European Shares End Higher on Dovish Fed, Entra Leads Gains

The pan-European STOXX 600 index closed 0.4% higher, with mining stocks up 1.9%, while real estate stocks added 1.5%.

The day’s gains helped the STOXX 600 close 0.8% higher for the week, after trading flat for several days. Commodity-linked stocks were the best weekly performers, as they bounced back from steep losses.

Entra was the best performer on the STOXX 600, rising 4.6% as its peer Castellum bought 11.8% of shares in the firm from the government pension fund in Norway.

The STOXX 600 extended its gains after Powell’s highly anticipated announcement, which reassured investors that programs which have flooded markets with liquidity for the past year will remain in place for the time being.

“Powell’s warning about the risks of premature tightening and repeated reference to “much ground to cover” to reach the Fed’s employment objective hint that the Fed may be on hold until Q4 at the earliest,” said Matt Weller, global head of research at Forex.com.

U.S. stocks touched record highs after the announcement, while European stocks were less than a percent away from their peak, as investors looked past rising COVID-19 cases and concerns over slowing economic growth.

A survey showed French consumer confidence eased marginally in August, while morale amongst Italian businesses and consumers also fell this month.

The Delta variant of the coronavirus is only expected to have a limited impact on the euro zone economy, which remains on course for robust growth this year and next, European Central Bank Chief Economist Philip Lane said earlier this week.

Just Eat Takeaway.com, which owns GrubHub, fell 7.5% after the New York City Council approved legislation to license food-delivery apps and permanently cap commissions they can charge restaurants.

Just Eat was the biggest percentage loser on the STOXX 600 on Friday.

Norwegian fish farmer Salmar rose 2.5% after the company dropped plans to launch an 11.8 billion crowns ($1.29 billion) cash bid for rival Norway Royal Salmon (NRS). NRS shares fell 11.8%.

French auto parts maker Faurecia gained 2.7% to 42.07 euros after Citigroup hiked the price target on the company’s stock to 56 euros from 41 euros.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Sruthi Shankar and Ambar Warrick in Bengaluru; Editing by Shounak Dasgupta and Jonathan Oatis)

NAB to Buy Citi’s Australia Consumer Business in $882 Million Deal

The deal, which includes a A$250 million premium, will elevate NAB’s personal banking business as the lender vies for a bigger share among Australia’s “Big Four” banks that control more than 80% of the market.

“The cards and payments sector is rapidly evolving and access to a greater share of payments and transaction data will help drive product and service innovation across our personal banking business,” said NAB Chief Executive Officer Ross McEwan.

The deal comes after U.S. lender Citi in April said it would exit its 13 overseas consumer operations under an overhaul by new boss Jane Fraser to boost profitability.

Citi’s consumer business in Australia had lending assets of A$12.2 billion and deposits of A$9 billion at the end of June.

Under the terms, 800 Citi employees and senior management will join NAB. Citi’s institutional business and underlying technology or platforms are not part of the deal, which is subject to regulatory approvals.

The Australian lender expects annual pre-tax cost savings of A$130 million over three years, and will spend A$165 million in fiscal 2022 and 2023 to build a new unsecured lending platform for the combined business.

Total acquisition and integration costs will come up to A$375 million, NAB said, adding the deal was expected to close by March 2022. The bank, Australia’s third-largest, said it would enter talks with Citi’s white label partners, but cautioned that all of them may not transition.

NAB, which is set to provide a third-quarter trading update on Thursday, will fund the acquisition with its existing funds.

($1 = 1.3602 Australian dollars)

(Reporting by Nikhil Kurian Nainan in Bengaluru; Editing by Rashmi Aich, Ramakrishnan M. and Subhranshu Sahu)

Goldman Sachs to Raise Pay for Junior Investment Bankers – Business Insider

The bank’s second-year analysts will now make $125,000 in base compensation, while first-year associates will earn $150,000, Business Insider reported https://www.businessinsider.com/goldman-sachs-raises-salaries-investment-bankers-junior-analysts-associates-salary-2021-8?IR=T, citing two people familiar with the situation.

No formal announcement about the pay raise has been made and it was unclear which other levels of employees at the investment banking division have also been given salary increases, the report from the financial and business news website said.

Goldman Sachs declined to comment.

Investment banks have raised pay for first- and second-year associates this summer in an attempt to ease the strain on these workers and compensate them more for their work supporting more senior staff in a year of unprecedented deal making.

Citi Group, Morgan Stanley, UBS Group AG and Deutsche Bank AG have already increased pay for their first-year analysts to around $100,000, a raise of about $15,000.

In February, a group of junior bankers in Goldman’s investment bank told senior management they were working nearly 100 hours a week and sleeping 5 hours a night to keep up with an over-the-top workload and “unrealistic deadlines.” Half of the group, which consisted of 13 first-year employees, said they were likely to quit by summer unless conditions improved.

Goldman’s Chief Executive Officer David Solomon has said the bank was working to hire more associates to help with the workload, and vowed to enforce the “Saturday rule,” which prohibits employees from working between 9 p.m. Friday night and 9 a.m. on Sunday, except in certain circumstances.

(Reporting by Elizabeth Dilts Marshall, and Derek Francis in Bengaluru; Editing by Jacqueline Wong)

Nasdaq Ends Lower as Investors Sell Big Tech

Amazon, Apple Tesla and Facebook all fell. Nvidia tumbled around 4%.

The S&P 500 technology sector index ended a four-day winning streak. Earlier this week, investors’ favor for heavyweight growth stocks pushed the S&P 500 and the Nasdaq to record highs.

The S&P 500 energy sector index fell more than 1% and tracked a drop in crude prices on expectations of more supply after a compromise agreement between leading OPEC producers.

Fresh data showed the number of Americans filing new claims for unemployment benefits fell last week to a 16-month low, while worker shortages and bottlenecks in the supply chain have frustrated efforts by businesses to ramp up production to meet strong demand for goods and services.

Federal Reserve Chair Jerome Powell told lawmakers he anticipated the shortages and high inflation would abate. Yet many investors still worry that more sustained inflation could lead to a sooner-than-expected tightening of monetary policy.

“People are very nervous and concerned about inflation, tax rates and the (2022 midterm) election. Those three things are very much on people’s minds,” said 6 Meridian Chief Investment Officer Andrew Mies, describing recent phone calls with his firm’s clients.

