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LGT Navigator: Wall Street big banks show strong performance

January 15, 2020

The first quarterly results of major American banks exceeded market expectations and thus provided a positive start to the corporate reporting season. A first partial trade agreement between the US and China is now to be signed in Washington today. This is a first step in the right direction, but the conflict is not yet resolved and Trump's focus on trade could immediately shift towards Europe.

US banks quarterly profits

JPMorgan Chase, the largest US bank, posted a strong +21% increase in net income in the final quarter of 2019, earning USD 8.52bn. The New York-based financial institution earned USD 2.57 per share, compared with a market consensus of USD 2.35. JPMorgan benefited primarily from significantly higher revenues in equity and fixed income trading and asset management. Competitor Citigroup also managed to significantly exceed profit expectations. In Q4, the bank generated a profit of USD 4.98bn, up +15% on the previous year. Earnings per share of USD 2.15 were around +30% higher than in the same quarter of the previous year and well above the USD 1.82 forecast by analysts. The quarterly result was favored by balanced growth in all business areas and regions, increases in the credit card and consumer credit business and positive tax effects. For the full year, Citigroup reported net income of USD 19.4bn compared with USD 18bn in the previous year.

Anticipated “Phase 1” trade agreement between the US and China

In Asia, most stock indices fell somewhat after it was announced that the US government will probably maintain the current US punitive tariffs against China until after the US presidential elections, despite the planned signing of the “Phase 1” trade agreements. The tariffs will remain in place until there was a “Phase 2”. If the President quickly implements a “Phase 2”, he will consider releasing tariffs as part of this agreement, US Treasury Secretary Steven Mnukhin commented.

Inflation slightly higher in the US

In the United States, the cost of living rose more strongly again at the end of the year. Year-on-year consumer price inflation climbed from +2.1% in the previous month to +2.3% in December. Excluding energy and food prices, which are often susceptible to fluctuations, inflation at the end of last year was also +2.3%. However, the US Federal Reserve (Fed) is focusing its inflation efforts primarily on core price changes in consumer spending, which at +1.6% remains below the Fed's target of +2%.

Tonight, investors are eagerly awaiting the regular economic report from the US Federal Reserve (Fed). The so-called Beige Book serves as the basis for the Fed's monetary policy decisions. The next interest rate meeting is scheduled for January 29.

Credit ratings of euro countries downgraded

The rating agency Moody's lowered the outlook for the creditworthiness of the euro countries to “negative”. The more skeptical assessment is based on the high level of public debt. Most euro countries would have only limited buffers to react to a deteriorating external environment. This makes euro area countries vulnerable to geopolitical risks or an increase in protectionism, Moody's commented.

Switzerland defends itself against accusations of currency manipulation by the US

After the US Treasury Department placed Switzerland on a “monitoring list” with accusations of currency manipulation, the Federal Department of Finance declared that Switzerland was not engaged in any currency manipulation in order to gain unjustified competitive advantages. The US Treasury Department's report denounces the currency practices of nine countries – including Switzerland, which is now included. The background is the foreign exchange market interventions of the Swiss National Bank (SNB) to prevent an economically damaging appreciation of the Swiss franc.



Economic Indicators January 15

MEZ Country Indicator Last
08:45 FR Consumer Prices (y/y) +1.6%
09:00 SP Consumer Prices (y/y) +0.8%
10:30 UK Consumer Prices (y/y) +1.5%
10:30 UK Core Consumer Prices (y/y) +1.7%
11:00 EZ Trade Balance +EUR 24.5bn
11:00 EZ Industrial Production (y/y) -2.2%
14:30 US NY Fed Empire State Manufacturing Index +3.5
14:30 US Producer Prices (y/y) +1.1%
14:30 US Core Producer Prices (y/y) +1.3%

Earnings Calendar January 15

Country Corporate Period
US Bank of America Q4
US Goldman Sachs Q4
US Alcoa Q4



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