Closing Stock Market Summary
The stock market finished the week with solid losses. The Dow Jones Industrial Average logged a 1.2% decline, the S&P 500 fell 1.5%, the Nasdaq Composite slid 1.6%, and the Russell 2000 closed with a 1.9% loss.
Heightened geopolitical uncertainty in front of a weekend contributed to today's sell-off. Concerns were related to reports that Iran could soon attack Israel, which also sent oil prices higher ($85.58/bbl, +0.58, +0.7%) due to worries about supply disruptions.
Treasuries also settled with solid gains today in response to the geopolitical angst, but still registered declines on the week as participants recalibrated rate cut expectations. The 2-yr note yield fell nine basis points today, and jumped 15 this week, to 4.88%. The 10-yr note yield declined eight basis points today, and climbed 12 this week, to 4.50%.
Another sticking point for investors today was global growth concerns after China reported weaker-than-expected exports (-7.5% yr/yr) and imports (-1.9% yr/yr) for March.
Just about everything participated in the broad retreat. The equal-weighted S&P 500 declined 1.6%. Weakness in the semiconductor space had an outsized impact on index losses, though, following news that Chinese telecom companies have been ordered to replace U.S.-made processors in their equipment by 2027. The PHLX Semiconductor Index (SOX) slid 3.3%.
All 11 S&P 500 sectors registered declines ranging from 0.7% (utilities) to 1.8% (materials).
The Q1 earnings reporting period started on a weak note today after JPMorgan Chase (JPM 182.79, -12.64, -6.5%) CEO Jamie Dimon made some cautious-sounding macro comments and the bank left its net interest income guidance for 2024 unchanged from its prior view.
Citigroup (C 59.68, -1.03, -1.7%) and Wells Fargo (WFC 56.47, -0.22, -0.4%) also logged declines after their earnings results.
- Nasdaq Composite: +7.4% YTD
- S&P 500:+7.8% YTD
- S&P Midcap 400: +4.3% YTD
- Dow Jones Industrial Average: +0.8% YTD
- Russell 2000: -1.2% YTD
Reviewing today's economic data:
- March Import Prices 0.4% --- prior 0.3%
- March Import Prices ex-oil 0.1% ---- prior 0.2%
- March Export Prices 0.3% --- prior revised to 0.7% from 0.8%
- March Export Prices Ex-Ag 0.4% --- prior revised to 0.6% from 0.8%
- The preliminary April University of Michigan Index of Consumer Sentiment checked in at 77.9 (consensus 78.8) versus the final reading of 79.4 for March. In the same period a year ago, the index stood at 63.7.
- The key takeaway from the report is the uptick in inflation expectations, which follows form with the larger-than-expected increase in the March Consumer Price Index and the view from various Fed officials that stickier inflation readings mean the Fed can be patient before cutting rates.
Looking ahead, Monday's economic calendar features: March Retail Sales (prior 0.6%) and Retail Sales ex-auto (prior 0.3%) at 8:30 ET; February Business Inventories (prior 0.0%) and April NAHB Housing Market Index (prior 51) at 10:00 ET.
BlackRock assets under management hit record $10.5tn
Net income rises 36% in first quarter
Roaring equity markets and the popularity of a new spot bitcoin exchange traded fund powered BlackRock to record assets under management of $10.5tn and net income that rose by more than one-third.
The world’s largest money manager reported a 36 per cent year-on-year jump in net income to $1.57bn in its fiscal first quarter, on an 11 per increase in revenue to $4.7bn. Those figures, as well as adjusted net income of $1.47bn, all beat the expectations of analysts polled by Bloomberg.
However, net inflows of $57bn disappointed, dragged down by $19bn of outflows from cash management products.
Chief executive Larry Fink pointed in a statement on Friday to a “strong pipeline” of opportunities. “We see significant growth potential in infrastructure, technology, retirement and whole portfolio solutions,” he said.
BlackRock was one of a dozen providers to launch a spot bitcoin exchange traded fund in the first quarter but its product has been the runaway success story: it reached $10bn in assets in record time and now has $18.7bn. That helped power total flows into ETFs in the quarter to $67bn.
Most of the $1.4tn year-on-year increase in assets under management was due to rising equity markets. In the US, the S&P 500 had its best first quarter since 2019. Fixed income funds reported inflows of $42bn and equity funds received $18bn.
“What people are going to focus on is their ability to gather assets. It’s a mixed bag,” said Kyle Saunders, analyst at Edward Jones.
BlackRock and other asset managers have been predicting a big rotation into fixed income, but the US Federal Reserve’s decision to keep interest rates at a 23-year high has thus far depressed demand.
Technology revenues, which investors like because they are somewhat less tied to market gyrations, were up $37bn year on year to $377bn.
