US banks are likely this week to report their worst new year earnings in decades [Xinhua]
There is considerable concern on Wall Street that the uneven state of the health of the global economy and slowing growth rates will leave a dent in Q1 earnings for major American financial institutions.
Some analysts are predicting that powerhouse banks such as Wells Fargo and Citigroup will report their worst new year start in years, possibly even decades.
The fact that this is in tandem with the worst ever start in trading at the New York Stock Exchange is no coincidence.
When big lenders like JPMorgan Chase & Co, Bank of America Corp and Goldman Sachs Group Inc., to name a few, report marked decline in earnings this week, they will blame poor performance by the Nasdaq, S&P 500 and Dow Jones.
But they will also point to the rude awakening which began with China’s economic slowdown (correction) last summer and extends well into 2016.
As Chinese GDP is expected to grow between 6.5 and 6.9 per cent this year, the apetite of the world’s second largest economy for importing commodities has waned significantly.
But isn’t only China that has been at the center of dwindling commodities trading – every one of the 23 top emerging markets (including Brazil and Russia) has reported slowing down of trade.
The fact that the US Federal Reserve has scaled back its interest rate hikes for 2016, leaving current lending costs at still near zero levels, has also hurt bank revenues.
A lot of decreased lending revenue has come in the energy sector – understandably, since oil prices have stubbornly remained in the $30-$40 range.
This marks a 70 per cent drop in two years and has adversely impacted investments by such energy giants as Shell, Texaco and BP.
Multi-billion dollar projects have been scrapped; hundreds of thousands of energy sector workers have been fired.
This all comes as US President Barack Obama meets on Monday with Fed chief Janet Yellen who will likely convey her concerns about the impact a struggling global economy would have on the American economy.
The US economy did get a bit of good news on Monday when the dollar slipped to its lowest level in eight months, particularly against the yen.
A weaker dollar means greater appetite for US goods and services overseas. This helped strengthen the S&P 500 by 0.17 per cent; the Nasdaq by 0.34 per cent and 0.46 per cent at press time.
US benchmark West Texas Intermediate crude improved to $40.21 while international benchmark jumped up to $42.68 at press time, it’s highest level in four months.
The BRICS Post with inputs from Agencies
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