Unofficially, the Dow Jones Industrial Average rose 54.52 points, or 0.16%, to 34,987.75, the S&P 500 lost 14.29 points, or 0.33%, to 4,360.01 and the Nasdaq Composite dropped 101.82 points, or 0.7%, to 14,543.13.

Morgan Stanley dipped as much as 1.2% after it beat expectations for quarterly profit, getting a boost from record investment banking activity even as the trading bonanza that supported results in recent quarters slowed down.

Second-quarter reporting season kicked off this week, with the four largest U.S. lenders – Wells Fargo & Co, Bank of America Corp, Citigroup Inc and JPMorgan Chase & Co – posting a combined $33 billion in profits, but also highlighting the industry’s sensitivity to low interest rates.

Blackstone said late on Wednesday it would pay $2.2 billion for 9.9% stake in American International Group’s life and retirement business. AIG and Blackstone both rallied.

Johnson & Johnson dipped after it voluntarily recalled five aerosol sunscreen products in the United States after detecting a cancer-causing chemical in some samples.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Noel Randewich; Additional reporting by Devik Jain and Shreyashi Sanyal in Bengaluru; Editing by Maju Samuel)

 

Oil Prices Sink Again, as Investors Look Out for More Supply

Brent crude settled at $73.47 a barrel, dropping $1.29, or 1.7%. U.S. West Texas Intermediate (WTI) crude settled at $71.65 a barrel, down $1.48, or 2.2%.

The slide continued Wednesday’s losses, after Reuters reported that Saudi Arabia and the United Arab Emirates had reached an accord that should pave the way for a deal to supply more crude to a tight oil market.

A deal has yet to be solidified, and the UAE energy ministry said deliberations are continuing.

“That’s still the big elephant in the room – we had a deal, we didn’t have a deal – and that’s raising concerns,” said Phil Flynn of Price Futures Group.

Talks among the Organization of the Petroleum Exporting Countries, Russia and their allies, a group known as OPEC+, broke down this month after the UAE objected to extending the group’s supply pact beyond April 2022, saying the deal did not account for the UAE’s increased output capacity.

In the United States, a large drawdown in crude stockpiles did little to boost prices as investors focused on rising fuel inventories in a week that included the Fourth of July holiday, when driving usually surges.

“All that sense of gasoline optimism evaporated in just one week,” said Bob Yawger, director of energy futures at Mizuho. “If you don’t need the gasoline, you don’t need the crude oil to make the gasoline, and that’s the only math that matters at the end of the day.”

Several banks, including Goldman Sachs, Citi and UBS expect supplies to remain tight in the coming months even if OPEC+ finalizes an agreement to raise output.

OPEC, in its monthly report, said it still foresees a strong recovery in world oil demand for the rest of 2021, and predicted oil use in 2022 would reach levels similar to before the COVID-19 pandemic.

For a look at all of today’s economic events, check out our economic calendar.

(Additional reporting by Bozorgmehr Sharafedin in London, Florence Tan in Singapore; Editing by Marguerita Choy, Will Dunham and Edmund Blair)

Marketmind: “A Ways Off” and That’s Good

You couldn’t call China’s data dismal — average growth actually surpassed Q1 while June retail sales and industrial output beat expectations. But it does show authorities, who last week unleashed one trillion yuan into the financial system, will ensure conditions stay loose.

But markets’ delight after Powell told Congress he saw no need to rush the shift towards tighter post-pandemic monetary policy, has not lasted long.

World stocks are off recent record highs, tempered possibly by spiking COVID-19 cases across Asia and signs the post-pandemic bounce in company earnings is hitting a peak.

Asian shares rallied, led by a 1% rise in Shanghai but U.S. futures are mostly lower, with the exception of the tech-heavy Nasdaq. European markets too, are opening weaker and 10-year Treasury yields are down at 1.33%, almost 10 basis points off Wednesday’s high point.

The news from the corporate world is all good — the four biggest U.S. banks, Wells Fargo, Bank of America, Citigroup and JPMorgan have posted a combined $33 billion in profits. Asset manager BlackRock beat estimates, with assets at a record $9.5 trillion.

Omens in Europe are good too, with Sweden’s SEB, carmaker Daimler and food delivery firm Just Eat all reporting buoyant earnings. And earlier in Asia, Taiwanese chipmaker, TSMC, posted an 11% rise in Q2 profits.

Key developments that should provide more direction to markets on Thursday:

– South Korea held rates but signalled pandemic era record-low interest rates was coming to an end

-UK added 356,000 jobs in June

-ECB Board Member Frank Elderson speaks

-Philly Fed index

-Bank of England interest rate-setter Michael Saunders speaks

Fed events: Powell testimony continues, Chicago Fed President Charles Evans speaks

US earnings: BNY Mellon, Charles Schwab, US Bancorp, Morgan Stanley, Alcoa

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Sujata Rao; editing by Dhara Ranasinghe)

 

Citigroup Q2 Earnings Beat Estimates, But Revenue Falls 12%

The New York City-based investment bank Citigroup reported better-than-expected earnings for the first quarter, largely driven by the decision to release credit loss reserves, but overall revenue plunged 12%, sending its shares down about 1% on Wednesday.

Citigroup said its net income rose to $6.19 billion, or $2.85 per share in the quarter ended June 30, up from $1.06 billion, or 38 cents per share, a year ago. That was higher than the market consensus estimates of $1.94 per share.

The investment bank’s overall revenue plunged 12%, while loans were down 3%. Global consumer revenue decreased 7% to $6.8 billion on a reported basis and 10% in constant dollars, as continued strong deposit growth and momentum in investment management were more than offset by lower average card loans and deposits spreads across all three regions.

At the time of writing, Citigroup shares traded 0.83% lower at $67.79 on Wednesday.

Citigroup Stock Price Forecast

Twelve analysts who offered stock ratings for Citigroup in the last three months forecast the average price in 12 months of $89.46 with a high forecast of $114.00 and a low forecast of $73.00.

The average price target represents a 32.14% change from the last price of $67.70. From those 12 analysts, ten rated “Buy”, two rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $89 with a high of $130 under a bull scenario and $50 under the worst-case scenario. The firm gave an “Overweight” rating on the investment bank’s stock.

