Banks Report Mixed Earnings, Trump Visits Britain

Big Banks Kick Off Q2 Earnings

Three of the largest US banks reported earnings this morning, with JP Morgan and Citigroup beating profit expectations while Wells Fargo missed.  Holistically, banks stand to benefit in a rising rate environment, but the existing flat yield curve and ongoing threats of global trade wars continue to drive uncertainty in the long-term revenue outlook for financial institutions.  JP Morgan reported the strongest Q2 performance out of the trio, as earnings jumped 26% (+22% expected) and revenue gained 10% (+8% expected), helped in part by the Trump administration’s tax cuts.  Citigroup similarly outpaced estimates, with earnings per share of $1.63 that were boosted by a trimming of the bank’s expenses.  Wells Fargo did not fare as well on a relative basis, as average deposits fell by 2% and loans by 1% — a likely consequence of the negative media surrounding its aggressive consumer cross-selling problems and other public transgressions.  Overall, the financial sector finished more than 1% lower on the day.

Industrial shares were able to withstand the decline in financials, pushing the S&P 500 (+0.1%) to its highest level in the past five months.  The DJIA posted the largest daily rise of the three major stock indices, up 0.4%, while the tech-heavy Nasdaq inched 0.05% higher as shares of Amazon climbed to record levels.  US Treasurys rallied throughout the trading session, with yields/swap rates falling 1-3bps across the curve.  The yield on the 10-year is poised to finish the week near 2.83%, 1bp higher than Monday’s opening level but nearly 15bps lower than where it was a month ago and 30bps below the high yield for the year reached in May.  In commodities, WTI crude futures climbed 1% on the day to $71/barrel, albeit losing nearly 4% throughout the week with the news of increased production out of Libya and potential for eased Iranian sanctions.  Gold prices declined 0.4% during the trading session to a seven-month low of $1,240/ounce.  

Trade Tensions with the UK

Yesterday Donald Trump touched down in Britain for the first time since becoming president and managed to create a media frenzy within a matter of hours following an interview with a local newspaper.  Providing his thoughts on the Brexit terms that Prime Minister Theresa May has been actively negotiating with the EU, Trump stated “If they do a deal like that, we would be dealing with the European Union instead of dealing with the UK, so it will probably kill the deal, I would have done it much differently. I actually told Theresa May how to do it, but she didn’t listen to me.”  Trump was specifically referring to the potential for a trade deal between the UK and US, and his comments drew a wide array of criticism, especially on the back of a NATO meeting that was deemed by many pundits as less than productive.  He walked back from those comments today, first apologizing to PM May, then confirming that “I don’t know what you’re going to do, but whatever you do is OK with me,” and agreeing to pursue an “ambitious” trade deal between the nations.  Next up for Trump’s international diplomacy tour is a meeting with Russian President Vladimir Putin on Monday.  The US dollar lost 0.1% against a basket of major currencies, fluctuating in a 1% range throughout the day vs. the British pound on the headlines of the Trump/May meeting.