Bank of America’s shares surge on earnings beat

Today’s headlines

What’s happening: Shares of Bank of America gained on Tuesday, after the company released results for its second quarter.

What happened: The Charlotte, North Carolina-based bank reported upbeat results for the second quarter following higher earning from customer loan repayments.

Net income at its investment banking division rose sharply, although the income at one of its major segments declined in the quarter.

How were the results: The second-largest bank in the US reported low double-digit growth in sales for the second quarter.

• Revenues grew 11% year-over-year to $25.33 billion, topping Wall Street expectations of $25.05 billion.
• Net income surged 19% year-over-year to $7.4 billion.
• Earnings rose to 88 cents per share, from 73 cents in the year-ago period, beating the consensus estimates of 84 cents per share.

Why it matters: Big US banks, including Bank of America, JPMorgan Chase and Wells Fargo have benefited from charging higher interest rates to clients with the US Federal Reserve hiking borrowing costs to combat soaring inflation.

Investment banking was the brightest spot for Bank of America, with net income surging 76% to $2.7 billion, led by higher interest payments and leasing revenues. However, global mergers and acquisitions activity contracted by 36% year-over-year.

Sales and trading revenues topped market estimates, rising 3% to $4.3 billion. Revenues from fixed income, currencies and commodities trading also gained 7% to $2.7 billion in the quarter.

Consumer Banking’s net income slipped 1% to $2.9 billion, while net income for Global Wealth and Investment Management plunged 15% year-over-year to $978 million.

Average loan and lease balance rose 3% year-over-year to $1 trillion, driven by solid growth in commercial loans and higher credit card balances. Average deposits fell 7% to $1.9 trillion.

Bank of America increased its provision for credit losses to $1.13 billion to cover for potential lending losses, from $523 million in the year-ago quarter.

How shares responded: Bank of America’s shares rose 4.4% to close at $30.70 on Tuesday, following the release of quarterly results. The stock has gained around 6% over the past month.

What to watch: Investors will watch the US Fed’s next monetary policy move, which is expected to significantly impact Bank of America’s overall earnings.

The markets today

The British pound will be in focus today ahead of a basket of economic reports

Context: The GBP/USD forex pair moved lower on Tuesday but remained above the 1.30 support level.

Details: The GBP/USD forex pair had jumped to as high as 1.3144 last week, reaching its strongest level since April 2022, following the release of inflation data from the US, which showed cooling prices.

The slowdown in prices lowered prospects of additional rate hikes by the US Federal Reserve after their July meeting, which exerted pressure on the greenback. The British currency also rose to its highest level since August 2022 against the euro last week.

Inflation in the UK has remained much higher than in the US, sparking speculations of more rate hikes by the Bank of England. The British central bank also delivered an unexpected rate increase of 50 basis points in June.

Higher rates generally provide a boost for a currency in the short term, but negatively impact the country’s economic growth. This has begun to weigh on investor sentiment for the sterling.

Strength in the US dollar also exerted pressure on the pound on Tuesday. The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained around 0.1% to 99.94 on Monday.

The GBP/USD forex pair fell around 0.3% to 1.3036 on Tuesday.

What are expectations: Traders await the release of economic reports on consumer price inflation and producer prices from the UK today. The country’s consumer price inflation, which held steady at 8.7% in May, is expected to decline to 8.3% in June. Monthly consumer prices are likely to increase by 0.4% in June, following a 0.7% rise in May.

Analysts expect factory gate prices of goods produced by UK manufacturers to slow sharply to 0.4% year-over-year in May, from 2.9% in the previous month.

Other Markets: US trading indices closed higher on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 1.06%, 0.71% and 0.82%, respectively.

The news shaping the markets

Russia launched an attack on Odesa, targeting the southern port city for the second night in a row. The news sent the safe-haven US dollar index higher this morning.

Japan’s Reuters Tankan sentiment index for manufacturers declined to 3 in July, from 8 in the prior month. This being the first decline in six months exerted pressure on the JPY/USD forex pair.

Australia’s Westpac-Melbourne Institute Leading Economic Index rose 0.1% in June, after a decline of 0.3% fall in May. Despite this, the AUD/USD pair moved lower in forex trading this morning.

New Zealand’s annual inflation rate came in at 6% in the second quarter, slowing from the 6.7% reported in the first quarter. However, the NZD/USD forex pair remained under pressure due to strength in the US dollar.

The API said crude stockpiles in the US fell by 0.797 million barrels in the week ended July 14, versus market expectations of a decline of 2.250 million barrels. Despite this, WTI crude oil futures fell in early trading due to concerns around China’s economy.

What else to watch today

UK’s producer input prices and retail price index, South Africa’s inflation rate, Eurozone’s consumer price inflation rate and construction output, US MBA mortgage applications, building permits, housing starts, crude oil inventories, gasoline stocks change and distillate inventories, Russia’s producer price inflation, China’s foreign direct investment, as well as Argentina’s leading economic index and balance of trade.