Several other analysts have also updated their stock outlook. Jefferies cut the price target to $80 from $85. BMO lowered the target price to $87 from $95. Evercore ISI slashed the target price to $72 from $76. Oppenheimer cut the target price to $114 from $118.

Analyst Comments

Citi is trading at just 0.7x NTM BVPS implying through the cycle ROE of just 7%, well below our 9% estimate for 2023. We believe the stock is cheap even if expenses related to the Fed/OCC consent order remain elevated. We have modeled in expenses rising to $44B / $43.5B for 2021 / 2022 well above $42B in 2019,” noted Betsy Graseck, equity analyst at Morgan Stanley.

Citi also has #1 share in Transaction Banking, a business we estimate delivers a ~35% ROTCE for Citi. We believe Citi can add $17 a share in value by disclosing full quarterly details on this business. We bake half in $8, as Citi discloses half of what we would like to see. Citi should get more credit for its global diversification and it’s more resilient wholesale business.”

Check out FX Empire’s earnings calendar

Marketmind: It’s Jay Time!

Inflation in the world’s top economy barrelling ahead for a third straight month has doused the equity rally, just as stocks were staging a come-back after navigating last week’s bond market volatility.

Powell will face questions on how transitory price pressures might be and how fast the Fed might need on withdrawing the monetary support which has been critical for markets.

Wednesday’s figures prompted markets to bring forward the timing of the Fed’s first rate hike, bets that lifted the dollar to a three-month high versus the euro and a one-week high versus the yen.

An added complication was weak demand at Wednesday’s auction of 30-year Treasury bonds, which pushed 10-year yields above 1.4%. And after a softer Wall Street close, Asian stocks fell while European and U.S. markets are tipped to open lower.

Price pressures are a hot topic elsewhere too, with data showing British inflation rising further above the Bank of England’s target, hitting 2.5%.

Some central banks, meanwhile, are going full steam ahead with stimulus withdrawal plans — New Zealand announced a halt to its pandemic-linkd QE programme. Bets on a rate hike this year have sent the Kiwi dollar surging 1%.

Later in the day, the Bank of Canada is also expected to announce plans to taper asset purchases.

Key developments that should provide more direction to markets on Wednesday:

-UK inflation jumps to 2.5% in June

-Bank of Canada expected to taper

-New Zealand c.bank ends bond purchases, paves way for possible rate hikes

-Turkey, Chile and Croatia central bank meetings

-India WPI inflation

-Swedish CPI

-Euro Area Industrial Production

-ECB Board Member Isabel Schnabel speaks

-Bank of England Deputy Governor Dave Ramsden speaks

-Auctions: German 10-year Bund

-Earnings: Citi, BofA, BlackRock, Wells Fargo, Delta Airlines

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Karin Strohecker; editing by Sujata Rao)

S&P 500 and Nasdaq End Down After Hitting Record Highs

The S&P 500 and Nasdaq reached fresh record highs but quickly fell into negative territory after an auction of 30-year Treasuries showed less demand than some investors expected and pushed yields higher.

Data indicated U.S. consumer prices rose by the most in 13 years last month, while so-called core consumer prices surged 4.5% year over year, the largest rise since November 1991.

Economists viewed the price surge, driven by travel-rated services and used automobiles, as mostly temporary, aligning with Federal Reserve Chair Jerome Powell’s long-standing views.

“Any time you get an uptick in interest rates the stock market is going to get nervous, especially on a day like today,” said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.

The S&P 500 growth index dipped 0.05%, while the value index fell 0.70%.

“With growth outperforming value, the takeaway is clearly that inflation from a market perspective is not a real threat in the long term,” said Keith Buchanan, a portfolio manager at GLOBALT Investments in Atlanta, Georgia.

Ten of the 11 major S&P 500 sector indexes ended lower, with real estate, consumer discretionary and financials each down more than 1%.

JPMorgan Chase & Co stock fell 1.5% after the company reported blockbuster quarterly profit growth but warned that the sunny outlook would not make for blockbuster revenues in the short term due to low interest rates.

Goldman Sachs Group Inc dipped 1.2% after its quarterly earnings exceeded forecasts.

Citigroup, Wells Fargo & Co and Bank of America were due to report their quarterly results early on Wednesday.

PepsiCo Inc gained 2.3% after raising its full-year earnings forecast, betting on accelerating demand as COVID-19 restrictions continue to ease.

June-quarter earnings per share for S&P 500 companies are expected to rise 66%, according to Refinitiv data, with investors questioning how long Wall Street’s rally would last after a 16% rise in the benchmark index so far this year.

All eyes now turn to Fed Chair Jerome Powell’s congressional testimony on Wednesday and Thursday for his comments about rising price pressures and monetary support going forward.

The Dow Jones Industrial Average fell 0.31% to end at 34,888.79 points, while the S&P 500 lost 0.35% to 4,369.21.

The Nasdaq Composite dropped 0.38% to 14,677.65.

Conagra Brands Inc dropped 5.4% after the packaged foods company warned that higher raw material and ingredient costs would take a bigger bite out of its profit this year than previously estimated.

Boeing Co fell 4.2% after the Federal Aviation Administration said late on Monday some undelivered 787 Dreamliners have a new manufacturing quality issue.

Declining issues outnumbered advancing ones on the NYSE by a 2.85-to-1 ratio; on Nasdaq, a 3.06-to-1 ratio favored decliners.

The S&P 500 posted 39 new 52-week highs and no new lows; the Nasdaq Composite recorded 61 new highs and 73 new lows.

Volume on U.S. exchanges was 9.5 billion shares, compared with the 10.5 billion average for the full session over the last 20 trading days.

For a look at all of today’s economic events, check out our economic calendar.

(Additional reporting by Devik Jain and Shreyashi Sanyal in Bengaluru; Editing by Cynthia Osterman)

Citigroup Could Sell off Into the 50s

Citigroup Inc. (C) reports Q2 2021 earnings in Wednesday’s pre-market, with analysts looking for a profit of $1.91 per-share on $17.3 billion in revenue. If met, earnings-per-share (EPS) will mark a nearly 400% profit increase compared to the same quarter last year, which featured a temporary respite from the COVID-19 pandemic. The stock sold off about 9% in the week following April’s Q1 release, despite beating top and bottom line estimates.

