Jump to content

US bank earnings to blend good and bad


Recommended Posts

As earnings season arrives, it promises to be a mixed picture for the big US banking institutions. Video

Five things to watch in US bank earnings season | Financial Times


 Chris Beauchamp | Chief Market Analyst, London | Publication date: Monday 11 October 2021 

Costs to rise

After a year of bumper profits, the chickens may be coming home to roost. Wall Street banks face rising costs on several fronts. For starters, the sector needs to put huge amounts of capital to work in new investment in IT and other sectors. Technology spending is a constant drain on earnings, but has ramped up as new fintech firms look to compete against established names.

In addition, a war for talent has seen wage bills rise, and with home working now much more prevalent banks will need to find ways to tempt graduates into their offices even as rival startups promise a host of different benefits, most importantly flexible working.

Trading revenues expected to weaken

Last year's huge volatility saw the trading divisions of the major banks provide a hefty slab of the rise in profitability. This year has been much quieter, as any quick glance at the Vix would tell you. Thus, trading divisions have less to contribute, and this will diminish the appeal of the sector’s earnings this time around.

Fortunately it is not all bad. The growing US economy has led to increased demand for credit from consumers and corporates, improving earnings from the other divisions of the major banks. This goes some way to offsetting the drop in trading revenues although the hit will still be felt.

Rising yields will help boost income too, and while the Federal Reserve (Fed) is still unlikely to move on rates any time soon, the feeling is that the ‘race to the bottom’ on monetary policy has ended for the time being.

Strong technical outlook

Shares in the major banks have continued to perform well overall. As a broad indication of the sector, the XLF ETF, which covers the whole financial sector, has returned to record highs, recovering from the drop of September and notably outperforming the broader indices which have struggled throughout October so far.

Admittedly the uptrend has slowed from the impressive straight-line move of November to May, but this looks to be more a period of digestion before a fresh move higher. Crucially the ETF price is now moving above the 3900 highs of the summer, marking a bullish breakout to the upside.

XLF_111021.pngSource: ProRealTime
Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • Posts

    • Sainsburys full year earnings and Unilever’s first quarter trading update both say the same thing, UK consumers are in for higher prices. The war in Ukraine, supply chain issues and the effects of ongoing Covid all to blame.      
    • US Dollar (DXY) Daily Price and Analysis US Q1 GDP may stall the greenback’s advance. A 20-year high nears for the US dollar. The multi-month US dollar rally continues with the greenback printing a fresh high today ahead of the first look at US Q1 GDP at 12.30 GMT. The US dollar basket (DXY) has been boosted by renewed weakness in the Euro and the Japanese Yen, as investors move from lower-yielding to higher-yielding currencies, while safe-haven flows continue to benefit the greenback. The US growth release later in the session is expected to show a sharp slowdown from the robust Q4 figure of 6.9%. The markets are currently pricing in growth of just 1% for the first three months of this year, with the slowdown mainly due to a reduction in inventory accrual over the quarter. This release is unlikely to move the greenback, unless there is a large miss or beat, as the Fed believe that 2022 US growth will be robust enough to let them tighten monetary policy sharply without damaging the economy. The latest US Core PCE data – the Fed’s preferred inflation reading – is released on Friday and this may have more effect on the US dollar than today’s GDP data. For all market moving economic data and events, see the DailyFX Calendar. The ongoing US dollar rally has been aided by weakness across a range of G7 currencies including the Euro, the Japanese Yen, and the British Pound. The Euro continues to battle with lowly growth expectations, exacerbated by energy concerns, the British Pound is mired by weak economic data, while the Japanese Yen is in freefall as the BoJ continues with its ultra-loose monetary policy.   The US dollar continues to press higher and looks set to break above 103.96, the March 2020 high. Above here the US dollar would be back at levels last seen nearly two decades ago. The March resistance will likely hold in the short-term, especially with month-end portfolio rebalancing at the end of the week, but US dollar strength is set to continue in the months ahead. USDOLLAR (DXY) WEEKLY PRICE CHART – APRIL 28, 2022 {{THE_FUNDAMENTALS_OF_BREAKOUT_TRADING}} What is your view on the US Dollar – bullish or bearish?   Apr 28, 2022 | DailyFX Nick Cawley, Strategist
    • While Tesla has nothing directly to do with Elon Musk buying Twitter - TSLA stock closed down 12% on news that Musk may have to sell stock and use other holdings to stand against the loan to finalise the purchase of the social media giant.        
  • Create New...