Higher interest rates continue to pressure some of the country’s biggest banks, and their lending machines are showing signs of consumer weakness. JPMorgan Chase and Wells Fargo both reported a drop in quarterly profit Friday. Citigroup posted a rise in profit, driven in part by the bank’s cost-cutting measures, but set aside more provisions for potential losses in their credit-card business.
JPMorgan’s second-quarter profit declined 9% year-over-year to $13.1 billion. That figure excludes an $8 billion gain the bank received on an exchange of its shares of Visa and other one-time items. The bank’s net interest income, a measure of the difference between what banks pay out on deposits and charge on loans, rose to $22.9 billion, up 5% versus a year earlier. Wells Fargo, whose business mix leans more heavily toward consumers than its peers, reported a second-quarter profit of $4.91 billion, down 1% from around $4.94 billion a year earlier. The San Francisco-based bank also dimmed its outlook for the year. It predicted net interest income - a key profitability measure of the difference between what banks earn on loans and pay out to depositors - would fall between 8% and 9%. Citigroup, which is in the midst of a multi-year restructuring plan, showed signs last quarter that those efforts were bearing fruit. The bank reported net income of $3.22 billion, a 10% increase from the same period a year ago. Revenue rose to $20.14 billion, including a $400 million gain from the Visa share exchange. That marked a 4% rise from a year earlier. All of Citi’s divisions posted better numbers for the first time since the bank broke out its results into five units late last year. Operating expenses fell 2% to $13.35 billion, thanks to a flurry of business exits and moves undertaken by Chief Executive Jane Fraser. Shares of JPMorgan Chase fell 1.2% after it posted a lower profit, excluding one-time items. Wells Fargo shares tumbled 6% after it dimmed its outlook for the year. Citigroup’s profit rose, but the bank set aside more provisions for potential losses in its credit card business. Its shares declined 1.8%.

The Swiss stock market posted significant gains at the end of the week and the SMI reached a new high for the year. The SMI improved by 0.9 per cent to 12,365 points. The new high for the year is 12,384 points. Among the 20 SMI stocks, there were 16 gainers and three losers, while Swisscom shares closed unchanged. A total of 13.99 (previously: 16.32) million shares were traded. Among the individual stocks, profits were spread across all sectors. Novartis shares, for example, rose by 0.8 per cent and marked a new high for the year. The shares of the other two index heavyweights Roche and Nestlé each climbed 1.1 per cent. UBS shares also rose by 1.0 per cent. Partners Group shares improved by 1.6 per cent. Following the results for the first half of the year the previous day, positive analyst comments provided support. Assets under management were in line with expectations, but fundraising exceeded estimates, as Bank of America noted. The company deserves a premium over the sector due to its diversification, robust growth and high quality of earnings, all of which have a positive impact in the current weaker market environment, the analysts added.

Europe
The European stock markets surged on Friday, buoyed by hopes of a rate cut by the Federal Reserve (Fed) in the months ahead. The Stoxx Europe 600 index gained 0.9% to 524.1 points. In Paris, the CAC 40 and SBF 120 advanced by 1.3% and 1.2% respectively, bolstered by the luxury goods sector. The DAX 40 climbed 1.2% in Frankfurt and the FTSE 100 edged up 0.4% in London. Over the week as a whole, the Stoxx Europe 600 recorded a gain of 1.5%. Technology and defence group Thales (stable) announced on Friday that it had been awarded the Neptune contract by the French defence procurement agency (DGA) to supply the French army with thirty Syracuse IV satellite communication stations. Swedish telecoms equipment supplier Ericsson (+4% in Stockholm) reported sales and profitability ahead of analysts' expectations for the second quarter of 2024, thanks to higher licence revenues and cost reductions.

United States
The Dow Jones Industrial Average closed above 40000 for just the second time Friday, with investors packing up for the weekend feeling confident that a rate cut is around the corner. The blue-chip index rose 0.6% to 40000.9, after closing past that threshold for the first time in May. The S&P 500 and Nasdaq Composite each climbed 0.6%, and all three indexes logged weekly gains. The buoyant finish to the week came after data showing a continued cool-down in consumer inflation on Thursday, which sparked a stock market rotation into this year’s laggards. Traders kept up some of their moves Friday, with the Russell 2000 index of small-cap stocks advancing to notch a weekly gain of 6%, its best weekly performance since November. The S&P 500’s real-estate sector also rose to end the week with a 4.4% gain, but it remained the index’s only segment that is down for the year. With the closely watched consumer-price index continuing to ease, investors are betting on sectors that stand to benefit from lower rates. That was despite new data Friday showing a pickup in producer prices. The S&P 500 is up 18% for the year, with 10 of its 11 sectors now in the green. Heading into the earnings season, investors have high expectations. Overall, companies in the S&P 500 are expected to report a fourth straight quarter of earnings growth, with profits projected to have climbed 8.8% from last year’s second quarter, according to FactSet. That would mark the biggest increase since the first quarter of 2022. Financial stocks more broadly outperformed. The S&P 500 financials sector index was within striking distance of a fresh record, with shares of Bank of New York Mellon and State Street surging 5.2% and 2.7%, respectively. U.S. stock-index futures saw a modest rise Sunday night, as financial markets opened for the week following an apparent assassination attempt on former President Donald Trump a day earlier at campaign rally. Bitcoin, which trades around the clock, surged after former President Donald Trump was shot, potentially a reaction both to the perceived increased likelihood the Republican will win November’s presidential election as well as to a more unstable political environment. Bitcoin BTCUSD rose more than 4%, toping $60,000 for the first time since mid-June and hitting $62,518 by 11 p.m. Sunday. Other leading cryptocurrencies including Ethereum ETHUSD and Solana SOLUSD also rallied.

Asia
Asian stocks were mixed. Hong Kong’s Hang Seng declined significantly by 1.4 per cent. There is no trading in Tokyo due to a public holiday. In Sydney, the S&P/ASX-200 rises by 0.6 per cent. Economic data from China indicate that overall demand in China remains rather sluggish. Property stocks are weak on the market. China Vanke dropped by 2.5 per cent and Longfor by 3.5 per cent.

Bonds
U.S. government debt yields finished lower on Friday, with 2- and 10-year yields hitting the lowest levels in four or five months, after data from the University of Michigan showed a drop in consumer sentiment. The 10-year Treasury note yield fell by a further 3 basis points to 4.186%. The 2-year Treasury note yield dropped by 6 basis points to 4.464%. The Federal Reserve is widely expected to hold rates steady at its meeting later this month, but traders on Friday were pricing in a 94% chance that the central bank will cut interest rates in September, according to CME Group data. That is up from 78% a week ago.

Analysis
Morgan Stanley raises Novartis target to CHF 103 (100) - Equalweight
Deutsche Bank lowers DocMorris target to CHF 99 (110) - Buy
Price target UBS: Goldman Sachs upgrades to CHF 35.50 (35) – Buy

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