Fails to Raise Dividend

Bank stocks took off in strong uptrends in the first quarter after bond yields escalated in reaction to inflationary data that would generate stronger industry profits. However, the bond tide has turned since April, lifting iShares 20+ Year Treasury Bond ETF to the highest high since February. Taken together with fears that COVID variants will weigh on worldwide economic growth into 2022, many investors have taken sector profits and moved to the sidelines.

The company fared poorly compared to rivals in the latest Fed Stress Test results released in June and was forced to raise its Stress Capital Buffer Requirement from 2.5% to 3%. It also had to forego a dividend increase, unlike most rivals, making shares less attractive. As a result, it’s no surprise that selling pressure has escalated in recent weeks, dropping the stock to a 4-month low while accumulation has slumped to an 8-month low.

Wall Street and Technical Outlook

Wall Street consensus is modestly bullish, with an ‘Overweight’ rating based upon 16 ‘Buy’, 1 ‘Overweight’, and 8 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $66 to a Street-high $114 while the stock is set to open Monday’s session just $2 above the low target. This poor placement reflects a decline in bullishness about the trajectory of interest rates.

Citigroup rallied to a 10-year high near 80 in January 2018 and turned lower into year’s end. It failed a breakout in January 2020 and rolled over, dropping to a 7-year low in March. The subsequent uptick reversed three points below the prior high in June 2021, ahead of a decline that’s testing long-term support for the first time since November. Aggressive distribution in the last six weeks predicts that bears will eventually win this battle, dumping the stock into the 50s.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Earnings to Watch Next Week: Most Big U.S. Banks, PepsiCo, Delta Air Lines and UnitedHealth in Focus

Earnings Calendar For The Week Of July 12

Monday (July 12)

Ticker Company EPS Forecast
FRHC Freedom $0.72

 

Tuesday (July 13)

IN THE SPOTLIGHT: JPMORGAN, PEPSICO, GOLDMAN SACHS

JPMorgan: The New York City-based multinational investment bank and financial services holding company is expected to report its second-quarter earnings of $3.16 per share, which represents year-over-year growth of over 128% from $1.38 per share seen in the same quarter a year ago.

In the last four consecutive quarters, on average, the company has delivered earnings surprise all four times, with of over 32%.

JPM has less excess capital as a % of the market cap relative to other names in the group, which drives a lower benefit from buybacks. We are valuing the group on normalized 2023 EPS. We expect a V-shaped recovery will drive higher reserve release and share buybacks over the next 2 years, with “normalized” post-recession earnings beginning in 2023,” noted Betsy Graseck, equity analyst at Morgan Stanley.

“We see more upside elsewhere in the group, particularly in consumer finance stocks which have been under more pressure. This drives our Underweight rating.”

PEPSICO: The Harrison, New York-based global food and beverage leader is expected to report its second-quarter earnings of $1.53 per share, which represents year-over-year growth of over 15% from $1.32 per share seen in the same quarter a year ago.

The U.S. multinational food, snack, and beverage corporation would post revenue of $17.91 billion. In the last four consecutive quarters, on average, the company which holds approximately a 32% share of the U.S. soft drink industry has delivered an earnings surprise of over 6%.

GOLDMAN SACHS: The New York-based leading global investment bank is expected to report its second-quarter earnings of $9.52 per share, which represents year-over-year growth of over 52% from $6.26 per share seen in the same quarter a year ago.

It is worth noting that in the last two years, the world’s leading investment manager has surpassed market consensus expectations for profit and revenue most of the time. The better-than-expected number would help the stock hit new all-time highs.

“Our 2Q EPS est. increases to $10.05 from $9.53 on positive markets and higher equity investment revs. The equity investment line will likely again be a meaningful rev. swing factor (we model $1.4B vs. $3.1B in 1Q21). Post-DFAST, GS indicated that the dividend will increase to $2.00/qtr. from $1.25/qtr., but did not provide specifics on buybacks. We model 2Q share repurchase of $1.5B (vs. $2.2B cons.) and $2.5B/qtr. (vs.$2.3B/qtr. cons.) for the remainder of this year,” noted Daniel T. Fannon, equity analyst at Jefferies.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JULY 13

Ticker Company EPS Forecast
FAST Fastenal $0.41
CAG Conagra Foods $0.52
JPM JPMorgan Chase $3.16
PEP PepsiCo $1.53
GS Goldman Sachs $9.96
FRC First Republic Bank $1.73
HCSG Healthcare Services $0.30
AMX America Movil Sab De Cv Amx $0.32

 

Wednesday (July 14)

IN THE SPOTLIGHT: WELLS FARGO, BANK OF AMERICA, CITIGROUP, DELTA AIR LINES, BLACKROCK

WELLS FARGO: The fourth-largest U.S. lender is expected to report a profit in the second quarter after last year posting its first loss since the global financial crisis of 20028.

Wells Fargo, Bank of America, Citigroup, JPMorgan will tother report profits of $24 billion in the second quarter, up significantly from $6 billion seen last year.

There is no relief for Delta Air Lines, which is expected to post a loss of $1.36 per share on $6.19 billion in revenue.

BLACKROCK: The world’s largest asset manager is expected to report its second-quarter earnings of $9.28 per share, which represents year-on-year growth of over 18% from $7.85 per share seen in the same quarter a year ago.

The New York-based multinational investment management corporation’s revenue would grow over 25% of $4.56 billion. In the last four consecutive quarters, on average, the investment manager has delivered an earnings surprise of over 11%.

The better-than-expected number would help the stock hit new all-time highs. The company will report its earnings result on Wednesday. BlackRock’s shares rose over 24% so far this year. The stock ended 2.83% higher at $901.31 on Friday.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JULY 14

Ticker Company EPS Forecast
WFC Wells Fargo $0.95
BAC Bank Of America $0.77
PNC PNC $3.09
C Citigroup $1.99
DAL Delta Air Lines -$1.36
BLK BlackRock $9.28
INFY Infosys $0.17

 

Thursday (July 15)

Ticker Company EPS Forecast
WIT Wipro $0.07
WNS Wns Holdings $0.68
BK Bank Of New York Mellon $1.00
MS Morgan Stanley $1.66
CTAS Cintas $2.31
UNH UnitedHealth $4.43
USB US Bancorp $1.12
TFC Truist Financial Corp $0.98
HOMB Home Bancshares $0.46
AA Alcoa $1.28
VLRS Controladorauelaavcncv $0.80
PGR Progressive $1.07
TSM Taiwan Semiconductor Mfg $0.93
PBCT People’s United Financial $0.34
WAL Western Alliance Bancorporation $1.96

 

Friday (July 16)

Ticker Company EPS Forecast
ERIC Ericsson $0.13
ALV Autoliv $1.40
FHN First Horizon National $0.40
ATLCY Atlas Copco ADR $0.45
STT State Street $1.77
KSU Kansas City Southern $2.18
SCHW Charles Schwab $0.76

 

FED: What’s Going On Behind the Scenes?

