APRIL 18, 2022 Oil prices rise; weak OPEC production in focus
Oil prices moved higher in early Asian trade, with weak crude production from OPEC supporting prices, Oanda market analyst Ed Moya said in a note. Although the IEA’s oil-reserve release is weighing on sentiment, Moya says this already looks priced in. Click on Link Below
Oil prices rise; weak OPEC production in focus | Fox Business
Wells Fargo’s quarterly profit tops expectations as lower costs blunt hit from weak mortgage lending
Wells Fargo & Co’s WFC-N +0.25%increase first-quarter profit dropped 21 per cent but beat Wall Street expectations on Thursday as top boss Charlie Scharf plans to keep a tight rein on costs cushioned a drop in mortgage lending.
Overall average loans grew 3 per cent in the quarter, largely helped by credit card and auto lending. Mortgage loans, however, fell 33 per cent from a year ago on lower originations as the Federal Reserve raised interest rates to tame soaring inflation.
“Our internal indicators continue to point towards the strength of our customers’ financial position, but the Federal Reserve has made it clear that it will take actions necessary to reduce inflation and this will certainly reduce economic growth,” Chief Executive Charlie Scharf said.
“In addition, the war in Ukraine adds additional risk to the downside.”
Wells Fargo leans heavily on revenue from its consumer and corporate banking business, as it does not have a large capital markets division compared with Wall Street rivals Goldman Sachs Group Inc and Morgan Stanley.
Non-interest expenses fell 1 per cent on lower personnel and divestitures, in line with Scharf’s plan to turn around the bank and save about $10-billion annually over the longer term.
Net interest income rose 5 per cent during the quarter helped by higher loan balances and a decrease in long-term debt, among others. Overall average loans grew to $898-billion in the past quarter, up from $873.4-billion a year earlier.
Consumer spending has been on the rise for months, as the United States emerges from the COVID-19 pandemic and many make up for lost time travelling, shopping and dining out.
Top executives at some of the big U.S. banks had said early in the first quarter that consumer have healthy cash balances in their banks and are eager to spend and borrow.
The fourth-largest U.S. lender posted a profit of $3.67-billion, or 88 cents per share, for the three months ended March 31, compared with $4.64-billion, or $1.02 per share, a year earlier.
Cogeco’s second-quarter profit rises 7.8% to $118.8-million on revenue boost
Cogeco Inc. CGO-T -0.04%decrease says its net profit increased nearly eight per cent in its second quarter on a boost in revenues.
The Montreal-based company says its net income attributable to shareholders was $118.8-million or $2.29 per diluted share, up from $110.2-million or $2.11 per share a year earlier.
Revenues for the three months ended Feb. 18 increased 14.5 per cent to $748.1-million, from $653.2-million in the second quarter of 2021.
Cogeco was expected to earn $2.27 per share on $741.2-million of revenues, according to financial data firm Refinitiv.
American broadband services revenue increased 31 per cent in constant currency while Canadian broadband services revenue was up 2.1 per cent mainly due to the DERYtelecom acquisition in December 2020 and organic growth.
Media activities revenue was up 4.9 per cent following an easing of COVID-19 public health restrictions.
“For our radio business, our revenue has grown despite a weaker advertising market due to sudden lockdowns brought on by the Omicron variant, however signs have been positive for the economy as public health measures are being lifted,” stated CEO Philippe Jette in a news release.
Goldman Sachs tops analyst estimates as trading desks crush expectations amid surging volatility
Goldman Sachs first-quarter earnings blew past expectations as its traders effectively navigated a surge in markets volatility from the war in Ukraine.
Here’s are the numbers:
“It was a turbulent quarter dominated by the devastating invasion of Ukraine,” CEO David Solomon said in the release. “The rapidly evolving market environment had a significant effect on client activity as risk intermediation came to the fore and equity issuance came to a near standstill. Despite the environment, our results in the quarter show we continued to effectively support our clients.”
