European markets are broadly positive on Tuesday as traders wipe away the sweat brought on by the collapse of the oil meeting in Doha and press on the accelerator pedal to chase US stocks which hit a fresh high for 2016.
The FTSE 100 has moved back above 6,400, touching a four-month high. The German DAX has made a new three-month high and crossed back above its 200-day moving average for the first time since December 3.
Strong results from Primark-owner AB foods (LON:ABF), advertising group Publicis (LON:0FQI) and L’Oreal (LON:0NZM) as well as an increase in iron ore shipments from Rio Tinto (LON:RIO) have added to confidence levels. Relief that US banks have not had as much of a stinker of a first quarter as had been feared is lifting optimism for the rest of earnings season.
Goldman Sachs (NYSE:GS) is expecting quarterly profit of $2.45 a share, well down on the EPS of $5.94 in the same period a year ago. On Monday investment bank peer Morgan Stanley (NYSE:MS) reported an EPS of 55c, beating lowered estimates of 46c but falling well below expectations of closer to 80c earlier in the quarter.
The major drag on earnings and the likely focus for investors will be on the trading and investment banking business. Morgan Stanley’s trading revenues fell 34% in the first quarter. The first quarter is typically the best of the year as money managers invest new money and readjust portfolios for the year ahead but a crash in equity, oil and HY bond markets saw money leave the market instead. The volatility has seen companies shy away from IPOs too, though a number of mega-mergers have buffeted advisory fees, but overall investment banking revenues are expected to be lower.
Trading is a relatively smaller part of the business at other big US banks including JP Morgan (LON:JPMJ), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC) and Bank of America (NYSE:BAC). These businesses have to varying extents improving consumer businesses driven by auto loans and credit cards that have partially offset bad loans to the shale oil patch that has prompted an increase in loss provisions.
The turmoil in January and February isn’t all bad news because the banks are reporting a return of client activity in March and April thanks to the huge rebound that’s taken place in oil and equities. Guidance from Goldman is unlikely to be too jubilant and may follow a similar tone to others who have warned about future bouts of volatility.
US markets are expected to open higher with a backdrop of rising global equities ahead of corporate results. The Nasdaq is eyeing a higher open despite poorly-received results from Netflix (NASDAQ:NFLX).
Netflix didn’t get FANG earnings off to the best of starts, the streaming service beat estimates but weak guidance on subscriber growth could see the shares open down by 12%. Netflix woes are compounded by Amazon (NASDAQ:AMZN) announcing it will directly compete via a streaming-only monthly service, unbundled from its Amazon Prime membership.
Notable earnings before the US open: Goldman Sachs, Johnson & Johnson (NYSE:JNJ), Philip Morris (NYSE:PM), Omnicom (NYSE:OMC)
Notable earnings after the close: Yahoo (NASDAQ:YHOO), Intel (NASDAQ:INTC), Discover
USA pre-opening levels
S&P 500: 8 points higher at 2,102
Dow Jones: 59 points higher at 18,063
Nasdaq 100: 17 points higher at 4,587
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