Big Banks Kickstart Q4 Earnings Season

The news shaping the markets today

China’s central bank lowered the borrowing costs of its medium-term loans for the first time in 21 months, lending support to the CNY/USD forex pair.

Ireland’s Ulster Bank construction PMI fell to an eight-month low of 53.7 in December, from 56.3 in the previous month. However, the recent reading signalled expansion in the construction sector, sending the EUR/USD pair higher in forex trading this morning.

Japan’s core machinery orders grew 3.4% from a month ago in November, exceeding market expectations of a 1.4% increase. However, the JPY/USD forex pair traded lower after the news.

China’s economic growth decelerated to 4.0% in the fourth quarter, from a 4.9% expansion in the prior period. However, the latest reading surpassed market estimates of 3.6%, lending support to the Shanghai Composite index this morning.

Australia’s building permits grew 3.6% to 16,448 units in November, after a 13.6% decline in the prior month, which sent the AUD/USD pair higher in forex trading this morning.

What’s happening: Three of the biggest banks in the US released results for their fourth quarter on Friday.

What happened: JPMorgan Chase, Citigroup, and Wells Fargo kickstarted the earnings season, announcing combined profits of $19 billion and exceeding market expectations.

However, shares of only one of the three major banks recorded gains, while the other two closed in the red on Friday.

How were the results: All three major banks reported better-than-expected earnings results for the fourth quarter. However, JPMorgan’s sales missed Steet estimates.

• JPMorgan reported earnings of $3.33 per share on revenues of $29.3 billion, versus the consensus estimates of $3.01 per share and $29.9 billion, respectively.
• Citigroup’s adjusted earnings came in at $1.99 per share on revenues of $17 billion, ahead of market expectations of $1.71 per share and $16.85 billion.
• Wells Fargo reported revenues of $20.86 billion, well above Street expectations of $18.78 billion. Earnings came in at $1.38 per share, beating the consensus estimate of $1.12 per share.

Why it matters: Investors had enjoyed strong returns from the financial sector over the past two years, with the SPDR S&P Bank ETF surging approximately 28% during the period. Banks have continued their winning momentum this year, with the banking ETF adding around 10% over the first two weeks of the year, versus a 2.2% decline for the broader S&P 500 index.

Although JPMorgan recorded significant gains in trading activity during most of the pandemic, its trading levels have recently been on a downturn.

Trading revenues of both JPMorgan and Citigroup tumbled around 11% in the fourth quarter, while fixed-income trading recorded a double-digit decline. However, Wells Fargo’s trading revenue came in flat in the quarter.

Loan growth, one of the major metrices, came in mixed, while consumer lending and spending grew during the quarter.

JPMorgan’s average loans increased 6% year-over-year, with combined debit and credit card spending rising 26%. Wells Fargo’s loans fell 3% year-over-year but came in higher than the second half of last year. Citigroup’s overall lending remained almost flat.

Inflationary pressures also impacted costs at all major banks, with increased hiring competition. JPMorgan’s overall costs came in higher than expected, and management projected expenses to rise by around 9% to $77 billion in 2022. Citigroup’s expenses surged 18%. Wells Fargo bucked the trend, recording an 11% year-over-year decline in expenses.

How shares responded: Citigroup’s shares fell 1.3% to close at $66.93, while JPMorgan’s stock lost 6.2% to settle at $157.89 on Friday. Shares of Wells Fargo surged 3.7% to $58.06.

What to watch: Investors will keep an eye on this week’s earnings results from other big banks, including Goldman Sachs, Bank of America and Morgan Stanley. Trends in loan balances, trading activity and costs are expected to determine the overall market direction this week.

The markets today

Bitcoin will be in focus today after trading in a tight range last week.

Context: Bitcoin remained almost flat on Friday, but recorded gains compared to the previous week.

Details: After a rough start to the year, the biggest cryptocurrency stabilised somewhat last week.

Bitcoin prices had tumbled around 12% during the first week of the year. Compared to this, the crypto king had notched gains of 15% and traded above the $50,000 level during the first week of 2021.

The digital currency dipped below the $40,000 mark last Monday but had staged a slight recovery since then. The decline in the US dollar last week provided some support to bitcoin.

Bitcoin gained some support from higher inflationary pressures in the US, as the cryptocurrency is considered an inflation hedge. The US Labor Department reported a 7% year-over-year increase in the Consumer Price Index in December, up from 6.8% in the previous month, representing the fastest annual rise since 1982.

Bitcoin gained around 3% last week and traded close to the $42,900 level on Friday. Market experts expect the cryptocurrency to trade within the $40,000 to $60,000 range this week.

What to watch: With US markets closed today for Martin Luther King, Jr. Day, overall trading activity in cryptos is expected to remain lighter.

Other Markets: European indices closed lower on Friday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 down by 0.28%, 0.93%, 0.81% and 1.01%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

Turkey’s central government budget balance and total motor vehicles production, Italy’s inflation rate, Central Bank of Brazil’s focus market readout, Russia’s balance of trade, Canada’s new motor vehicle sales, foreign investment in Canadian securities, manufacturing sales and Bank of Canada’s business outlook survey, as well as India’s total passenger vehicles sales.