Goldman’s traders made the best of that turbulent environment as revenue from fixed income, currency and commodities was up 21% from a year ago to $4.72 billion in the first quarter. That was far more than the $3.04 billion estimate for FICC trading from analysts polled by FactSet. Equities trading revenue came in at $3.15 billion, 15% lower than the first quarter of 2021, but much better than expectations as well.
Goldman Sachs has been one of the big beneficiaries of a torrid two years of Wall Street deals activity, putting up record revenue figures and blowing past performance targets.
The results showed the bank’s trading side stepped in to make up for a slowdown in mergers, IPOs and debt issuance slowed in the first quarter.
Goldman Sachs is the world’s biggest mergers advisor by revenue and is the most Wall Street-dependent firm among the six biggest U.S. banks. One of Solomon’s biggest priorities has been to diversify the firm’s revenue streams, boosting consumer banking, wealth and asset management operations.
Analysts will be keen to ask Solomon how the deals pipeline looks for the remainder of 2022, and if mergers and IPOs are being killed, or merely pushed back into future quarters.
Another area of concern for the bank is trading, where spikes in volatility and market dislocations caused by the Ukraine war may have benefited some traders, while leaving others holding losses. It remains to be seen whether the quarter’s tumult led to the type of volatility that encouraged clients to trade, or it left them on the sidelines.
In February, Solomon increased the bank’s guidance for returns and targets in wealth and asset management divisions after handily exceeding goals set in early 2020.
Goldman shares have fallen 15.8% this year through Thursday, compared with the 10.5% decline of the KBW Bank Index.
On Wednesday, JPMorgan Chase said first-quarter profit slumped 42% as it posted losses tied to Russia sanctions and set aside money for future loan losses.
Citigroup tops earnings estimates on better-than-expected trading revenue
Here are the numbers:
How big of a hit will Citigroup take on its exposure to the Russian invasion of Ukraine? That will be one question posed to Citigroup CEO Jane Fraser, who took over the New York-based bank a year ago. In that time, she’s announced plans to exit more than 13 markets outside the U.S. in a bid to improve the bank’s returns.
Citigroup, the most-global of big U.S. banks with operations in more than 100 countries, likely has the most significant exposure to the Ukraine conflict. Analysts will be keen to understand the various impacts of the war on the firm, including on its planned sale of a Russian consumer banking unit.
Last month, Fraser gave analysts a new set of financial targets, including a medium-term goal for returns on tangible common equity, a key banking industry metric, of about 11% to 12%. The event was a chance for the bank to reset expectations after years of underperforming peers including JPMorgan Chase and Bank of America.
Like the rest of the industry, Citigroup is expected to experience a slowdown in investment banking revenue, somewhat offset by a benefit from rising interest rates.
Despite already trading at the lowest valuation among peers, Citigroup shares have lost 17% this year, compared with the 10.5% drop of the KBW Bank Index.
On Wednesday, JPMorgan said first-quarter profit slumped 42% as it posted losses tied to Russia sanctions and set aside money for future loan losses. After the report, its shares fell and hit a 52-week intraday low.
Elon Musk offers to buy Twitter, take it private
Musk’s best and final offer was to pay $54.20 per share for 100% of Twitter, and said that if his offer was not accepted he’d have to reconsider his position as a shareholder, according to an SEC filing. “I invested in Twitter as I believe in its potential to be the platform for free speech around the globe, and I believe free speech is a societal imperative for a functioning democracy,” Musk wrote. “However, since making my investment I now realize the company will neither thrive nor serve this societal imperative in its current form.” Musk said the takeover attempt is “not a threat, it’s simply not a good investment without the changes that need to be made.
Banks Raise Prime Rate to 3.20%
Royal Bank of Canada and TD Bank were among the first big Canadian lenders to announce Wednesday that they were following the Bank of Canada and hiking their prime rates by 50 basis points. Bank of Nova Scotia and Canadian Imperial Bank of Commerce also said they’d raise their prime rates.
The move comes just hours after the central bank raised its key rate by half a percentage point for the first time in 22 years.
The prime rate of the banks will rise from 2.70 per cent to 3.20 per cent starting Thursday, April 14.