Banking on a Comeback

With the U.S. Federal Reserve (FED) releasing its annual bank stress tests on Jun. 24, Vice Chairman for Supervision Randal Quarles said that “the banking system is strongly positioned to support the ongoing recovery.” For context, the FED’s stress tests analyze the health of U.S. banks’ balance sheets and reveal how they would fare if hypothetical economic doomsdays were to occur.

And while Chairman Jerome Powell told Congress on Jun. 22 that the U.S. economy “is still a ways off,” the results of the stress tests are a contradiction. Case in point: the report revealed that since “all 23 large banks tested remained well above their risk-based minimum capital requirements […] the additional restrictions put in place during the COVID event will end .”

Translation? The FED will allow U.S. banks – like JPMorgan , Bank of America and Citigroup – to resume share buybacks and standard dividend payments (roughly $130 billion worth) as of next month.

Please see below:

Source: U.S. FED

On top of that, the FED considers the following a scary situation:

“The severely adverse scenario is characterized by a severe global recession accompanied by a period of heightened stress in CRE and corporate debt markets. The U.S. unemployment rate climbs to a peak of 10-3/4 percent in the third quarter of 2022, a 4 percentage point increase relative to its fourth quarter 2020 level. Real GDP falls 4 percent from the end of the fourth quarter of 2020 to its trough in the third quarter of 2022. The decline in activity is accompanied by a lower headline consumer price index (CPI).”

However, even if this hypothetical malaise occurs, the FED believes that all 23 banks will pass the test with flying colors.

Please see below:

Source: U.S. FED

To explain, the third column from the left depicts the banks’ regulatory capital ratios under the “severely adverse scenario.” Moreover, if you compare the results with the fourth column from the left, you can see that even if an economic meteor strikes, participants’ ratios will still remain above their regulatory minimums. For context, common equity tier 1 capital (CET1) is the most liquid source of banks’ capital, and the CET1 ratio is used to gauge banks’ ability to absorb losses should an economic shock occur.

But why is all of this so important?

Well, if the FED was so worried about the U.S. economy, would it allow financial institutions to frivolously spend their collateral on dividends and share buybacks? Remember, U.S. banks supply credit card loans, mortgages, commercial loans and finance the sectors that were hardest hit by COVID-19 (commercial real estate, hospitality, energy, etc.). Thus, with the FED giving banks the ‘all-clear,’ it’s a sign that the U.S. economy is much stronger than the FED lets on.

In addition, The White House announced on Jun. 24 that a $1.2 trillion infrastructure deal was reached . And calling the milestone “the largest federal investment in public transit in history and the largest federal investment in passenger rail since the creation of Amtrak,” lawmakers want to cook the U.S. economy until it boils. For context, the agreement includes $579 billion of new spending with the rest being diverted from untapped coronavirus-relief funds.

Please see below:

Source: The White House

More importantly, though, with U.S. lawmakers hell-bent on pushing the limits of inflation and economic growth, the ominous impulse remains bullish for the U.S. 10-Year Treasury yield and the USD Index. Regarding the latter, if U.S. GDP growth outperforms the Eurozone, the EUR/USD – which accounts for nearly 58% of the movement of the USD Index – should suffer in the process. Likewise, with the U.S. 10-Year Treasury yield materially undervalued relative to realized inflation and prospective GDP growth , unprecedented spending should put upward pressure on interest rates. Furthermore, the bullish cocktail should force the FED to taper its asset purchases in September .

To explain, while the PMs are allergic to a rising U.S. 10-Year Treasury yield, the latter doesn’t have to move for the metals to suffer. For example, following the FED’s announcement on Jun. 16, the U.S. 2-Year, 3-Year and 5-Year Treasury yields surged. And while the development flattened the U.S. yield curve – meaning that short-term interest rates rose while long-term interest rates stood pat – the PMs still suffered significant drawdowns. Thus, while the U.S. 10-Year Treasury yield remains ripe for an upward re-rating, even if it stays in consolidation mode, short-term interest rate pressures are just as ominous.

Will We See Another Inflation Surprise?

I wrote on Jun. 22:

The FED increased its year-over-year (YoY) headline PCE Index forecast from a rise of 2.40% YoY to a rise of 3.40% YoY on Jun. 16. However, with the Commodity Producer Price Index (PPI) surging by 18.98% YoY – the highest YoY percentage increase since 1974 – the wind still remains at inflation’s back. Moreover, with all signs pointing to a YoY print of roughly 4% to 4.50% on Jun. 25, the “transitory” narrative could suffer another blow on Friday.

As further evidence, the Kansas City FED released its Manufacturing Survey on Jun. 24. And with the composite index rising from 26 in May to 27 in June, Chad Wilkerson, vice president and economist at the KC FED, had this to say about the current state of affairs:

“Regional factory activity rose again in June and expectations for future activity were the highest in survey history . While the majority of firms continue to face increasing materials prices and labor shortages, many firms have also increased selling prices and capital expenditures for 2021.”

To that point, while the KC FED’s prices paid and prices received indexes declined slightly from their all-time highs, both gauges remain above their prior historical peaks.

Please see below:

To explain, the green line above tracks the KC FED’s prices paid index, while the red line above tracks the KC FED’s prices received index. If you analyze the right side of the chart, you can see that both remain extremely elevated.

On top of that, survey respondents provided the following anecdotal evidence:

Source: KC FED

Also supportive of future economic growth, U.S. manufacturers spent $36.218 billion on machinery in May (the data was released on Jun. 24) – only a slight decrease from the all-time high of $36.364 billion set in April. And with machinery representative of long-lived assets that have high breakeven costs, the recent splurge signals that manufacturers remain optimistic about the recovery.

