Summary for the 17th of April 2019


Bank of America reported a better than expected quarterly earnings, similar to Goldman Sachs and JP Morgan, earnings were negatively affected by the high volatility in the financial market, which led to weak trading results and banking fees. These loses were more than offset by the increase in net interest yield, a key metric of profitability for banks and the increase growth in lending. The numbers weren’t as great as JP Morgan’s, but were better than Citigroup’s, who had a weakest lending growth of the three banks.

The banks earnings and the positive results from theirs retail sectors give an impression of solid growth in the US economy for the first quarter. A strong labor market, an ok hourly earnings growth, all indicate that the economic growth will continue. The long-term interest rates have fallen, and indicates a weaker profitability for banks, but can increase the activity in the housing market, which in turn increases lending growth.

In Europe, the Dutch banking corporation, ING, was in talk with the German bank, Commerzbank, of a takeover (paywall). Previously there had been talks about a merger between Commerzbank and another German bank, Deutche Bank, but the ECB was skeptical about that merger, because it wouldn’t solve challenges in the EU banking sector.

The ECB believes that the EU banking sector has high cost inefficiencies, lack of digitalization, and high fragmentation in the sector. The ECB wants the banks in the EU to be able to lend across border, as of today, this isn’t the case. German companies are lending from German banks and Dutch companies are lending from Dutch banks. A cross border merger like the one ING and Commerzbank are in talk of, will be preferable over Deutche Bank and Commerzbank merger for the ECB. Though, the EU still hasn’t established its own banking union, thus the risk of the none domestic banks to relocate out of the countries they are doing business with is higher in bad times.

The economic indicators released from China were better than expected. Fixed asset investment for the first quarter increased by 6.3% year on year from 5.9% in the previous quarter. The increased was mostly due to cost increase, still, the numbers showed a positive development in investments in infrastructure, also housing investments were positive. Though the investment in manufacturing sector had declined, due to the ongoing trade conflict and slower global economic growth. Retail sales year on year had increased, but consumer spending slowed to 4% year on year in the first quarter from 5% in the fourth quarter.

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