With premarket trading in the green, including Dow Futures, US stock markets may be bound for a rise. But, trading confidence will be challenged by Wells Fargo and JP Morgan Chase earnings reports and the imminent Brexit vote.
Beginning with Citibank parent Citigroup yesterday, earnings reports are starting to roll in from some of the biggest banks in the US.
Citigroup missed revenue estimates but critically beat profit expectations to send its share price upwards. Many hoped this would set the tone for this week’s trading. Mad Money’s Jim Cramer said :
“When I listened to Citigroup’s terrific conference call this morning, the one that sent the stock soaring 4 percent, I sure got the sense that we have a lot less to fear than we think.”
“Citi may be the perfect metaphor for this moment: we’re so worried about the state of the global economy that we’re missing some great opportunities.”
Cramer pointed to the growing uncertainty over issues like trade and the government shutdown saying investors could be “overreacting.”
Citigroup CEO Michael Corbat has found no evidence of a slowdown saying:
“The biggest risk in the global economy is one of talking ourselves into the next recession as opposed to the underlying fundamentals taking us there.”
Yesterday the US stock markets ended negative with the Dow Jones Industrial Average down 0.36%, S&P 500 0.53% down, and Nasdaq down 0.94%.
After exceeding analysts expectations for 15 straight quarters, JP Morgan missed profit expectations in the fourth quarter of 2019. The bank delivered $1.98 in profit per share for investors below an average expectation of $2.20. JP Morgan’s share price has fallen 2.7% in premarket trading.
However, JP Morgan’s $7.1 billion profit is a fourth-quarter record at a 70% increase. Revenue also rose 4%.
CEO Jamie Dimon is bearish on the government shutdown saying :
“We urge our country’s leaders to strike a collaborative, constructive tone, which would reinforce already-strong consumer and business sentiment. Businesses, government and communities need to work together to solve problems and help strengthen the economy for the benefit of everyone.”
The San Francisco bank beat profit expectations for the fourth-quarter achieving earnings per share of $1.21 and fourth-quarter profit of $6.1 billion. Its revenue was below expectations, 5% lower than the previous year.
Wells Fargo has been cutting costs, up to 10% of its headcount. Its share price dropped 0.5% in premarket trading today indicating it may be in for a better day than JP Morgan.
The ongoing Brexit debacle in the UK in Europe will culminate in a critical vote today. European stocks are still mostly in the green ahead of the vote. With the vote happening after trading in the UK the impact to the European markets may happen tomorrow. US stock markets could see some impact today.
The worst outcome is a “hard Brexit” with the UK leaving the European Union without an agreement over matters of trade and labor mobility. This could add to the uncertainty, especially for US banks with substantial operations in the UK, and for trade. A hard Brexit would force UK to renegotiate many of its trade deals without the greater power of Europe.
The effect will be felt more strongly in the UK and Europe. However long-term an economic slowdown in the region will affect both the global and US economy as well as the US stock markets.
Data out of Germany today reveals the European powerhouse experienced slower growth in 2018. Eurostat also says industrial production in the Eurozone fell by 1.7% at the end of 2018.
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