kwasi Kwarteng had resulted in severe turbulence in the financial markets.

“The markets were extremely unhappy about what the previous chancellor had announced. I think the government was pretty much forced into this scale of change,” Paul Johnson of the Institute for Fiscal Studies said in a note to clients.

The recent announcement reassured markets that the country would return to a viable borrowing path.

The US dollar also fell versus a basket of major peers following the announcement. The US dollar index tumbled around 1.1% to 112.04 on Monday.

The GBP/USD forex pair gained around 1.6% to close at $1.1359 on Monday, following the emergency fiscal statement. The yields on 20-year gilts and 10-year gilts also declined in the session.

Equities in London recorded gains for the third session in a row, with the benchmark FTSE 100 settling above 6,900 amid gains in real estate and financial shares.

What to watch: The recent announcements came two weeks before schedule. Traders await the full medium-term fiscal plan, which will be published on October 31.

The release of some big economic reports on inflation rate, retail price, PPI input and output, scheduled for release on Wednesday, will also remain in focus.

Other Markets: US trading indices closed higher on Monday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 1.86%, 2.65% and 3.46%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

Spain’s balance of trade, Germany’s ZEW economic sentiment index and ZEW current conditions index, Italy’s balance of trade, Canada’s housing starts, foreign investment in Canadian securities, Eurozone’s ZEW economic sentiment index  and new car registrations, as well as US Redbook Index, industrial production, manufacturing production, capacity utilization, NAHB housing market index, net long-term TIC flows, net treasury international capital flows, net purchases of US treasury bonds and notes, and API’s crude oil stocks.