Please see below:

To explain, the green line above tracks manufacturers’ machinery orders, while the red line above tracks the YoY percentage change in the Private Employment Cost Index (ECI). If you analyze the relationship, you can see that when manufacturers invest in long-term equipment, wage inflation often follows. As a result, if the two lines continue their ascent, it will only increase the odds that the FED tapers in September. Forecasting more hawkish, not more dovish FED seems to be appropriate at this time.

Knock Knock? It’s China, We Want More Money

On top of that, with the U.S. goods trade balance (exports minus imports) revised to -$88.11 billion on Jun. 24, foreign production is required to stock U.S. shelves. And with the Shanghai Containerized Freight Index (the cost to ship from China) unrelenting in its parabolic rise, it’s another indicator that inflationary pressures are unlikely to abate anytime soon.

Finally, with the FED selling another $813 billion worth of reverse repurchase agreements on Jun. 24 (~$53 million below the all-time high set on Jun. 23), the liquidity drain remains on schedule.

Please see below:

Source: NY FED

To explain the significance, I wrote previously:

A reverse repurchase agreement (repo) occurs when an institution offloads cash to the FED in exchange for a Treasury security (on an overnight or short-term basis). And with U.S. financial institutions currently flooded with excess liquidity, they’re shipping cash to the FED at an alarming rate.

More importantly, though, after the $400 billion level was breached in December 2015, the FED’s rate-hike cycle began. On top of that, the liquidity drain is at extreme odds with the FED’s QE program. For example, the FED aims to purchase a combined $120 billion worth of Treasuries and mortgage-backed securities per month. However, with daily reverse repurchase agreements averaging $520 billion since May 21, the FED has essentially negated 4.33 months’ worth of QE in the last month alone.

In conclusion, while the PMs should recover a meaningful chunk of last week’s downswing, their medium-term outlook isn’t so sanguine. With FED hawks and doves splintered down the middle, the fundamentals are firmly tilted in the former’s favor. And with inflation and U.S. GDP growth both accelerating concurrently, unemployment is the only card left for the doves to play. However, with enhanced unemployment benefits expiring in early July for roughly 30% of claimants, U.S. nonfarm payrolls should show strength in August and September. Thus, with the FED’s taper talk likely to grow louder over the next few months, the PMs may not like what they will hear.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

For a look at all of today’s economic events, check out our economic calendar.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

JPMorgan Chase Could Sell Off to 140

Dow component JPMorgan Chase and Co. (JPM) could trade lower in coming weeks after CEO Jamie Dimon warned the banking giant will book about $6 billion in second quarter trading revenue, down 38% over the same period in 2020. Citigroup Inc. (C) CFO Mark Mason reiterated this bearish theme, warning about a 30% decline. Windfall revenue in these divisions bolstered profits during the pandemic, keeping a floor under the banking industry’s equity prices.

Mixed Catalysts Heading Into Third Quarter

Federal Reserve Chairman Jerome Powell eased investor anxiety on Wednesday, declaring the U.S. economy had recovered faster than expected, setting the stage for interest rate hikes that have been off-the-table during the pandemic.  Higher rates steepen the spread between the prices that banks pay for capital and the prices paid by corporations seeking loans, improving profits. However, higher rates can also curtail lending volumes, especially after two or three hikes.

Dimon ended his comments on an upbeat note, reminding listeners that “The quarter last year was exceptional. The last quarter is exceptional. This quarter is what I call more normal…which is still pretty good.” Meanwhile, Mason examined reasons for the surge, noting “If you think back to the second quarter of 2020, at least for Citi, we were looking at Markets revenues back then that were up 50%. We had seen record levels of debt issuances from our clients.”

Wall Street and Technical Outlook

Wall Street consensus on JPMorgan remains bullish despite mixed catalysts, with an ‘Overweight’ rating based upon 15 ‘Buy’, 2 ‘Overweight’, 6 ‘Hold’, and 1 ‘Underweight’ recommendation. In addition, 3 of 27 analysts recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $110 to a Street-high $200 while the stock is set to open Thursday’s session more than $15 below the median $171 target.

A JPMorgan uptrend topped out at 141 in January 2020, ahead of a steep pandemic decline. The subsequent uptick reached the prior high in January 2021, yielding a February breakout that added 26 points into early June’s all-time high at 167.44. The pullback since that time has sliced through the 50-day moving average while accumulation has dropped to a 4-month low. This price action raises odds for downside that could offer a buying opportunity in the low 140s.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

How Will EU Ban on 10 Banks From Bond Sales Impact Markets and Banks?

Here’s what the move means for EU debt sales, bond markets and the affected banks:

WHICH BANKS ARE AFFECTED?

Banks from all corners of the world are affected: U.S. lenders JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. as well as British peers Barclays Plc and NatWest Group Plc are on the list.

In continental Europe, Deutsche Bank AG, Natixis SA and Credit Agricole SA and UniCredit SpA are affected. Plus Japan’s Nomura Holdings Inc.. All banks declined to comment.

All on the list of 39 primary dealers responsible for managing debt sales — syndicated and auctioned — for the bloc and managing its debt trading in the secondary market.

Many are Europe’s go-to banks in the public sector bond market; seven are among the top 10 fee earners from syndicated debt sales in this market since 2020, according to Dealogic.

WHAT DID THEY DO?

The ban relates to lenders found being part of three cartels in the past three years. One saw a number of banks fined over tinkering in FX spot markets between 2007-2013. Another one found a number of banks colluded on trading strategies and pricing between 2010-2015 on public sector bonds – debt issued by government-linked institutions. A third one related to a cartel of traders at various banks in the primary and secondary market for European government bonds.

HOW BIG WILL FEE LOSSES BE?

Sitting out from syndications, where investment banks are hired by an issuer to sell debt directly on to end investors, means losing out on lucrative fees. Banks netted 20 million euros – 0.1% of the 20 billion euros – in fees from Tuesday’s debut bond, according to Reuters calculations.

Fees vary with debt maturities; the longer the bond, the higher the fees.

An average of its fees across all maturities for the remaining 60 billion euros of this year’s long-term debt issuance would translate into a pool of another 66 million euros if all that debt were to be syndicated, Reuters calculations showed. Considering it will be divided among all banks participating, that’s a relatively small amount compared to the $224 million top earner JPMorgan alone reaped from syndicated European public sector debt sales since the start of 2020, according to Dealogic.

