Commodities
JPMorgan cut earnings more than expected in Q2 and suspended buyback
JPMorgan, the largest U.S. bank by assets, reported weak financial results for the 2nd quarter of 2022. Net income fell 27.6% YoY to $8.6 billion, or $2.76 per share, and was 13 cents below Wall Street’s average estimate. At the same time, ROE fell to 13%.
The bank’s quarterly revenue rose 0.7% (YoY) to $31.6 billion, but also fell short of the consensus estimate of $31.8 billion. Net interest income jumped 18.5% to $15.2 billion on higher lending volumes and a net interest margin (up 18 bps to 1.8%). Meanwhile, non-interest income sagged 11.6% to $16.4 billion.
Revenue in the retail division (CCB) fell 1.1% (YoY) to $12.6 billion due to a 25.8% decline in mortgage lending revenue to $1 billion and a 6.3% decline in auto and card lending revenue to $5.1 billion, while consumer and small business lending revenue rose 9% to $6.6 billion. Corporate & Investment Bank (CIB) cut revenue by 9.6% to $11.9 billion.
Revenues from investment banking fell 60.5% to $1.4 billion due to a sharp weakening of M&A activity in the world, as well as lower volumes of stock and bond offerings, while revenues from trading operations rose by 7.6% to $8.7 billion, helped by increased volatility in financial markets. Commercial banking revenues rose 8.1% to $2.7 billion and asset management revenues rose 4.8% to $4.3 billion, despite an 8.2% decline in assets under management to $2.7 trillion.
Operating expenses rose 6.1% to $18.7 billion, and operating efficiency (cost/income, or CI) deteriorated 3 pct. to 59.3%. At the same time, significant pressure on profits was exerted by the creation of loan loss reserves of $428 million (in Q2 2021, the bank, on the contrary, released $3 billion in reserves), which was due to the worsening outlook for the global economy.
JPMorgan’s assets were $3.84 trillion at the end of Q2, up 2.6% YTD and 4.3% (YoY). Loans rose 6.1% year over year to $1.10 trillion and deposits rose 7.2% to $2.47 trillion.
The total amount of provisions for possible loan losses amounted to $17.6 billion, or 1.69% of all issued loans at the end of the reporting period, up from $16.4 billion, or 1.62%, at the beginning of this year. The Tier 1 capital adequacy ratio (CET1) declined to 12.2% from 13.1% at the beginning of the year.
During the reporting period, JPMorgan returned $3.2 billion to its shareholders through share buybacks ($224 million) and dividend payments ($3 billion). At the same time, the bank reported that it had suspended the buyback to meet its reserve requirements.
According to Jamie Dimon, head of JPMorgan, the U.S. economy continues to grow, as does the labor market and consumer spending. Risk factors include geopolitical tensions, high inflation, deteriorating consumer confidence, and uncertainty about how high rates will go. All of these, combined with the conflict in Ukraine undermining global energy and food markets, are likely to have a negative impact on the global economy at some point in the future.
Despite the rather weak Q2 report, there remains a cautiously positive view of JPMorgan’s long-term prospects. While risks to the global economy have increased substantially in recent months, the onset of a global recession is not imminent, in our view.
And U.S. banks will continue to feel relatively well, although their results this year will not appear to be the strongest. We expect that thanks to its diversified business model, solid balance sheets, and strong positions in all major segments, JPMorgan will be able to get through a challenging 2022 without major shocks, and its earnings will resume growth as early as next year.
Investing.com– Gold prices edged higher on Tuesday, extending their tepid performance as investors still remained cautious with the rising dollar following the U.S. Federal Reserve’s hawkish tilt.
Traders also refrained from placing large bets ahead of a shortened trading week due to the Christmas holiday.
inched up 0.2% to $2,616.95 per ounce, while expiring in February ticked up 0.2% to $2,633.89 an ounce.
The yellow metal had inched up 0.3% on Monday, after losing more than 1% in the previous week, reflecting uncertainty about the metal’s outlook.
Bullion under pressure on Fed rate outlook
Gold prices had hit a one-month low on Wednesday, as the Fed meeting indicated that rates will remain higher for a longer period after Wednesday’s cut.
Prices have failed to fully recover from it and have seen subdued moves as investors still assessed the implications of the Fed’s rate outlook.
Higher interest rates put downward pressure on gold as, as the opportunity cost of holding gold increases, making it more attractive compared to interest-bearing assets like bonds.
Traders are now expecting only two quarter-point reductions in 2025 amid continued economic resilience and still-elevated inflation. This compares to expectations of four rate cuts before the Fed meeting.
Strong dollar creates downward pressure on gold, other metals
The Fed’s hawkish shift provided renewed strength to the U.S. dollar, as higher interest rates make the greenback more attractive due to increased returns on dollar-denominated assets.
The rose 0.1% in Asia hours on Tuesday and hovered near a two-year high it reached last week.
A stronger dollar often weighs on gold prices as it makes the yellow metal more expensive for buyers using other currencies.
Other precious metals were largely muted. inched up 1.2% to $960.15 an ounce, while gained 0.3% to $30.265 an ounce.
