Earnings season

• Big banks and tech have started the quarterly earnings season.
• JP Morgan, Netflix, and Goldman Sachs are amongst the big names reporting.
• What are some of the takeaways from US stock earnings for Australian companies?

Earnings season

The recent volatility in the debt markets has provided a boost to the large investment banks’ earnings. Both JP Morgan NYSE:JPM (JPM) and Goldman Sachs NYSE:GS (GS) reported higher revenue from their interest rate-linked trading.

Sharp moves in the commodity markets provided an added lift to the risk management offerings of these two banking titans.

The global downturn in stock markets took some of the gloss from quarterly revenues, and so did additionally provisioning for credit losses as the macroeconomic future clouds.

Netflix NASDAQ:NFLX (NFLX) has struggled in transitioning from the captive audience under the pandemic-led lockdowns. Public activism against some of their content, leaked criticisms of their corporate culture, losses in subscribers, and a subsequently cratering share price.

Releasing results yesterday, NFLX may have turned a corner. It added 2.41 million subscribers in the quarter, mainly from Asia, plus suggesting that it will start to crack down on account sharing next year. Investors welcomed both announcements.

Reading between the lines

From the narrow viewpoint of the few MNCs that have reported earnings thus far, we can tell a few things.

The recent volatility in debt markets was not all bad for the liquidity providers and risk management specialists, but as markets settle, the easy money has already been made.

The slide in equities trading for banks has likely spelled the end of the retail trading boom we saw during the pandemic. Combined with the debt market outlook, future trading earnings for international investment banks may be a little harder to come by.

There is still some juice in the consumer, particularly in Asia, and US companies may transition some investment out of Europe and North America to continue to ride that wave.

Increased provisioning for credit losses by the big banks doesn’t spell out a great deal of confidence in the US and European economic outlook. Banking CEOs are expecting US & Euro job losses to start to tick up as businesses begin to struggle in a slowing economy.

Australian impact

The Australian market opened marginally higher Wednesday morning on the back of the US rally. Macquarie Group ASX:MCQ (MCG), with its large commodity trading arm, was higher by 5% on Tuesday following the positive earnings news out of the US investment banks.

We can expect markets to exhibit high sensitivity to any surprises in data and earnings. The near-term macroeconomic future is increasingly clouded as we run into the red line of consumer spending in the UK, US, and Europe on high fuel, transportation, and dwelling expenses.

Investors should consider this when considering whether to add on to or consolidate some of their riskier holdings.