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Goldman Sachs stock rises on blowout EPS

 

Tuesday, July 19, 2022

The news shaping the markets today

Russian shelling destroyed a building, killing six people in Ukraine’s Toretsk town. The ongoing war provided support to crude oil prices this morning.


Sri Lanka’s number of foreign tourist arrivals jumped 1,935.7% year-over-year to 32,856 in June. However, continued political concerns kept the LKR/USD forex pair under pressure.


The Colombian economy grew 16.5% year-over-year in May, versus 11.9% growth a month ago. Despite this being the fastest growth rate since April 2021, the COP/USD pair remained flat in forex trading this morning.


US natural gas futures jumped to a one-month high, following increased weather-driven demand and concerns over supplies in Europe.


Bitcoin prices surpassed the $22,000 mark for the first time in over a month, with an improvement in investor risk appetite.

 

What’s happening: Shares of The Goldman Sachs Group rose on Monday, after the bank reported upbeat results for its second quarter.

What happened: Goldman Sachs was the last of the six major US banks to report quarterly results this earnings season.

Although the bank reported a decline in revenues in several segments, one of its units generated record revenues in the second quarter.

How were the results: Goldman Sachs reported a decline in both sales and profits for the second quarter, but both figures topped market views.

  • Revenues contracted 23% year-over-year to $11.86 billion, beating the consensus estimate of $10.96 billion.
  • Profits fell 48% year-over-year to $2.79 billion.
  • Earnings came in at $7.73 per share, surpassing the Street expectations of $7.25 per share.

Why it matters: Although the quarterly result was a mixed bag, Goldman Sachs ended the earnings season for big banks on a positive note. Markets closely monitored big bank earnings reports to gauge the economy’s health, amid surging inflation and Federal Reserve’s rate hikes.

Goldman’s Investment Banking unit recorded revenues of $2.14 billion, a 41% year-over-year decline, amid lower underwriting revenues. Asset Management revenues also fell 79% from a year ago to $1.08 billion, amid losses in equity investments.

Global Markets recorded revenues of $6.47 billion, up 32% year-over-year, following a strong performance in FICC (Fixed Income, Currency and Commodities) and Equities. Revenues at Consumer & Wealth Management grew 25% to a record $2.18 billion.

The bank’s operating expenses declined to $7.65 billion, from $8.64 billion in the year-ago quarter. Its provision for credit losses came in at $667 million for the second quarter.

CFO Denis Coleman said during the earnings call that the bank was considering a reduction in some professional fees and slowing hiring to improve operating efficiency.

Goldman Sachs returned $1.22 billion worth of capital to common shareholders in the form of repurchases and dividends in the quarter. On July 14, the bank’s board also authorised an increase of 25% in quarterly dividends, starting in the third quarter.

How shares responded: Shares of Goldman Sachs climbed 2.5% to close at $301.26 on Monday, following the release of quarterly results. The stock has lost around 24% year to date.

What to watch: Investors will keep an eye on inflation levels and the Fed’s rate decision. A higher-than-expected rate hike could impact the results of big banks in the back half of the year.

The markets today

The British pound will be in focus today ahead of employment data from the country

Context: Although the sterling rose more than 1% versus a weakening greenback on Monday, it pared some of its gains later in the session.

Details: Markets scaled back some of their bets on the US Federal Reserve’s upcoming rate decision after various Fed officials suggested they were not in favour of speeding up the pace of rate increases, exerting pressure on the US dollar.

Meanwhile, the Bank of England has raised rates five times since December 2021. One of BoE’s policymakers Michael Saunders said the bank rate could reach 2% or higher by next year.

UK’s inflation rate has climbed to 9.1%, the highest in 40 years, with surging food and energy costs. The news supported expectations of further rate hikes by the UK’s central bank.

The GBP/USD jumped more than 1% to a one-week high on Monday, after falling to its weakest since March 2020 on Thursday. The forex pair gave up some gains during the session but settled higher at 1.1953 on Monday.

What to watch: Traders await the release of economic reports on the UK’s unemployment rate, employment change, claimant count change and average weekly earnings today. The jobless rate is expected to increase to 3.9% in the three months to May, from 3.8% in the previous three-month period, while the number of people claiming unemployment benefits is projected to decline by 25,000 in June, following a 19,700 decline in May. Average weekly earnings, including bonuses, had risen by 6.8% year-over-year to £604 in the three months to April and are expected to increase again by 6.7% in May.

Other Markets: European trading indices closed higher on Monday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 up by 0.90%, 0.74%, 0.93% and 0.93%, respectively.

Support & resistances for today

Technical Levels News Sentiment
USD/JPY – 138.12 and 138.26 Positive
USD/CHF – 0.9784 and 0.9789 Positive
FTSE 100 – 7210.45 and 7229.16 Negative
Nikkei 225 – 26945.16 and 27027.66 Negative
WTI Crude Oil – 99.08 and 99.46 Negative

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0129, -0.16%) Dow ($31,089, 0.14%) Brent ($106.31, 0.1%)
GBP/USD (1.1939, -0.12%) S&P500 ($3,844, 0.27%) WTI ($102.79, 0.2%)
USD/JPY (138.25, 0.08%) Nasdaq ($11,944, 0.31%) Gold ($1,706, -0.3%)

What else to watch today

Eurozone’s construction output, inflation rate and consumer price index, US housing starts, building permits, Redbook index and API crude oil stocks, Australia’s new home sales, as well as China’s foreign direct investment.


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