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Will Goldman Sachs Continue Its Momentum in Q4?

The news shaping the markets today

The Bank of Japan held its key short-term interest rate at -0.1% during its latest meeting, exerting some pressure on the JPY/USD forex pair.


US stock futures traded mixed this morning, ahead of a fresh batch of earnings results from major companies. Wall Street was closed on Monday for Martin Luther King Day.


Colombia reported a trade deficit of $2.56 billion in November, compared to a $1.66 billion gap in the year-ago month. Despite this being the largest deficit on record, the COP/USD pair remained flat in forex trading this morning.


Canada’s manufacturing sales grew 2.6% to C$63.1 billion in November, representing a slowdown from the 4.6% growth a month ago. The latest reading also came in below the preliminary estimate of 3.1% growth, which exerted pressure on the CAD/USD forex pair.


Russia’s trade surplus widened to $21.06 billion in November, from $7.39 billion in the year-ago month. Exports jumped 62.4% to $48.96 billion, the highest level since December 2013, and sent the RUB/USD pair higher in forex trading this morning.

 

What’s happening: Goldman Sachs is all set to report its fourth-quarter results before the opening bell on Wall Street today.

What happened: Goldman Sachs has exceeded revenue estimates every quarter over the past two years.

While most analysts expressed optimism around the company’s upcoming quarterly results, one analyst lowered the price target.

What are the estimates: The New York-based investment bank is projected to report a decline in earnings for the fourth quarter.

  • Goldman Sachs is expected to report growth in revenues to $12.03 billion, from $11.74 billion in the year-ago quarter.
  • The consensus estimate for earnings stands at $11.76 per share, below the $12.08 per share recorded in the fourth quarter of 2020.

Why it matters: Goldman Sachs reported upbeat results for the previous quarter, with its top-line results surging 26% year-over-year driven by strong growth in its investment banking business. However, the growth delivered by the investment banking division was partially offset by a decline in the bank’s asset management unit. Analysts on average expect the fourth-quarter results to reflect the same trend.

The investment banking unit is widely expected to report its strongest performance, with revenue growth of as much as 22%. Goldman Sachs is also expected to have benefited in the quarter from a surge in deal making, with global M&A volumes estimated to increase 6% in 2022.

The world’s leading investment manager delivered a strong performance in 2020, with adjusted net income jumping 13% year-over-year to $8.9 billion. The trend continued during the first three quarters of 2021, with the cumulative nine months figure surging almost threefold to $17.3 billion on a yearly basis. Analysts expect the momentum to have continued in the fourth quarter.

Various analysts updated their stock targets for Goldman Sachs ahead of the release of earnings. While JPMorgan, UBS and Evercore ISI raised their price target, BofA Securities lowered the price target from $490 to $475.

How shares performed so far: Shares of Goldman Sachs fell sharply by 2.5% to close at $380.94 on Monday. The stock has lost almost 4% year to date.

What to watch: Investors will keep an eye on the Goldman Sachs’s results and earnings reports from other major US banks this week.

The markets today

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

 

Context: The sterling settled lower on Monday, despite recording gains earlier in the session.

Details: The GBP/USD has spiked around 4% since its December lows, after the Bank of England unexpectedly hiked interest rates for the first time since the onset of the pandemic.

The US Federal Reserve has also indicated that its interest rate hikes this year could be earlier than anticipated.

“The Fed’s shift towards more aggressive policy action will likely push the market to expect similar moves from central banks like the BoE [Bank of England] that were already taking steps in that direction,” strategists at Goldman Sachs said in a note to clients.

The British pound eased from the two-and-a-half-month high reached last week, due in part to profit taking. Markets also remain cautious ahead of the Bank of England’s policy meeting next month. The central bank is widely expected to announce another interest rate hike, given recent reports suggesting a sharp recovery in the UK economy from the pandemic lows.

UK reported GDP growth of 1.1% for the September to November period, exceeding market expectations of 0.8%.

However, some market analysts said the UK economy could come under pressure due to continued supply chain issues, both due to global supply chain disruptions and the impediments to trade imposed by Brexit.

The political environment also remains strained, with growing calls for Prime Minister Boris Johnson’s resignation after he admitted to attending parties during the lockdown.

The GBP/USD forex pair fell more than 0.2% to settle at 1.3646 on Monday.

What to watch: Traders await data on claimant count change, unemployment rate and employment change from the UK today. The number of people claiming unemployment benefits had declined by 49,800 in November and is expected to decline by another 36,000 in December. The unemployment rate is expected to remain unchanged at 4.2%.

Other Markets: European indices closed higher on Monday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 up by 0.91%, 0.32%, 0.82% and 0.70%, respectively.

Support & resistances for today

Technical Levels News Sentiment
FTSE 100 – 7,606.73 and 7,615.59 Positive
GBP/USD – 1.3647 and 1.3657 Positive
EUR/GBP – 0.8359 and 0.8360 Positive
Gold – 1,818.51 and 1,821.31 Positive
WTI Crude Oil – 84.45 and 84.62 Positive

 

Market snapshot

What else to watch today

Eurozone’s ZEW indicator of economic sentiment and European Union new passenger car registrations, Italy’s balance of trade, South Africa’s mining production and gold production, Germany’s ZEW current conditions, Canada’s housing starts, as well as US New York Empire State manufacturing index, NAHB housing market index, net long-term TIC flows, net treasury international capital flows, net purchases of US treasury bonds and notes and API crude oil stocks.


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