US big banks post better-than-expected Q2 profits

Today’s headlines

What’s happening: Some of the biggest US banks reported their results for the second quarter on Friday.

What happened: Citigroup, JPMorgan Chase and Wells Fargo started the earnings season on an upbeat note.

Despite the strong reports from big banks, the market reaction was mostly negative, with banking shares ending lower on Friday.

How were the results: All three major banks in the US posted better-than-expected earnings for the latest quarter.

• JPMorgan reported earnings of $6.12 per share, surpassing consensus estimates of $4.29 per share. Adjusted revenues came in at $50.99 billion, higher than Wall Street expectations of $50.2 billion.
• Wells Fargo posted earnings of $1.33 on revenues of $20.69 billion. Both figures exceeded estimates of $1.29 per share and $20.28 billion, respectively.
• Citi’s earnings came in at $1.52, topping expectations of $1.39 per share. Revenue of $20.14 billion also exceeded market estimates of $20.11 billion.

Why it matters: Consumers continuing to cut back spending on big ticket items due to persistent inflation negatively impacted the shares of big banks on Friday.

JPMorgan Chase and Wells Fargo reported a decline in their quarterly adjusted profits, while Citigroup posted sluggish credit card spending in the quarter.

While banks in the US have benefitted from higher interest rates over the past two years, this has resulted in lower consumer spend.

The largest US bank by assets, JPMorgan, raised its provision for credit losses to $3.05 billion, from $1.88 billion in the prior quarter and compared to $2.89 billion it set aside last year. The bank guided to net interest income of about $91 billion in 2024, versus estimates of $91.1 billion.

Wells Fargo announced a 9% contraction in its net interest income, while markets were expecting a 7.9% decline. The bank set aside provisions for credit losses of $1.24 billion in the second quarter, higher than $938 million in the previous quarter but lower than $1.71 billion in the year-ago period.

Citigroup’s net interest income came in flat from the previous quarter at $13.49 billion, but below $13.9 billion in the year-ago quarter. Citi set aside $2.48 billion in provisions for credit losses, higher than $2.37 billion in the prior quarter and $1.82 billion last year. The bank projected a modest decline in its net interest income.

How shares responded: JPMorgan’s shares fell 1.2% to close at $204.94 on Friday, while Citi’s stock declined 1.8% to settle at $64.52. Shares of Wells Fargo tanked 6% to close at $56.54.

What to watch: Investors will continue monitoring the Fed’s interest rate decision, which will have a significant impact on the overall results of big banks.

The markets today

Gold will be in focus today after edging lower on Friday

Context: Gold prices fell slightly on Friday, as investors digested the latest inflation data from the US.

Details: Investors continue to expect the US Federal Reserve to begin cutting its benchmark interest rates sometime this year. Softer-than-expected CPI data, released on Thursday, fuelled speculations of the Fed starting sooner than later.

Any decline in interest rates increases the attractiveness to invest in gold

CPI inflation in the US fell by 0.1% month-over-month in June, recording the lowest reading since May 2020. Data released on Friday showed core producer prices in the US increasing by 0.4% month-over-month in June, versus 0.3% in the previous month.

Weakness in the US dollar limited the overall losses for gold, as a lower greenback makes metals cheaper for foreign currency holders. The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell more than 0.3% to 104.08 on Friday.

Gold for August delivery declined $1.20 to close at $2,420.70 per ounce on Friday.

In other metals trading, silver for September delivery slipped 51 cents to settle at $31.16 per ounce, while September copper added 8 cents $4.59 per pound. Platinum slipped to $1,013.3 and palladium declined more than 2% to settle at $972.30.

What to watch: Investors will continue assessing comments from US Fed officials regarding their monetary policy. The release of major economic reports and news of geopolitical tensions will also remain in focus this week.

Other Markets: European indices closed higher on Friday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 Index up by 0.36%, 1.15%, 1.27% and 0.88%, respectively.

The news shaping the markets

Poland’s foreign minister announced plans to spend 5% of its GDP on defence next year in view of the continued war between Russia and Ukraine. The news sent the safe-haven US dollar index higher in forex trading this morning.

China’s retail sales grew by 2% year-over-year in June, slowing from a 3.7% rise in the prior month. The latest reading also fell short of market expectations of a 3.3% gain, exerting pressure on the CNY/USD forex pair.

India’s total passenger vehicle sales climbed 5.0% year-over-year to 294,133 in June. This being an acceleration from the 4.3% gain recorded a month ago sent the INR/USD pair higher in forex trading this morning.

New Zealand’s BusinessNZ Performance of Services Index declined 2.4 points to a reading of 40.2 in June. The region’s services activity contracting for the fourth straight month exerted pressure on the NZD/USD forex pair.

Argentina’s consumer prices increased by 4.6% in June, higher than the 4.2% rise in the earlier month. However, the recent reading came in below market estimates of a 5.1% rise, sending the ARS/USD pair higher in forex trading this morning.

What else to watch today

India’s wholesale prices, total passenger vehicle sales and balance of trade, Eurozone’s industrial production, Brazil’s IBC-Br economic activity index and Central Bank of Brazil focus market readout, Canada’s manufacturing sales, new motor vehicle sales and wholesale sales, US NY Empire State manufacturing index and Fed Chair Powell speech,  as well as Turkey’s total motor vehicles production and total vehicle sales.