Global markets were up overnight, as US stocks rose (S&P 500 Index +0.9%) ending the day at it the highest level since early June. Sentiment was positive following promising early data for a potential covid-19 vaccine, and a better than expected result from Goldmans Sachs lifting the banks. Moderna Inc rallied +6.9% after a small-scale study showed its experimental covid-19 vaccine produced high levels of virus-killing antibodies, creating more positivity around the heavy beaten down sectors, particularly travel.
Adding to investors’ enthusiasm, the Federal Reserve’s Beige Book survey showed US businesses saw an uptick in activity into the beginning of July as states eased restrictions to contain the novel covid-19 pandemic. However, the United States has failed to control the covid-19 and there is a high level of uncertainty over how much the pandemic will affect the economy as some states look to tighten restrictions.
JPMorgan Chase (JPM:NYSE)
America's largest bank JPMorgan Chase shares were higher after reporting a better than expected result for the 2020 second quarter, reporting earnings per share of $1.38, down -51% from the same corresponding period last year, but up +77%. This came despite booking a $10.5 billion provision for credit losses (which was largely expected), up from $8.3 billion in the first quarter – to put this into perspective, pre-covid the provision for credit losses was just $1.15 billion for the quarter in the prior-year period.
The main driver of the earnings beat was thanks to the bank reporting $33 billion in revenue for the quarter which was up +15% from last year, driven by corporate and investment bank segment lifting revenue up +66% (doing much better than expected), offset by weaker consumer and community banking.
We continue to remain HOLD rated on JPM as we anticipate the major banks could struggle in a low interest rate environment and could potentially face more default risks over the horizon, after government stimulus provisions start to ease.
Australia & New Zealand Market Movers
The Australian market pushed higher on Wednesday (ASX 200 Index +1.9%) with a surging iron ore price and better-than-expected results from the major US banks supporting gains across the market.
Coles, Kogan.com, Fortescue Metals Group, Ansell, Fisher & Paykel Healthcare and Temple & Webster all hit record highs in the session, with exposure to health, online sales and a surging iron ore price benefiting them, respectively. After a weak Tuesday, the Tech sector was the best performer, led by WiseTech Global which was up +4.6%, while Afterpay shares advanced 2.4% after announcing it would turn on Apple Pay and Google Pay at select US retailers this month, with Australian customers able to use the new payment option "in the coming months".
The New Zealand market was up yesterday (NZX 50 Index +1.0%) thanks to a positive lead from Wall street, as investors welcomed promising results of a covid-19 vaccine trial.
Accordingly, the stocks hit hardest by the virus rose, Auckland International Airport, Tourism Holdings, Air NZ, and cinema software developer Vista all traded higher. Oceania Healthcare rose +3.1%, being the next alternative investment to Metlifecare ("value" retirement village operator), with the rest of the sector edging higher as some Metlifecare shareholders cash out early and allocate funds to other retirement village operators.
3 Things Markets Will be Watching this Week
- Covid-19 newsflow around a second wave and re-opening of economies remains top of mind.
- A huge week ahead for earnings in the US with JPMorgan, BofA, Citi, Morgan Stanley, Goldman, Microsoft, Netflix and eBay all scheduled to release earnings.
- Locally, Australia’s employment data will be released along with the latest inflation and Net Migration data in NZ.