The EU also pays smaller fees for its recovery fund debt than European sovereigns. However, it currently issues all its debt through syndications and will rely on them much more heavily than sovereigns even after auctions start in September, meaning it is a fee source banks won’t want to miss out on.

Exclusion also means smaller lenders could see their fee share increase. Graphic: EU syndication fees: https://fingfx.thomsonreuters.com/gfx/mkt/azgvooddjvd/4Xyrm-eu-syndication-fees-for-recovery-fund-bonds.png

HOW LONG WILL THE BAN LAST?

No timeline has been given. EU Budget Commissioner Johannes Hahn said the commission would work through information provided by banks on how they addressed the issues “as fast as possible”.

Sources told Reuters some banks already submitted information, with the remaining ones expected to follow soon. This could mean some of the banned banks could get the green light to rejoin bond sales, the sources said.

A senior debt banker at a primary dealer not banned said he expects at least a few of the banks to be re-admitted by September, when EU auctions begin.

WILL IT HIT LIQUIDITY?

ECB bond buying has zapped some liquidity in the bloc’s fixed income markets. Liquidity matters to investors, making it easier and cheaper to transact.

Syndication fees are a key factor that motivate banks to participate in auctions that are much less lucrative but crucial to maintain liquidity.

European governments have lost primary dealers in recent years as banks have judged the business to be less profitable.

And having less major banks left to underwrite its syndications could also pose risks for the EU.

(Reporting by Yoruk Bahceli, Abhinav Ramnarayan, Dhara Ranasinghe and Iain Withers in London, John O’Donnell in Frankfurt and Foo Yun Chee in Brussels; writing by Karin Strohecker; Editing by Chizu Nomiyama)

 

Why Citigroup Stock Is Down By 4% Today

Citigroup Stock Declines As Company Warns That Trading Revenue Would Fall By 30%

Shares of Citigroup gained additional downside momentum and continued their pullback after the company warned investors that its trading revenue would likely decline by about 30% compared to previous year’s levels.

Currently, analysts expect that Citigroup will report earnings of $9.06 per share in 2021. The company’s earnings are projected to decline to $8.25 per share in 2022, so the stock is trading at less than 9 forward P/E which is cheaper compared to peers like Bank of America or JP Morgan.

Citigroup’s shares are up by about 15% this year despite the recent pullback as traders bet that higher interest rates would provide support to financial companies.

The stock suffered a sell-off in June as Treasury yields moved lower, but the situation may change quickly after today’s Fed Interest Rate Decision.

What’s Next For Citigroup Stock?

The near term dynamics of Citigroup stock and shares of other financial companies will depend on Fed’s comments today. If Fed reiterates its dovish message, Treasury yields may move lower, which will be bearish for financial stocks.

In case Fed hints that it is worried about inflation, markets will start to price in the risks of higher interest rates, which will provide support to financial stocks.

It should be noted that Citigroup remains attractively valued compared to many stocks in the current market environment. However, analyst estimates call for lower earnings in 2022, which may serve as an obstacle on the stock’s way up unless there are other positive catalysts.

In this light, the results of today’s Fed’s meeting will likely serve as the main catalyst for the stock until the company provides its second-quarter results on July 14. In fact, dynamics of Treasury yields and Fed’s view of future interest rates will be more important for Citigroup stock compared to the company’s own financial results.

For a look at all of today’s economic events, check out our economic calendar.

Citi Brings in New Lebanon Head from New York

Salem will report to Elissar Farah Antonios, Middle East and North Africa cluster head. He will also become head of corporate banking for Lebanon, a role in which he will report to Mourad Jeddi, corporate banking cluster head for Kuwait, Levant, and North Africa.

Salem has been at Citi for more than 20 years, most recently as credit review manager leading a team of fundamental credit risk senior lead reviewers in New York.

(Reporting by Davide Barbuscia; Writing by Yousef Saba; Editing by Hugh Lawson)

Citi Sets Sights on 1000 Wealth Hirings in Hong Kong

By Scott Murdoch

The recruitment campaign has already started, with 75 private bankers and relationship managers hired so far in 2021 to build on the $310 billion Asian assets under management to date.

The headcount target will include 550 new private bankers and relationship managers by 2025, the statement said.

Citi in the region recorded over $20 billion in net money inflows marking a record year for the bank in 2020, it said.

In the first quarter of 2021, Citi added more than $5 billion more in net new money.

Citi Hong Kong Chief Executive Angel Ng said the bank would target the “traditional retail wealth but also growing entrepreneurial wealth” emerging in Hong Kong.

(Reporting by Scott Murdoch; editing by Barbara Lewis)

Exclusive-DBS, StanChart weigh bids as Citi retreats From Asia Consumer Business

By Anshuman Daga, Sumeet Chatterjee and Nupur Anand

The sale process will start within a couple of weeks, they added, declining to be named as they were not authorised to speak to media.

The move comes after Citi said it would exit from its consumer franchises in 13 markets, 10 of which are in Asia, as it refocuses on its more lucrative institutional and wealth management businesses in these markets.

Potential bids from the regional banks and StanChart, which makes most of its profit in Asia, underscores their growing appetite for businesses like credit cards and mortgages in a push to lock in long-term income growth.

The businesses Citi is exiting had $82 billion in assets and were allocated $7 billion in tangible common equity last year. Citi has plans to reposition its Asian consumer banking business from its “wealth centres” of Hong Kong and Singapore.

As Citi is not giving up its banking licences in most of the markets it is exiting, the sale of the consumer banking portfolios and branches will only appeal to lenders with existing presence in these countries, the people said.

“Asia is critical to our firm’s strategy, and we will allocate resources to drive profitable growth,” a Citi spokesman in Hong Kong said, declining to comment on the sale process.

Representatives at Japanese lender MUFG and StanChart, and Sumitomo Mitsui Financial Group, which the sources said was another potential bidder, declined to comment.

“DBS has always been open to exploring sensible bolt-on opportunities in markets where we have a consumer banking franchise (China, India, Indonesia and Taiwan) and where we can overlay our digital capabilities,” Southeast Asia’s biggest lender said in a statement.

In 2016, DBS bought ANZ’s wealth management and retail businesses in five Asian markets for about $80 million.

Citi’s sprawling India consumer business, comprising retail deposits, mortgages and credit cards, and its Taiwan business would be among the most valuable parts of its Asian consumer portfolio, the sources said.

