US

JPMorgan Chase

JPMorgan Chase reported a drop in second-quarter profits on Thursday (Jul 14), reflecting the impact of a weakening macroeconomic outlook that led it to set aside funds in case of bad loans. The big US bank’s earnings came in at US$8.6 billion for the quarter, down 28 per cent from the year-ago period in results that missed analyst expectations. Chief executive Jamie Dimon said key elements in the US economy remained healthy, but that macroeconomic headwinds including inflation “are very likely to have negative consequences on the global economy sometime down the road”. The bank temporarily suspended share buybacks with Dimon saying that the pause was needed to quickly meet higher capital requirements and “allow us maximum flexibility to best serve our customers, clients and community through a broad range of economic environments”. The results offer the first look at how Wall Street fared in a tumultuous 3 months characterised by changing outlooks on prospects for the economy.

Morgan Stanley

Morgan Stanley’s revenue from investment banking plummeted as capital markets seized up, underlining a slow quarter for Wall Street as a dour outlook for the economy muddles the path forward. The firm’s investment-banking group posted US$1.07 billion in revenue, down 55 per cent from a year earlier, a bigger decline than the 47 per cent drop analysts had predicted. The bank also reported an additional US$413 million hit driven by mark-to-market losses on corporate loans held for sale as credit spreads widened. Morgan Stanley’s trading unit helped pick up the slack as fixed-income revenue surged amid heightened volatility and clients scrambled to reposition their books. Surging inflation and Federal Reserve efforts to help combat it have put investors on watch for a recession and the spillover effect an economic contraction can have for financial firms. Banks’ capital-markets units, which have lifted fortunes across the industry over the past 2 years, were hurt by a sharp slowdown in the second quarter. “It was a very solid quarter in the face of market volatility,” chief financial officer Sharon Yeshaya said in an interview. “Market activity and client activity should help support the level in equities and fixed-income businesses. But the volatility delays some of the pipeline to convert on the investment-banking side, especially on the M&A side.” Morgan Stanley shares slumped 23 per cent in the first 6 months of the year, its worst performance for 2 consecutive quarters in more than a decade. The stock slipped 2.7 per cent to US$72.94 at 9.52 am in New York.

The US dollar resumed its relentless rise on Thursday (Jul 14), charting new 24-year highs against the yen and pinning the euro close to parity, as investors bet on the US Federal Reserve ratcheting up interest rates to combat soaring inflation. Global economic turmoil has put a rocket under the safe-haven US dollar, pushing the dollar index that tracks the greenback against 6 counterparts up more than 13 per cent this year. It was last up 0.3 per cent on the day at 108.580. The greenback strengthened more than 1 per cent against the yen, pushing it above 139 yen per US dollar for the first time since 1998. It was last up 1.1 per cent at 138.92 yen. The euro was hovering just above parity with the US dollar — a day after breaking below the key level for the first time in almost 2 decades. The single currency remained under pressure on Thursday, weighed by downgraded official economic forecasts for the eurozone and political strife in Italy.

Oil prices settled lower on Thursday, but pared nearly all losses after falling more than US$4 earlier in the session as investors focused on the prospect of a large US rate hike later this month that could stem inflation but at the same time hit oil demand. Brent crude futures for September settled down 47 cents, or 0.5 per cent to US$99.10 a barrel and finished a third session in a row below US$100. US West Texas Intermediate crude for August delivery settled down US$95.78 a barrel, or 0.5 per cent, down 52 cents. Both contracts hit lows on Thursday which were below the Feb 23 close, the day before Russia invaded Ukraine, with Brent reaching its lowest level since Feb 21. The US Federal Reserve is seen ramping up its battle with 40-year high inflation with a supersized 100 basis-point rate hike this month after a grim inflation report showed price pressures accelerating. The Fed policy meeting is scheduled for July 26-27.