US markets ended the day rather mixed with tech stocks outperforming the wider market while the Dow and S&P500 both finished the day lower.
Amazon’s latest numbers once again blew away expectations as profits soared despite revenues coming in at $59.7bn, in line with expectations. The big profit gains came in cloud services or AWS with all areas of the business contributing to quarterly profits in excess of $7bn. In its outlook for Q2 the company said it expected to net sales to rise between 13% and 20%, with operating income to come in between $2.6bn and $3.6bn.
Asia markets finished the week on the back foot on the back of weak Chinese markets, while Japanese markets also slipped back ahead of the week long shutdown that is Golden Week, which starts on April 29th and where liquidity in Asia could well dry up significantly, over the next seven days
European markets have opened slightly lower as well as earnings announcements continue to drop with the main focus still on the banking sector with the release of the latest numbers from Deutsche Bank and RBS.
The collapse of merger talks yesterday between Deutsche Bank (DE:DBKGn) and Commerzbank (DE:CBKG) prompted Deutsche to release some details of its quarterly performance early, with the numbers serving to highlight how the bank is fighting a losing battle to turn itself around.
Quite simply the problems facing Deutsche are still too large to make it a compelling takeover partner, let alone a merger partner. We know this only too well from Lloyds Banking Group (LON:LLOY) and the poison pill it was forced to swallow in the form of Halifax Bank of Scotland a decade ago.
Deutsche’s problems are not new, we know this from the huge loss that was reported in 2016, yet the bank hasn’t been decisive enough or ruthless enough in dealing with its problems.
This morning’s numbers merely serve to reinforce these problems as the bank cuts its guidance for 2019. Revenues fell 9% to €6.35bn, from a year ago, while profits before tax fell from €432m to €292m, a fall of 32%.
The corporate and investment bank saw revenues decline by 13% to €3.3bn, with most areas of the business underperforming. The biggest declines came in fixed income and equities, with revenues falling 19% and 18% respectively, on the back of the lower volatility in FX, credit and equity markets.
This morning’s Q1 update from RBS (LON:RBS) has been overshadowed somewhat by yesterday’s news that CEO Ross McEwan will be leaving the business in the next 12 months, however the numbers do illustrate how much the bank has moved on from when he took up the position all the way back in 2013. In a contrast to how Deutsche has dealt with its costs the bank has slashed headcount since 2013 from 118k to around 70k employees. In 2008 the bank employed nearly 200k people.
In that time the bank has returned to profit having navigated its way through a number of expensive and in some respects toxic legacy issues, which overshadowed the underlying business which has been large fairly profitable over the last few years. The dividend has also been restored and the government has pared back its stake to 62%, and while long term risks still remain, including some form of nationalisation if the political environment changes, the fact is that RBS is a much different bank now than it was a few years ago.
In its first quarter of 2019 the bank reported an operating profit of just over a £1bn, beating expectations by around 10%, even though revenues were slightly below estimates at just over £3bn.
Overall profits were still slightly lower from the same period last year, coming in at £707m compared to £808m.
In a sign that profits for oil majors may be peaking French oil company Total (LON:TTAT) saw its profits fall despite record production volumes. Profits fell 4% in Q1 to $2.8bn despite crude prices averaging well over $60 a barrel for the quarter. The company blamed higher US interest costs as well as lower natural gas prices in a warning that next week’s numbers from Royal Dutch Shell (LON:RDSa) and BP (LON:BP) could well suffer from a similar drag factor, with BP particularly vulnerable due to its higher debt levels.
The online delivery market continues to deliver for Just Eat (LON:JE) (LON:JE), (pun intended) as group orders in Q1 saw a rise of 21% year on year. UK orders saw a rise of 7.4% despite the recent bad publicity about how the company polices its hygiene ratings. Outside the UK growth was similarly positive, rising 40% driven by improvements in Canada, Italy and Switzerland.
The company reiterated its guidance for 2019 of revenues of about £1bn and profits of £200m.
US markets look set to open lower on the back of a slightly softer European session with attention set to be on the first iteration of US Q1 GDP and the latest details for Uber’s IPO with the company set to look at a valuation of between $80bn and $90bn in a nod perhaps to the flop of the Lyft (NASDAQ:LYFT) IPO. Previous estimates had been for a valuation for Uber (NYSE:UBER) in excess of $100bn, which on the face of it seems wildly unrealistic. That’s not to say an $80bn valuation is realistic for a company that lost $3bn last year, but at least it’s a recognition of reality.
Even so a share price of between $44 to $50 still seems way too high for a company that may never make a profit. Having said that losing shedloads of money seems to be the new normal these days.
US Q1 GDP is expected to show the US economy expanded 2.2% though this could come in higher given the better than expected March durable goods and retail sales numbers we’ve seen in the past couple of weeks.
Dow Jones is expected to open 60 points lower at 26,402
S&P500 is expected to open 6 points lower at 2,920
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