Citigroup shares spike after Q2 results top views

The news shaping the markets today

With Russia stepping up its military operation, the country’s defence ministry said it shot down a Ukrainian MI-17 helicopter and a SU-25 aircraft. Continued geopolitical tensions sent crude oil prices higher this morning.

New Zealand’s Business NZ Performance of Services Index climbed to 55.4 in June, from 55.3 in the prior month. This being the strongest reading since June 2001 lent support to the NZD/USD forex pair this morning.

Sri Lanka’s services PMI fell to a 13-month low of 40.3 in June, from 42.4 in the previous month, amid economic and political uncertainties in the country. The news sent the LKR/USD pair lower in forex trading this morning.

Singapore’s non-oil domestic exports climbed by 9% year-over-year in June, following 12.0% growth in May, lending support to the SGD/USD forex pair.

Natural gas prices surged to a four-week high this morning, driven by upbeat demand for AC in the southern US and supply concerns in Europe.

What’s happening: Shares of Citigroup surged on Friday, after the bank reported better-than-expected results for its second quarter.

What happened: Although the bank recorded a 27% decline in quarterly profits, the figure surpassed market estimates, supported by growth in the treasury services business.

However, one of Citigroup’s major businesses recorded a sharp decline in revenues.

How were the results: The third-largest US bank reported a rise in revenues for the quarter ended June 30, with both top-and bottom-line metrics surpassing analyst views.

• Revenues grew 11% year-over-year to $19.64 billion, beating the Street expectations of $18.22 billion.
• In the year-ago quarter, profits contracted to $4.5 billion, or $2.19 per share, versus $6.2 billion, or $2.85 per share.
• Excluding one-time items, earnings came in at $2.30 per share, topping the consensus estimates of $1.68 per share.

Why it matters: As was seen with peers, Citigroup reported a rise in trading during the quarter, with investors rebalancing their portfolios due to rising geopolitical concerns and soaring inflation.

Citigroup reported a decline in its quarterly profits, with a $375 million rise in reserves for possible loan losses amid concerns around the economic outlook. The rise in reserves sent the bank’s overall credit costs to $1.3 billion, compared to the $1.07 billion benefit it reported in the year-ago quarter.

Revenues at the bank’s Treasury and Trade Solutions business surged 33% to $3 billion, following net interest income and fee growth, which was the strongest performance in a decade. Market revenues also climbed 25% to $5.3 billion, driven by volatility in the commodities and forex markets.

However, Citigroup’s investment banking revenues fell 46% to $805 million with a decline in new listings and merger deals. Despite better-than-expected underlying results, management announced plans to suspend share buybacks.

How shares responded: Citigroup’s shares climbed 13.2% to close at $49.98 on Friday, following the release of quarterly results. The stock has lost more than 23% over the past six months.

What to watch: Investors will keep an eye on Citigroup’s business in Russia, as the bank is considering options to terminate its consumer and commercial banking businesses in the country. Markets will also monitor the US Federal Reserve’s moves to increase interest rates.

The markets today

European stocks will be in focus today after closing higher on Friday

Context: European markets recorded gains on Friday, paring some of the losses through the week on China’s disappointing GDP figures.

Details: Markets in China closed mostly lower after the country reported weaker-than-expected GDP growth. The world’s second-largest economy grew by just 0.4% year-over-year in the April-June quarter, missing market expectations of 1.0%.

News of several central banks around the world increasing interest rates has also been a concern for markets. The US Federal Reserve is expected to raise interest rates sharply at its upcoming meeting.

Italy remained in the spotlight after the country’s President Sergio Mattarella rejected Prime Minister Mario Draghi’s resignation offer.

The pan-European Stoxx 600 index gained 1.8% to close at 413.78, with auto stocks among the top performers on Friday. Shares of Vitrolife jumped more than 15% after the IVF products company reported strong EBITDA.

Shares in London recovered on Friday and the FTSE 100 snapped a two-session losing streak to close higher by 1.7% at 7,159.01. Germany’s DAX 40 and France’s CAC 40 added 2.76% and 2.04%, respectively.

What to watch: Markets will focus on the ECB’s monetary policy decision, due to be announced this Thursday. This will be the central bank’s first rate hike in 11 years.

Traders also await data on inflation and construction output, due to be released on Tuesday. Eurozone’s annual inflation rate is expected to rise to a record high of 8.6% in June, from 8.1% in May. Analysts expect construction output to grow 3.2% year-over-year in May, following a 3% increase in April.

Other Markets: US indices closed higher on Friday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 2.15%, 1.92% and 1.83%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

Italy’s balance of trade, Spain’s balance of trade, Turkey’s central government budget balance, Canada’s housing starts, US NAHB housing market index, net long-term TIC flows, net purchases of US treasury bonds and notes and net treasury international capital flows, Australia’s new home sales, China’s foreign direct investment, as well as Central Bank of Brazil’s focus market readout.