BlackRock’s operating margin improved to 35.8 per cent, slightly better than analysts expected. The money manager announced small job cuts in January as part of a broader effort to control costs.
BlackRock shares were up about 2.6 per cent in pre-market trading on Friday. The company’s stock price is down slightly in 2024, after a strong fourth quarter during which time it rose more than 25 per cent.
Liechtenstein prosecutor probes Signa founder Benko’s hidden wealth
After the March insolvency of the Austrian family foundations, investors are asking where the tycoon’s fortune has gone
Liechtenstein’s chief public prosecutor has opened an investigation into the financial affairs of the Austrian property mogul René Benko for possible money laundering and fraud in the tiny, secretive alpine principality.
Four months on from the collapse of his sprawling luxury real estate empire, the Signa Group, Benko — once one of Europe’s youngest billionaires, feted by politicians in Austria and Germany — has come under increasing legal pressure to account for the role he played at the group and its entanglement with his own financial affairs.
“Preliminary investigations have been initiated against a natural person and a legal entity . . . on suspicion of fraudulent bankruptcy and money laundering,” a spokesperson for the Liechtenstein prosecutor said.
On Thursday, Signa Holding, the central company in the Signa group, reported that it expected to recoup zero value from its shareholdings in Signa’s two main holding companies, which owned the majority of the network’s luxury property portfolio — a catalogue of high-end addresses and shops around Europe, including London’s Selfridges and Berlin’s KaDeWe.
Benko’s two Austrian family foundations — the controlling shareholders of Signa Holding, and investors themselves at multiple levels in Signa’s bewilderingly complicated corporate structure — filed for insolvency in March.
Benko is also the beneficiary of at least two trusts in Liechtenstein — the Ingbe foundation, and the Arual foundation, investigations by the Austrian magazine News have concluded.
The two Austrian organisations — the Benko Family Foundation, controlled by his mother, and the Laura Foundation, named after his daughter — had been assumed to look after most of Benko’s personal wealth, including his yacht, luxury homes and art collection.
For many of Signa’s investors, who are still owed billions, the foundations’ penury raises questions about where the fortune formerly attributed to the 46 year old Tirolean has now gone — and whether they have a claim on any of it.
Ingbe is a contraction of his mother’s name, Ingeborg, and the Arual foundation is his daughter’s name backwards. Lichtenstein’s complicated legal and privacy rules mean little is known about how much money may have flowed through them or what they own, however.
A lawyer for Benko did not respond to a request for comment on the Liechtenstein investigation, which was first reported by the Swiss financial blog, Inside Paradeplatz.
Some Signa investors have already themselves made accusations of criminal activity at Signa.
Austria’s state prosecutor for economic crime and corruption has received “several” criminal complaints against Benko, it told the Financial Times in February, but has yet to declare whether it has opened any formal investigation against Signa or persons at the company.
Munich’s public prosecutor has opened a preliminary probe into one Signa entity under suspicion of money laundering last month.
In January the FT reported on huge unexplained flows of money between Signa-group entities and Benko’s Austrian foundations, which had raised alarm bells for creditors as they gained information of the group’s financial affairs following its collapse.
Wells Fargo beats by $0.14, beats on revs (56.69)
- Reports Q1 (Mar) earnings of $1.20 per share, $0.14 better than the FactSet Consensus of $1.06; revenues rose 0.6% year/year to $20.86 bln vs the $20.19 bln FactSet Consensus.
- Net interest income decreased 8%, due to the impact of higher interest rates on funding costs, including the impact of customer migration to higher yielding deposit products, as well as lower loan balances, partially offset by higher yields on earning assets
- NIM of 2.81% vs 2.92% in Q4
- Noninterest income increased 17%, driven primarily by improved results in our affiliated venture capital business on lower impairments, higher investment banking fees, an increase in asset-based fees in Wealth and Investment Management on higher market valuations, and higher trading revenue in our Markets business
- Noninterest expense increased 5%, driven by higher operating losses reflecting customer remediation accruals for historical matters, higher FDIC assessments, an increase in revenue-related compensation predominantly in Wealth and Investment Management, and higher technology and equipment expense, partially offset by the impact of efficiency initiatives including lower professional and outside services expense
- Provision for credit losses in first quarter 2024 included a decrease in the allowance for credit losses driven by commercial real estate and auto loans, partially offset by a higher allowance for credit card loans
- Outlook
- 2024 NII expected to be ~7-9% lower than 2023 level of $52.4 bln (unchanged)
- 2024 noninterest expense expected to be ~52.6 bln (unchanged)
JPMorgan Chase beats by $0.27, reports revs in-line (195.43)
- Reports Q1 (Mar) earnings of $4.44 per share, $0.27 better than the FactSet Consensus of $4.17; reported revenues rose 9.3% year/year to $41.93 bln vs the $41.69 bln FactSet Consensus.
