Friday, April 17, 2020

Morgan Stanley Shares Spike, But Troubles Ahead

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What’s happening: Morgan Stanley reported weaker-than-expected results for its first quarter, missing both profit and revenue expectations.

What happened: Morgan Stanley was the last of the big banks to report earnings this season. The bank reported a decline in revenues and a massive downturn in earnings. Echoing its rivals, Morgan Stanley warned of pain ahead due to the economic slowdown.

Although the company’s stock slipped 0.1% in regular trading following the quarterly release and miss, investors chose to focus on the bank’s one bright spot, sending the stock higher by more than 5% in after-hours trading.

  • Revenues dropped 8% to $9.49 billion, marginally missing the consensus estimate of $9.73 billion.
  • Quarterly earnings tumbled 30% to $1.7 billion, or $1.01 per share, coming in significantly below expectations of $1.14 per share.

Why it matters: Despite the quarterly miss, Morgan Stanley delivered its best trading performance in more than a decade due to increased volatility in the markets.

Its fixed income desks recorded revenues of $2.2 billion, beating expectations by around half a billion dollars. The equities desks also delivered a strong performance, recording revenues of $2.42 billion, around $200 million higher than expected.

Backed by strong trading, revenues from this business surged 30% in the first quarter. Management is doubtful, however, about being able to record such gains in the future

Morgan Stanley disclosed that the pandemic had impacted all its major businesses, exerting pressure on its interest income, investment banking fees, loans value and overall investments. The bank reported an 8% decline in its wealth management division and a 14% drop in the investment management division.

In February, Morgan Stanley had announced plans to buy E-Trade Financial in a $13 billion deal. The purchase, which is likely to close in the fourth quarter, will add E-Trade's consumer-focused business to Morgan Stanley’s advisor-driven business.

For the first quarter, Morgan Stanley declared a dividend of 35 cents per share, at a time when most companies are scrapping dividends.

What to watch: With uncertainty around how the government's stimulus will help keep money flowing in the markets, big banks have projected a massive decline in the second quarter without a quick recovery. Markets will keep an eye on activity in Morgan Stanley’s trading desks, hoping for the positive trend to continue.

The Markets Today

     

Investors will be focusing on European stocks today, ahead of economic reports from the region.

Context: European stocks closed mostly higher on Thursday, with leaders taking steps to reopen their economies affected by the coronavirus. Investors were also assessing earnings reports from some major companies.

Details: After recording its biggest one-day decline in around three weeks on Wednesday, the Stoxx Europe 600 index rebounded yesterday, closing higher by 0.8%. Technology stocks were the top performers in the session, while oil and gas stocks bucked the market trend, falling around 2%.on Thursday.

Many European countries have gradually begun to lift restrictive measures this week, with Germany being among the latest country to announce plans to reopen its economy. Smaller shops in the country will be allowed to reopen from April 20 and schools may become operational again from May 4.

Eurozone’s industrial production fell 1.9% in February, before the coronavirus-related lockdown measures were imposed. Investors chose to ignore this negative economic data, amid hopes of the economy recovering after reopening.

The FTSE 100 gained 0.6% on Thursday, while German 30 closed higher by 0.21%. French 40 index closed slightly lower, declining 0.08%.

Shares of CHR Hansen jumped more than 10% after the company reported strong second-quarter results. However, investment manager M&G bucked the overall market trend, with its stock falling around 10%.

What to watch: Investors will be closely monitoring daily coronavirus numbers. The number of positive COVID-19 cases in Italy has exceeded 168,940 with around 22,170 deaths. Spain has so far confirmed more than 184,940 cases with 19,310 fatalities. France has also confirmed more than 147,000 coronavirus cases.

Markets are also awaiting construction output and inflation reports from the Eurozone. The Consumer Price Index in the Eurozone is expected to rise 0.50% in March, while the inflation rate is projected to slow to 0.7% in March, from the previous reading of 1.2%.

Other Markets: US indices closed higher on Thursday, with the Dow, S&P 500 and Nasdaq 100 up by 0.14%, 0.58% and 1.66%, respectively

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What else to watch today

     

Italy’s balance of trade, Saudi Arabia’s inflation rate, India’s foreign exchange reserves, Canada’s new motor vehicle sales and foreign stock investment as well as the US CB leading index and Baker Hughes crude oil rigs.