Copper subdued on strong dollar, seasonal factors
Among industrial metals, copper prices were subdued and moved within tight ranges on Tuesday as a strong greenback weighed on the red metal.
Analysts attributed the weakness in copper to seasonal sluggishness as industrial production and construction projects often slow down as businesses and projects prepare for year-end closures and holidays.
Benchmark on the London Metal Exchange were largely unchanged at $8,954.50 a ton, while one-month were 0.5% higher at $4.1045 a pound.
Investing.com– Oil prices continued their uptrend in Asian Trade on Thursday after the Christmas holiday, bolstered by new stimulus measures in China and a drop in inventories.
At 06:01 ET (05:01 GMT), traded 0.5% higher to $73.97 a barrel, and also gained 0.5% to $70.01 a barrel.
Volumes were expected to be thin for the remainder of the holiday-shortened week.
Oil had risen more than 1% on Tuesday, and extended gains on Thursday after reports emerged around fresh stimulus measures from China.
China’s fresh stimulus measures support oil prices
Chinese authorities have decided to issue a record-breaking 3 trillion yuan ($411 billion) in special treasury bonds next year, in an intensified fiscal effort to stimulate a struggling economy, Reuters reported on Tuesday.
Moreover, China is allowing local officials to broaden investments with key government bonds and simplifying approvals, permitting projects unless restricted by a cabinet-published list, to better utilize public funding for economic growth, a government document showed on Wednesday.
China’s economic growth is a key factor influencing global oil prices due to its status as the largest oil importer. When China’s economy thrives, its demand for crude oil rises to fuel industries, transportation, and other energy-intensive activities, often driving up oil prices.
China’s economic recovery post-COVID-19 has faced significant hurdles, including weakening consumer confidence, faltering export demand, and a beleaguered property sector.
To counter the slowdown, Beijing has implemented several stimulus measures aimed at reviving growth.
Satoru Yoshida, a commodity analyst at Rakuten Securities, noted that oil prices are also being supported by anticipation of higher fossil fuel production and demand once U.S. President-elect Donald Trump assumes office next month.
US crude inventories shrink- API
US oil inventories fell by 3.2 million barrels during the week ended Dec. 20, media reports showed on Wednesday, citing the (API) data.
Gasoline inventories rose by 3.9 million barrels last week, while distillate inventories—which include diesel and heating oil—fell by about 2.5 million barrels.
The figures come ahead of data from the Energy Information Administration, the statistical arm of the US Department of Energy, due on Friday.
A Reuters poll on Tuesday projected that crude oil inventories likely declined by approximately 1.9 million barrels in the week ending December 20, with gasoline stocks expected to drop by 1.1 million barrels and distillate inventories by 0.3 million barrels.
Ayushman Ojha contributed to this report.
Investing.com– Gold prices were higher in premarket trade on Thursday due to a slightly weaker dollar as markets returned to trading after the Christmas holiday, while gains were limited as investors remained cautious following the U.S. Federal Reserve’s hawkish tilt.
Traders also refrained from placing large bets in a holiday-shortened week, resulting in thin trade volumes.
rose around 0.4% to $2,626.53 per ounce, while expiring in February ticked up 0.2% to $2,641.6 an ounce by 07:55 am ET (12:55 GMT).
Geopolitical tensions in the Middle East also contributed to bullion’s gains.
The Palestinian militant group Hamas and Israel accused each other on Wednesday of hindering a ceasefire deal, with Hamas blaming Israel for imposing additional conditions and Israeli Prime Minister Benjamin Netanyahu alleging Hamas reneged on prior understandings.
Gold is seen as a safe haven asset amid uncertainties in the market.
US dollar weakens but remains nears 2-yr high
The has edged higher on Thursday but hovered near a two-year high it touched last week.
The Fed’s hawkish shift last week provided renewed strength to the dollar, as higher interest rates make the greenback more attractive due to increased returns on dollar-denominated assets.
A stronger dollar often weighs on gold prices as it makes the yellow metal more expensive for buyers using other currencies.
Gold prices fell sharply last week after the Fed policy meeting indicated that rates will remain higher for a longer period.
Higher interest rates put downward pressure on gold as, as the opportunity cost of holding gold increases, making it more attractive compared to interest-bearing assets like bonds
The yellow metal has seen marginal moves this week, after losing more than 1% in the previous week, reflecting uncertainty about the metal’s outlook
Other precious were mixed on Thursday. declined 0.3% to $957.70 an ounce, while rose by 0.1% to $30.31 an ounce.
Copper edges up on China stimulus, strong dollar caps gains
Among industrial metals, prices gained after a Reuters report showed that Chinese authorities plan to issue a record-breaking 3 trillion yuan ($411 billion) in special treasury bonds next year, in an intensified fiscal effort to stimulate a struggling economy.
The red metal failed to fully capitalize on this news, as a strong dollar weighed.
Analysts also attributed the weakness in copper to seasonal sluggishness as industrial production and construction projects often slow down as businesses and projects prepare for year-end closures and holidays.
The most-traded January copper contract on the Shanghai Futures Exchange (SHFE) rose 0.2% to 74,220 yuan a ton.
Benchmark copper contracts on the London Metal Exchange were closed on Thursday for the holiday.
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