- Guidance from slide presentation: We expect ~$88 bln in NII ex. Markets for 2024, as loan growth partially offsets lower rates. 2024 expense outlook is ~$90 bln.
- Average loans up 16%, or up 3% excluding First Republic; average deposits up 2%, or flat excluding First Republic.
- Net interest income was $23.2 billion, up 11%, or up 5% excluding First Republic
- The provision for credit losses was $1.9 billion, reflecting net charge-offs of $2.0 billion and a net reserve release of $72 million. The net reserve release included a $142 million net release in Wholesale and a $44 million net build in Consumer. Net charge-offs of $2.0 billion were up $819 million, predominantly driven by Card Services. The prior-year provision was $2.3 billion, reflecting net charge-offs of $1.1 billion and a net reserve build of $1.1 billion.
- Jamie Dimon, Chairman and CEO, commented: "We reported strong results in the first quarter, delivering net income of $13.4 billion, or $14.0 billion excluding a $725 million increase to the FDIC special assessment. Last month, we announced a 10% increase to the common dividend. Our exceptionally high CET1 capital ratio of 15.0% and peer-leading returns provide us with the capacity and flexibility to both reinvest for growth and maintain an attractive capital-return profile, without compromising our fortress balance sheet."
- Dimon continued: "This quarter, NII declined 4% sequentially, and as expected, NII ex. Markets declined 2% sequentially due to deposit margin compression and lower deposit balances, mostly in CCB. Looking ahead, we expect normalization to continue for both NII and credit costs."
- Dimon continued: "Our lines of business saw strong underlying performance. In CCB, client investment assets were up 25% excluding First Republic, and we continued to add new customers. In CIB, IB fees increased 21%, reflecting improved DCM and ECM activity. In CB, we saw strong growth in Payments fees and onboarded a significant number of new client relationships. Finally, in AWM, asset management fees were up 14%, with continued strong net inflows." Dimon added: "Many economic indicators continue to be favorable. However, looking ahead, we remain alert to a number of significant uncertain forces. First, the global landscape is unsettling -- terrible wars and violence continue to cause suffering, and geopolitical tensions are growing. Second, there seems to be a large number of persistent inflationary pressures, which may likely continue. And finally, we have never truly experienced the full effect of quantitative tightening on this scale. We do not know how these factors will play out, but we must prepare the Firm for a wide range of potential environments to ensure that we can consistently be there for clients."
Early premarket gappers
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Gapping up:
- AGX +11.7%, GL +11%, BIO +5%, BLK +2.5%, MBUU +2.2%, BRX +1.4%, CPA +1%, MFIN +0.9%, NDAQ +0.7%, TRGP +0.6%
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Gapping down:
- APLD -11.7%, NRIX -7%, DHT -2.5%, ONEW -2%
UK regulator warns banks to prepare for costs tied to motor finance probe
Financial Conduct Authority says it will use ‘regulatory tools to intervene’ if lenders are not prepared for hit
The UK’s top financial regulator has warned UK lenders that they should be prepared to cover the cost of a spike in complaints linked to a regulatory probe into the potential mis-selling of historic car finance loans.
In a letter published on Friday, the Financial Conduct Authority told lenders it would monitor their financial resources and use “regulatory tools to intervene if we find your firm has not undertaken any assessment of adequacy of financial resources or may be at risk of not having adequate financial resources”.
The watchdog also said it would step in if it identified “any actions that appear to be an attempt to avoid potential future liabilities”.
“We have observed firms taking different approaches to account for the potential impact of [the probe] . . . so, we are writing to firms to remind them they must maintain adequate financial resources at all times,” the FCA added.
The regulator launched an investigation in January into historic discretionary commission agreements on car loans, a practice that allowed car dealers to set their own interest rate on repayment plans until it was banned in 2021.
Analysts estimate that the cost for lenders facing compensation claims could range from £6bn to £16bn for the banking industry, though uncertainty about what potential redress could look like means it is too early to reliably estimate the probe’s precise impact.
Lloyds Banking Group, which owns the UK’s largest car finance lender Black Horse, has already set aside £450mn to cover the potential costs of the probe.
Close Brothers, another exposed lender, said last month that it had “no legal or constructive obligation” in relation to the probe and had not booked a provision as a result. The FTSE 250 bank, however, suspended its dividend and announced a £400mn plan to bolster its capital provision in anticipation of a potential hit.
The FCA told lenders that it expected them to “analyse the impact of making any capital reduction, such as dividend payments” on their abilities to meet potential future liabilities linked to the probe.
The watchdog said it would update the market on next steps in September. However, it warned that many companies were “struggling to promptly provide the data we need” and said it would extend its review if it did not receive “comprehensive data promptly from a range of firms”.
