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Goldman and Morgan Stanley release Q4 results

 

Wednesday, January 18, 2023

The news shaping the markets today

UK’s Prime Minister Rishi Sunak said the government would provide Ukraine with 14 Challenger 2 tanks, which sent the safe-haven US dollar index higher this morning.


The Bank of Japan held its key short-term interest rate at -0.1% and also kept its 0.5% cap for bond buying, which sent the JPY/USD forex pair sharply lower.


The Ministry of Commerce reported that foreign direct investment into China rose 6.3% year-over-year to 1.27 trillion yuan in 2022. The CNY/USD pair fell slightly in forex trading this morning.


Colombia’s retail sales grew 1.7% year-over-year in November, versus 2% growth in the previous month. The latest reading came in below market expectations of a 2.3% increase, exerting pressure on the COP/USD forex pair.


Russia’s current account surplus shrank to $31.4 billion in the fourth quarter, from $35.5 billion in the year-ago period. However, the RUB/USD pair rose in forex trading this morning.

 

What’s happening: Shares of Goldman Sachs Group and Morgan Stanley moved in opposite directions after the banks reported results for the fourth quarter on Tuesday.

What happened: Higher expenses and lower deal making revenues impacted quarterly results of both the US banks.

While Goldman Sachs missed expectations, Morgan Stanley managed to beat the consensus estimates for the quarter.

How were the results: Goldman Sachs reported downbeat quarterly results, while Morgan Stanley posted better-than-expected results for the last three months of 2022.

  • Goldman Sachs reported quarterly revenues of $10.59 billion, missing the consensus estimates of $10.83 billion. Earnings came in at $3.32 per share, which also came in short of the Wall Street expectations of $5.48 per share.
  • Morgan Stanley’s quarterly revenues of $12.75 billion topped the consensus estimates of $12.64 billion. The bank reported earnings of $1.31 per share, which exceeded Wall Street expectations of $1.19 per share.

Why it matters: Major banks had recorded a sharp rise in deposits and investments during the pandemic, when interest rates were low and the Federal Reserve offered massive stimulus support. However, investment banking revenues began to decline once the Fed started hiking interest rates.

Morgan Stanley reported a decline in both top- and bottom-line figures for the fourth quarter in a row on Tuesday, but still managed to beat market expectations. The bank’s investment banking revenues almost halved, dipping to $1.25 billion during the latest quarter, compared to $2.43 billion in the previous year.

Morgan Stanley also increased its provisions for credit losses by 150% to $87 million during the quarter to cover for potential losses.

Goldman Sachs’s earnings fell for the fifth consecutive quarter, with revenues declining for the fourth straight period. Its asset and wealth management revenues contracted by 27% to $3.56 billion in the quarter, amid an 80% decline in equity investment revenues.

The bank also increased its provisions for credit losses by 183% to $972 million. Its compensation costs climbed 16% from a year ago. Goldman Sachs is also lowering its head count by 3,200 employees starting this week, after announcing the layoff on January 9.

How shares responded: Shares of Goldman Sachs fell 6.4% to close at $349.92 on Tuesday, while Morgan Stanley’s stock gained 5.9% to settle at $97.08 following the release of quarterly results.

What to watch: Investors will keep an eye on the upcoming interest rate decision from the Federal Reserve, scheduled on February 1, which is expected to significantly impact the earnings of major US banks.

The markets today

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

Context: The GBP/USD forex pair rose on Tuesday, following the release of economic data.

Details: Data released on Tuesday showed a tight labour market in the UK, with payrolls growing by 0.1% to a record high of 29.9 million in December.

Regular pay, excluding bonus payment, climbed 6.4%, recording the biggest increase since records started in 2001, excluding the peak of the covid-19 pandemic.

Britain’s unemployment rate came in unchanged at 3.7% in the three months to November, near its lowest level in around 50 years. The country’s economy also unexpectedly expanded by 0.1% in November.

The Bank of England is likely to hike interest rates for the tenth straight meeting on February 2 to ease inflation from over a four-decade high of 11.1% in October 2022. Markets expect the central bank to increase rates by 25 basis points at the upcoming meeting.

The US dollar index, which measures the greenback’s performance versus a basket of major rivals, gained around 0.2% to 102.39 on Tuesday.

The GBP/USD forex pair rose around 0.7% to 1.2287 on Tuesday, notching its strongest level since December 14, 2022. London’s FTSE 100 index fell 0.12% to 7,851.03, while the more domestically focused FTSE 250 index declined 0.67% to 19,948.04.

What are expectations: Traders await data on inflation rate, producer prices and labour productivity from the UK today. The annual inflation rate in the UK, which eased to 10.7% in November, is expected to decline further to 10.5% in December. Analysts expect factory gate prices of goods produced by UK manufacturers to grow 0.3% in December. Labour productivity in the UK is expected to increase by 0.2% on quarter during the three months to September.

Other Markets: US trading indices closed mostly lower on Tuesday, with the Dow Jones index and S&P 500 down by 1.14% and 0.20%, respectively, and the Nasdaq 100 up by 0.14%.

Support & resistances for today

Technical Levels News Sentiment
USD/JPY  – 129.01 and 131.40 Positive
USD/CAD – 1.3384 and 1.3404 Positive
Natural Gas – 3.618 and 3.632 Positive
FTSE 100   – 7835.94 and 7852.32 Positive
Dow Jones – 33863.27 and 33950.79 Negative

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0774, -0.14%) Dow ($34,048, 0.08%) Brent ($86.77, 1%)
GBP/USD (1.2268, -0.15%) S&P500 ($4,019, 0.23%) WTI ($81.03, 1.1%)
USD/JPY (131.13, 2.33%) Nasdaq ($11,659, 0.30%) Gold ($1,906, -0.2%)

What else to watch today

France’s passenger car registrations, Germany’s passenger car registrations, Italy’s passenger car registrations, Eurozone’s inflation rate and European Union’s passenger car registrations, UK’s retail price index and new passenger car registrations, South Africa’s inflation rate, and retail sales, Canada’s raw materials prices and producer prices, US producer price index, retail sales, Redbook index, industrial production, capacity utilization, manufacturing production, business inventories, NAHB housing market index, Fed’s Beige Book report and API crude oil stock change, as well as Indonesia’s total car sales and value of loans.


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