JPMorgan and Wells Fargo top Q2 expectations

Today’s headlines

What’s happening: Big banks, including JPMorgan Chase and Wells Fargo, released earnings for their latest quarter on Friday.

What happened: Higher interest rates in the US provided a boost to earnings at the country’s major lenders.

However, both JPMorgan and Wells Fargo set aside higher amounts for projected losses in their commercial real estate lending businesses.

How were the results: Both JPMorgan and Wells Fargo reported double-digit growth in revenues for the second quarter, topping market views.

• JPMorgan posted net revenues (managed) of $42.4 billion, up 34.1% year-over-year, beating the consensus estimates of $38.96 billion. Adjusted earnings came in at $4.37 per share, higher than Wall Street expectations of $3.99 per share.
• Wells Fargo reported earnings of $1.25 per share, topping the consensus estimates of $1.15 per share, with revenues growing 21% year-over-year to $20.53 billion, higher than Wall Street expectations of $20.07 billion.

Why it matters: The Federal Reserve’s continued interest rate hikes resulted in banks receiving higher amounts on loans given, which boosted their returns.

Investors were awaiting JPMorgan’s results to know the impact of its purchase of the collapsed First Republic Bank. The acquisition sent JPMorgan’s net interest income higher by 44% year-over-year to $21.9 billion during the quarter. Its average loans rose 13%, while average deposits declined 6%.

Wells Fargo’s profits jumped 57% to $4.9 billion, while net interest income rose 29% to $13.16 billion.

Commercial lenders are preparing for losses with property owners struggling to meet increased borrowing costs and reduced demand from tenants due to inflation and layoffs.

JPMorgan and Wells Fargo increased their allowances for losses related to commercial property loans during the second quarter. Wells Fargo set aside $1.71 billion in provisions for credit losses, up from $580 million in the year-ago period. This was mainly for office loans, but the bank also said its CRE revenues rose on quarter to $1.33 billion, following higher interest rates and loan balances.

JPMorgan also said its CRE revenues had climbed to $806 million, from $642 million in the previous quarter. The bank flagged credit loss provisions worth $1.1 billion due to its office portfolio.

How shares responded: JPMorgan’s shares rose 0.6% to close at $149.77 on Friday, while Wells Fargo’s stock declined by 0.3% to settle at $43.56.

What to watch: Investors will watch the US Fed’s monetary policy stance at its upcoming meeting. Markets will also continue monitoring the state of commercial real estate lending in the US.

The markets today

The Canadian dollar will be in focus today ahead of a basket of economic reports

Context: The CAD/USD forex pair moved lower on Friday, following the release of the US University of Michigan consumer sentiment index.

Details: The Bank of Canada had raised its interest rates by 0.25%, sending the overnight rate to 5.00%, at its latest meeting on Wednesday.

The CAD/USD forex pair had surged to fresh highs for the year after the US released its PPI report for June on Thursday, which came in lower-than-expected and raised prospects of the Federal Reserve raising rates just once more this year.

US producer prices increased 0.1% in June compared, after a 0.4% decline in May, and came in lower than market estimates of a 0.2% increase.

The Canadian dollar pulled back on Friday after the US Michigan consumer sentiment index climbed to its highest level since September 2021, and also came in better than market estimates. The US dollar index, which measures the greenback’s performance versus a basket of major peers, rose around 0.2% to 99.96 on Friday.

A decline in prices for oil, one of Canada’s major exports, also weighed on the loonie. WTI crude oil futures tumbled around 1.9% to settle at $75.42 per barrel on Friday.

The CAD/USD forex pair fell around 0.8% to 1.3219 on Friday.

What are expectations: Traders await the release of economic data on new motor vehicle sales, foreign stock investment and wholesale sales from Canada today. Car registrations in Canada, which declined to 148,815 units in April, are expected to decrease further to 140,000 in May. Analysts expect wholesale sales in Canada to grow by 3.5% in May, following a 1.4% decline in the previous month.

Other Markets: US trading indices closed mixed on Friday, with the S&P 500 and Nasdaq 100 down by 0.10% and 0.04%, respectively, and the Dow Jones index up by 0.33%.

The news shaping the markets

South Korea said it will provide more demining equipment to Ukraine, after President Yoon Suk Yeol visited the country. The news sent the safe-haven US dollar index slightly higher this morning.

China’s economy grew 6.3% year-over-year in the second quarter, faster than the 4.5% expansion reported in the prior quarter. However, the figure came in short of market expectations of 7.3% and exerted pressure on the CNY/USD forex pair.

Singapore’s non-oil domestic exports dipped 15.5% year-over-year in June, following a 14.8% decline in May, which sent the SGD/USD pair lower in forex trading this morning.

Saudi Arabia’s wholesale prices fell 1.3% year-over-year in June, following a 1.1% decline in the prior month, exerting pressure on the SAR/USD forex pair.

Columbia’s manufacturing production fell 3.4% year-over-year in May. This being lower than the 6.4% decline reported a month ago sent the COP/USD pair higher in forex trading this morning.

What else to watch today

Italy’s inflation rate, Turkey’s total motor vehicles production and Central Government budget balance, Brazil IBC-Br economic activity index and Central Bank of Brazil’s focus market readout, US NY Empire State manufacturing index, Saudi Arabia’s Inflation rate and industrial production, as well as Spain’s consumer confidence indicator.