Citi’s consumer banking business in the 13 markets accounted for $4.2 billion of the bank’s $74.3 billion revenue in 2020. All the markets it is exiting made a combined loss of $40 million in the consumer banking business in the same year.

INDIA ‘JEWEL IN THE CROWN’

DBS, the only big foreign bank with a fully owned Indian subsidiary, is eyeing Citi’s India business, which is also set to attract StanChart and local lenders Kotak Mahindra Bank and Axis Bank, the sources said.

SBI Cards and Payment Services Ltd, a unit of State Bank of India, is also weighing a bid for Citi’s credit card portfolio in India, two of the sources said.

Citi’s India consumer business is valued at over $2 billion, according to four sources.

“India is the jewel in the crown and will command a better price than the other markets,” one of the sources added.

Citi has been in India for decades and was among the first to introduce Indians to credit cards in 1987. It ranks as the sixth largest local card issuer with nearly 2.7 million cards.

Sources say Citi has a significant share in the premium segment, commanding higher spends per card of 10-25% versus the industry average. It is also among the top five wealth management players, with 35 branches and about 4,000 staff in the consumer banking segment.

Kotak Mahindra declined to comment, while Axis Bank and SBI Cards did not respond to a request for comment.

The other markets Citi is exiting as part of its new CEO Jane Fraser’s strategy include South Korea, Australia, mainland China and Thailand – countries where it does not have the necessary scale to compete with local rivals.

Singapore’s DBS and OCBC, Britain’s StanChart, and the Japanese lenders are also weighing bids for some of Citi’s Southeast Asia businesses, the people said.

Citi’s businesses in Australia and South Korea could attract interest from domestic banks, they added.

(Reporting by Anshuman Daga in Singapore, Sumeet Chatterjee in Hong Kong and Nupur Anand in Mumbai; Additional reporting by Takashi Umekawa in Tokyo, Editing by Himani Sarkar)

Citigroup Q1 Earnings Blow Past Estimates; Target Price $83

New York City-based investment bank Citigroup reported better-than-expected earnings for the first quarter, largely driven by improvements in the macroeconomic outlook and lower loan volumes.

Citigroup reported net income for the first quarter 2021 of $7.9 billion, or $3.62 per diluted share, on revenues of $19.3 billion. This compared to net income of $2.5 billion, or $1.06 per diluted share, on revenues of $20.7 billion for the first quarter 2020. That was higher than Wall Street’s consensus estimates of $2.56 per share.

However, the bank’s revenue decreased 7% from the prior-year period. Citigroup’s end-of-period loans were $666 billion as of quarter-end, down 8% from the prior-year period on a reported basis and 10% excluding the impact of foreign exchange translation.

Citigroup shares, which slumped more than 20% in 2020, rebounded over 17% so far this year.

Citigroup Stock Price Forecast

Fourteen analysts who offered stock ratings for Citigroup in the last three months forecast the average price in 12 months of $83.31 with a high forecast of $117.00 and a low forecast of $66.00.

The average price target represents a 14.31% increase from the last price of $72.88. Of those 14 analysts, nine rated “Buy”, five rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $89 with a high of $130 under a bull scenario and $50 under the worst-case scenario. The firm gave an “Overweight” rating on the investment bank’s stock.

Several other analysts have also updated their stock outlook. Barclays raised the price target to $84 from $77. Piper Sandler lifted the target price to $93 from $89. Oppenheimer increased the price target to $117 from $112. UBS upped the price target to $92 from $89. Credit Suisse raised the price target to $83 from $78.

Analyst Comments

Citi is trading at just 0.8x NTM BVPS implying through the cycle ROE of just 8%, well below our 9% estimate for 2023. We believe the stock is cheap even if expenses related to the Fed/OCC consent order remain elevated. We have modeled in expenses rising to $45B / $44B for 2021 / 2022 well above $42B in 2019,” noted Betsy Graseck, equity analyst at Morgan Stanley.

Citi also has #1 share in Transaction Banking, a business we estimate delivers a ~35% ROTCE for Citi. We believe Citi can add $17 a share in value by disclosing full quarterly details on this business. We bake half in $8, as Citi discloses half of what we would like to see. Citi should get more credit for its global diversification and it’s more resilient wholesale business.”

Check out FX Empire’s earnings calendar

JPMorgan Chase Could Hit New Highs After Earnings

Dow component JPMorgan Chase and Co. (JPM) kicks off first quarter earnings season for the banking sector on Wednesday, followed by Citigroup Inc. (C) and Bank of America Corp. (BAC) on Thursday. The western hemisphere’s largest bank is expected to post a profit of $2.94 per-share on $29.96 billion in Q1 2021 revenue. If met, earnings-per-share (EPS) will mark a dramatic 377% profit increase compared to the same quarter in 2020.

Banks Lift into Market Leadership

Many U.S. banks have broken out above 2018 resistance in reaction to rising interest rates that should bolster industry profits for several years at a minimum. Historically speaking, rising rates are bullish for banks in the early phases of an economic boom but that tailwind dissipates as soon as rates get too high to support growth. That could happen before the next presidential election, given the current rate trajectory and trillions of printed dollars being handed out to U.S. citizens.

CEO Jamie Dimon sounded the alarm in a shareholder letter last week, warning “In an inflationary case, fiscal and monetary policy may very well be at odds. Also in this case, the cost of interest on U.S. debt could go up fairly dramatically making things a little worse. Rapidly raising rates to offset an overheating economy is a typical cause of a recession. One other negative: In this case, we would be going into a recession with an already very high U.S. deficit.”

Wall Street and Technical Outlook

Wall Street consensus has dropped to an ‘Overweight’ rating in response to Morgan’s 23% year-to-date return, based upon 16 ‘Buy’, 2 ‘Overweight’, 6 ‘Hold’, 1 ‘Underweight’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $95 to a Street-high $187 while the stock ended Friday’s session about $9 below the median $165 target. There’s plenty of room for upside in this configuration, especially if Q1 earnings results exceed expectations.

The stock broke out above the 2000 high in the mid-60s in 2016 and entered a powerful uptrend that stalled above 140 at the end of 2019. It plummeted to a three-year low during the pandemic decline and turned higher in a two-legged recovery that finally reached the prior high in January 2021. Morgan then carved the handle in a cup and handle breakout pattern and took off in a rally that could easily top 200 by the fourth quarter.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.