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20 April 2021

US Banks Smash Expectations

The beginning of Q1 earnings week in the US saw several US banks smash analysts’ expectations with a strong first-quarter performance. JP Morgan recorded adjusted earnings per share of $4.50 vs $3.01 estimates whereas revenue came in at $33.12 bn vs $30bn. Industry rival Goldman Sachs posted exceptional earnings as well, adjusted earnings per share were $18.60 vs $10.07 while recording $17.70bn in revenue vs $12.55bn estimates. Wells Fargo also exceeded expectations as earnings per share were $1.05 vs $0.70 and revenue $18.06bn vs $17.53bn. US banks have really hit the ground running in 2021, with the share price of the three banks rising +21%, +28%, and +40% respectively . Overall, a strong week for US markets – the S&P500 rose +1.12% and the Nasdaq +2.09% - despite President Biden bringing the hammer down on Russia over alleged cyberattacks and election interference.

The sanctions targeted 16 entities and 16 officials who attempted to influence the 2020 US presidential election at the direction of the leadership of the Russian Government, according to the US treasury. A wide array of sanctions were imposed; Russian Diplomats were expelled from the US while some Russian companies were blacklisted, US banks were also barred from buying sovereign bonds from Russia's central bank, national wealth fund and Finance Ministry. Russia of course denied the allegations and stated they will respond appropriately. The Rouble fell over 2% when the news broke out, but almost fully recovered against the Dollar by the time the market closed.

Various economic data released in the US last week, provided some inclination on the state of the ongoing recovery. On Thursday, it was reported that retail sales rose 9.8% in March, fuelled by the latest round of stimulus checks and business re-openings that occurred in the last month. The increase in retail sales was the second largest in government data back to 1992 and foreshadows a consumer spending boom in the summer that will most likely surpass any in recent history. Inflation data also came in slightly higher than anticipated but was mainly overlooked by the market. CPI ex-food and energy rose 0.3% from last month vs the 0.2% expected, on a year-over-year basis, core inflation was up 1.6% from last year vs 1.5% expected, and on a headline basis 2.6% vs 2.5% expected.

In contrast, the UK had a rather subdued week until Friday morning when the FTSE100 broke above 7,000 for the first time since the start of the pandemic. The index was driven by strong performance in various sectors, mining helped to push the FTSE100 close to the 7,000 level on Thursday - Rio Tinto, Antofagasta and Polymetal all ended the day up by well over 2%. Pharmaceutical giant GlaxoSmithKline (GSK) also raised eyebrows, closing the day up more than 4.5% as news that Elliott Management had taken a multibillion-pound stake in the company filtered into the market. Elliott Management are well-known as an activist shareholder, and considering GSK shareholders have been left holding a heavy bag while the majority of FTSE 100 stocks rose above pre-pandemic levels, the optimism in response to the news is somewhat encouraging for investors.

Looking at a local company in the news last week, Asda are unfortunately set to cut 1,200 employees working in its in-store bakeries as consumers are favouring speciality and freshly baked goods in replacement of the traditional loaf. The supermarket chain plans to bake products at a central location, delivering to its stores throughout the day instead of baking once per a day in-store. Asda’s head of merchandising stated that the in-store bakery model has restricted their ability to react to changes in demand but if the proposals are accepted, the priority will be to move as many colleagues as possible into alternative roles within Asda, with redundancy the last option. The true number of jobs lost may therefore be considerably less than 1,200.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
US Banks Smash Expectations

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