The Bank of Canada raised its key rate to 1 per cent from 0.5 per cent.
Bank governor Tiff Macklem said Wednesday even with the rise, rates were still far below the neutral rate, which the bank calculates at somewhere between 2 and 3 per cent.
“If demand responds quickly to higher rates and inflationary pressures moderate, it may be appropriate to pause our tightening,” Macklem said. “On the other hand, we may need to take rates modestly above neutral for a period to bring demand and supply back into balance and inflation back to target.”
Kevin Carmichael: Brace for more big hikes because the Bank of Canada is far from finished
Governor Tiff Macklem and his deputies raised the benchmark interest rate by half a percentage point on April 13, an aggressive move since central banks generally prefer to move in quarter-point increments.
Policy-makers also said they would initiate “quantitative tightening,” which means the central bank will remove itself as an active participant in the bond market. The Bank of Canada purchased hundreds of billions of dollars of bonds during the recession to put additional downward pressure on interest rates, and had been reinvesting what it earned when those assets matured. The reinvesting will now stop.
The outsized increase in borrowing costs, which took the benchmark interest rate to one per cent, was widely anticipated; the central bank had telegraphed that stronger-than-forecast inflation would force it to accelerate its march to a more normal interest-rate setting.
Less anticipated, perhaps, was the extent to which the economy is straining on the central bank’s reins. Macklem’s new quarterly economic forecast has gross domestic product increasing at an annual rate of six per cent in the second quarter, which is a rate of growth you would expect in the earliest days of a recovery, not when the recovery is over and the jobless rate at a modern low.
“The Canadian economy is strong,” he said in the opening statement at his quarterly press conference. “The economy has fully recovered from the pandemic, and it is now moving into excess demand.”
By “excess demand,” Macklem meant the central bank’s forecast suggests the economy is now growing faster than its capacity to generate goods and services without stoking inflation. The Bank of Canada revised its estimate of the “output gap,” an important concept in central banking, if mostly meaningless to the rest of us, to between -0.25 per cent and 0.75 per cent, compared with an estimate of -0.75 per cent and 0.25 per cent in January.
All that growth would be something to cheer if it wasn’t paired with equally strong inflation. The Bank of Canada acknowledged it underestimated how much the consumer price index would increase in the first quarter, and now predicts an average monthly gain of 5.6 per cent, compared with the 5.1 per cent it forecasted in January.
Policy-makers expect average headline inflation of 5.8 per cent in the second quarter, and forecast that price increases will remain well above the high end of their comfort zone — one per cent to three per cent — for the rest of the year.
“Today’s decision suggests the BoC is going on offence,” Charles St.-Arnaud, chief economist at Alberta Central and a former Bank of Canada staffer, said in a note to clients. “The door remains open to further (half-point) hikes.”
The Bank of Canada said the war in Ukraine was the primary reason it underestimated inflation. Russia and Ukraine are big exporters of oil, natural gas, wheat and other commodities, and prices for those important inputs have soared since Russian President Vladimir Putin’s invasion of Ukraine on Feb. 24.
As a result, the economy came out of the downturn firing on all cylinders. That’s creating more demand than there is supply, putting extra pressure on prices amid a war, drought, COVID-19 lockdowns and sundry other disruptions that have already put upward pressure on prices.
The Bank of Canada emphasized it is far from finished. Its new forecast discovered the economy is probably now operating at a level that exceeds estimates of what it can produce without stoking inflation. And yet the benchmark rate is still below its pre-pandemic level.
A second half-point increase when the central bank next updates its policy rate on June 1 would surprise no one.
Policy-makers said they are worried households and businesses will absorb current inflation as the new normal. The Bank of Canada is relying on its credibility with the public to keep expectations anchored.
Broad increase in U.S. producer prices underscores tough inflation battle for Federal Reserve
U.S. monthly producer prices increased by the most in more than 12 years in March amid strong demand for goods and services, the latest sign of persistently high inflation that could compel the Federal Reserve to aggressively tighten monetary policy.
