Two big US banks kick off earnings season

The news shaping the markets today

Russian missiles, which struck a central Ukraine city, killed at least 22 people and injured 100. The ongoing crisis in Ukraine sent WTI crude oil prices higher this morning.

China’s retail trade unexpectedly climbed 3.1% year-over-year in June, following a 6.7% decline in the previous month. The latest figure also exceeded market expectations of a flat reading, lending support to the CNY/USD forex pair.

Indonesia’s trade surplus widened to $5.09 billion in June, from $1.32 billion in the year-ago month. Despite the latest reading coming in ahead of market views of $3.52 billion, the IDR/USD pair declined slightly in forex trading this morning.

New Zealand’s BusinessNZ Performance of Manufacturing Index declined to 49.7 in June, from 52.6 in the prior month. Although this was the first contraction in the manufacturing sector since August 2021, the NZD/USD forex pair remained elevated.

Argentina’s monthly inflation rate accelerated to 5.3% in June, from 5.1% in the previous month but came in below the consensus estimate of 5.4%. The ARS/USD pair remained flat in forex trading this morning.

What’s happening: Two of the biggest banks in the US, JPMorgan Chase & Co and Morgan Stanley, reported earnings for their second quarter on Thursday.

What happened: Both major banks reported a steeper-than-expected decline in profits for the second quarter.

JPMorgan and Morgan Stanley indicated that the miss was due to macroeconomic issues.

How were the results: Both big banks reported their top- and bottom-line short of market views.

• JPMorgan’s revenues came in relatively flat at $30.7 billion, missing Street expectations of $31.81 billion.
• Earnings declined 27% year-over-year to $2.76 per share, short of the consensus estimate of $2.92 per share.
• Morgan Stanley’s revenues contracted 11% to $13.1 billion, slightly missing market expectations of $13.4 billion.
• Earnings fell 25% to $1.39 per share, below analyst projections of $1.57 per share.

Why it matters: US banks had reported record fees during the covid-19 period amid a surge in M&A (mergers and acquisitions) and public listings. These activities, especially IPOs (initial public offerings), have declined meaningfully since the beginning of this year.

This hit the bottom line of JPMorgan and Morgan Stanley, which reported their first earnings miss since the start of 2020. Both banks reported a decline in their investment banking business.

JPMorgan reported a 61% year-over-year decline in investment banking revenues to $1.4 billion, with a 54% contraction in fees across all products. Morgan Stanley’s investment banking revenues fell 55% to $1.1 billion.

Both banks said their business had been hurt by several macroeconomic issues, including increased volatility due to the ongoing Russia-Ukraine war.

“Overall, the Firm delivered a solid quarter in what was a more volatile market environment than we have seen for some time. Strong results in Equity and Fixed Income helped partially counter weaker investment banking activity,” Morgan Stanley CEO James Gorman said during the earnings call.

How shares responded: Morgan Stanley’s shares fell 0.4% to close at $74.69, while JPMorgan’s stock declined 3.5% to settle at $108.00 on Thursday.

What to watch: Investors await earnings releases from other major banks, with Citigroup all set to report earnings today and Goldman Sachs and Bank of America scheduled to report on Monday.

The markets today

US stocks will be in focus today ahead of a basket of economic reports from the country

Context: US stocks closed mixed on Thursday, following a weak start of the earnings season by big banks.

Details: Investors remained on the sidelines after two of the largest US banks released disappointing results on Thursday.

The consumer price index, released on Wednesday, rose 9.1% from a year earlier in June, supporting prospects of a bigger rate hike by the Federal Reserve later this month. The producer price index rose 11.3% year-over-year in June amid higher energy prices.

Energy and financial stocks were among the worst performers on the S&P 500 on Thursday, while tech stocks provided some support to the markets. Apple’s shares rose 2%, while Nvidia’s stock added around 1.4% in the session.

The Dow Jones index shed 142.62 points, or 0.46%, to close at 30,630.17, while the S&P 500 fell 0.30% to 3,790.38. The Nasdaq 100 added 0.34% to settle at 11,768.40.

What to watch: Traders will keep an eye on economic reports on retail sales, import prices, export prices and industrial production from the US today. Retail sales in the US, which unexpectedly fell 0.3% in May, are expected to grow 0.8% in June. Import prices are projected to rise 0.7%, while export prices are projected to increase 1.2% in June. Analysts expect industrial production to grow 0.1% in June.

Other Markets: European trading indices closed lower on Thursday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 down by 1.63%, 1.86%, 1.41% and 1.53%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

Italy’s inflation rate, European Union’s passenger car sales and Eurozone’s balance of trade, Turkey’s total motor vehicles production, India’s value of deposits, foreign exchange reserves and value of loans, Canada’s New motor vehicle sales, wholesale sales and foreign investment in securities, US New York Empire State Manufacturing index, manufacturing production, capacity utilization, University of Michigan consumer sentiment, business inventories and Baker Hughes crude oil rigs, Australia’s new home sales, China’s foreign direct investment, as well as Brazil’s government budget value and value of loans.