>>> Up
* Bank of Ireland Raised to Buy at Goldman
* Barratt Raised to Overweight at JPMorgan; PT 560 pence
* Endesa Raised to Buy at Mirabaud Securities; PT 21 euros (+)
* Evotec SE Raised to Buy at Deutsche Bank (+)
* JTC PLC PT Raised to 1,100 pence from 915 pence at Jefferies
* Mobileye Raised to Outperform at Wolfe; PT $41
* Mondi Raised to Neutral at BNPP Exane
* Netflix PT Raised to $700 from $600 at Morgan Stanley
* Persimmon Raised to Overweight at JPMorgan; PT 1,510 pence
* Philips Raised to Hold at HSBC; PT 19 euros
* Redeia Raised to Outperform at Bernstein
* Redrow Raised to Neutral at JPMorgan; PT 760 pence
* Siemens Energy PT Raised to 30 euros from 25 euros at Berenberg
* Siltronic Raised to Buy at Hauck & Aufhaeuser; PT 96.40 euros (+)
* Spotify PT Raised to $350 from $300 at KeyBanc (+)
* Taylor Wimpey Raised to Outperform at RBC; PT 175 pence
* Taylor Wimpey Raised to Overweight at JPMorgan; PT 150 pence
* VAT PT Raised to 625 Swiss francs at Jefferies
* Vistry Group Raised to Overweight at JPMorgan; PT 1,380 pence
>>> Down
* ABN Amro GDRs Cut to Neutral at Goldman
* BBVA Cut to Sell at Goldman
* Bellway Cut to Neutral at JPMorgan; PT 2,780 pence
* Berkeley Cut to Underperform at RBC
* Berkeley Cut to Neutral at JPMorgan; PT 4,800 pence
* ING Cut to Neutral at Goldman
* Italgas Cut to Market Perform at Bernstein
* Koskisen Cut to Reduce at Inderes; PT 6.75 euros
* Packaging Corp Cut to Neutral at BNPP Exane
* Pandora Cut to Sell at Goldman; PT 1,010 kroner
* Salmar Cut to Hold at SEB Equities; PT 670 kroner (+)
* Sotkamo Silver Cut to Reduce at Inderes; PT 1.60 kronor
* Supermarket Income Cut to Underperform at Jefferies; PT 60 pence
* Tomra Cut to Hold at Jyske Bank; PT 155 kroner (+)
* Vaisala Cut to Reduce at Inderes; PT 37 euros
>>> Initiation
* Adecco Rated New Overweight at Barclays; PT 47 Swiss francs
* DocMorris AG Rated New Buy at Hauck & Aufhaeuser (+)
* Envipco Rated New Buy at SEB Equities; PT 7.73 euros
* Eurotelesites Rated New Buy at Erste Group; PT 5.38 euros
* Hays Rated New Overweight at Barclays; PT 120 pence
* Jet2 Rated New Outperform at RBC; PT 1,950 pence
* Nordic Aqua Partners Rated New Buy at Pareto Securities (+)
* Pagegroup Rated New Equal-Weight at Barclays; PT 515 pence
* Randstad Rated New Underweight at Barclays; PT 50 euros
* Waga Energy Rated New Outperform at Oddo BHF; PT 25 euros
>>> Call
* ASML Top Tech Hardware Pick at Citi, Ericsson on Negative Watch
* Berkeley Downgraded at RBC, Taylor Wimpey Raised to Outperform
* Chipmaking Push Makes US Attractive AI Hub, Celesta Capital Says (+)
* Jet2 Rated New Outperform at RBC on Travel Demand, Valuation
* Nike Raised to Buy as BofA Sees New Products Fueling Revival
* Pandora Downgraded to Sell at Goldman: EMEA Consumer Premarket (+)
- Evotec SE (EVT TH) +2.7%
- Evotec SE Raised to Buy at Deutsche Bank
- ASML (ASME TH) +2%
- ASML Top Tech Hardware Pick at Citi, Ericsson on Negative Watch
- Orsted (D2G TH) +1.7%
- Infineon (IFX TH) +1.2%
- Aurubis (NDA TH) +1.2%
- Rio Tinto (RIO1 TH) +1.2%
- Watch European Miners as Base Metals and Gold Climb Higher
- Lufthansa (LHA TH) +1%
- BP (BPE5 TH) +1%
- BAT (BMT TH) +1%
- Hermes (HMI TH) +1%
- Bawag (0B2 TH) -1.1%
- BBVA (BOY TH) -1.7%
- ING (INN1 TH) -2.3%
- Watch European Lenders on Busy Day for Big US Bank Earnings
- Pandora (3P7 TH) -2.8%
- Pandora Cut to Sell at Goldman; PT 1,010 kroner