The report from the Labor Department on Wednesday also showed strong underlying inflation pressures at the factory gate, raising doubts that a decline in the cost of goods, excluding food and energy, in March reported in Tuesday’s consumer prices data would be sustainable. Economists expect the U.S. central bank will hike rates by 50 basis points next month, and soon start trimming its asset portfolio.
“The broad-based increases reinforce yesterday’s CPI report that will keep the Fed on its aggressive tightening path in the coming months,” said Will Compernolle, a senior economist at FHN Financial in New York. “Supply chain easing, especially on the goods side of production, will be an important source of disinflation for the Fed to successfully achieve its goal of price stability.”
The producer price index for final demand increased 1.4 per cent, the largest gain since the government revamped the series in December 2009, after rising 0.9 per cent in February.
Goods prices increased 2.3 per cent, matching February’s advance. A 5.7 per cent rise in energy prices accounted for more than half of the increase in the PPI last month. There were increases in gasoline and electricity, but natural gas prices fell. Energy prices jumped 7.5 per cent in February.
Food prices climbed 2.4 per cent, though the cost of beef and veal fell 7.3 per cent. Wholesale prices of iron and steel scrap also rose, but the cost of cold rolled steel sheet and strip declined.
Inflation was initially fanned by a massive cash infusion from the government to cushion against the devastating impact of the coronavirus pandemic, which unleashed strong demand for goods and strained supply chains. Supply bottlenecks had started to ease, but progress was stalled by the Russia-Ukraine war. Renewed lockdowns in China to contain rising COVID-19 cases are also seen disrupting supply chains.
Services inflation is also building up amid the rolling back of pandemic restrictions on businesses. Wholesale services prices jumped 0.9 per cent in March after climbing 0.3 per cent in February. A 1.2 per cent rise in margins for final demand trade services, which measure changes in margins received by wholesalers and retailers, accounted for more than 40 per cent of the rise in services.
Stocks on Wall Street were higher. The dollar was steady against a basket of currencies. U.S. Treasury yields fell.
The Fed in March raised its policy interest rate by 25 basis points, the first hike in more than three years. Minutes of the policy meeting published last Wednesday appeared to set the stage for big rate increases down the road.
The cost of transportation and warehousing services also increased strongly last month. There were also gains in prices of hotel and motel accommodation, airline fares, in-patient care as well as hardware, building materials and supplies retailing.
But the cost of securities brokerage, dealing and investment advice fell 5.4 per cent. Portfolio management fees also decreased.
In the 12 months through March, the PPI jumped 11.2 per cent, the largest year-on-year increase since the current series was introduced in November 2010, after advancing 10.3 per cent in February.
Economists polled by Reuters had forecast the PPI rising 1.1 per cent and accelerating 10.6 per cent year-on-year. Excluding the volatile food, energy and trade services components, producer prices accelerated 0.9 per cent in March. The so-called core PPI increased 0.2 per cent in February. In the 12 months through March, the core PPI soared 7.0 per cent after rising 6.7 per cent in February.
The government reported on Tuesday that monthly consumer prices increased by the most in 16-1/2 years in March. But core goods prices dropped by the most in two years, restraining monthly underlying consumer inflation in March. That offered cautious hope that inflation, which by all measures has far exceeded the Fed 2 per cent target, has peaked.
Following last month’s strong core PPI readings, some economists said it was too soon talk about a sustained moderation in the monthly pace of core inflation. Based on the CPI and PPI data, economists are estimating that the core personal consumption expenditures (PCE) price index rose by about 0.3 per cent in March after climbing 0.4 per cent in February.
The core PCE price index is one of the inflation measures watched by Fed officials. It is forecast increasing by 5.3 per cent year-on-year in March after accelerating 5.4 per cent in February, which was the biggest rise since 1983.
“We would caution however that the ‘peak’ in core inflation could appear to be more of a ‘plateau’ over the coming months,” said Veronica Clark, an economist at Citigroup in New York. “While core PCE might not climb any higher on a year-on-year basis, we would increase 5%