Aurelia Butler

BofA executives also painted a sunny outlook for consumer spending going forward, allaying fears that decades-high inflation is taking a toll on consumer spending.”We observed from our data spending remains excellent, deposit balances remain high, capacity to borrow is still there, credit quality is still there,” Chief Financial Officer Alastair Borthwick said on a call.The U.S. Federal Reserve has been hiking interest rates rapidly, in line with its commitment to tame decades-high inflation. Though recession risks persist, the move for now has translated into higher profits for banks, which typically thrive in a high interest rate environment.Bank of America (NYSE:BAC)’s net interest income, a metric that measures the difference between the interest earned on loans and the amount paid out on deposits, jumped 22%, or $2.2 billion, to $12.4 billion in the reported quarter.The second-largest U.S. bank by assets also released $48 million of reserves in the quarter, compared with $2.2 billion a year earlier, leaving BofA’s total loan loss provisions at $500 million.That stands in contrast to rival banks JPMorgan Chase & Co (NYSE:JPM) and Wells Fargo (NYSE:WFC) & Co, which boosted loss provisions by $428 million and $235 million, respectively, in the quarter.Bank of America’s shares, which have fallen nearly 28% so far this year, were down marginally in premarket trading.The company’s profit fell 34% to $5.93 billion, or 73 cents per share, for the quarter ended June 30. On an adjusted basis BofA earned 78 cents per share, compared with estimates of 75 cents per share, according to Refinitiv IBES data.Wall Street investment bankers, who were neck-deep in deals last year, have seen activity slump in the first half of 2022 amid volatility in capital markets, geopolitical tensions and a risk-off sentiment that has swept across markets globally.Bank of America’s investment banking fees fell 47% to $1.1 billion in the second quarter.Revenue, net of interest expense, rose 6% to $22.7 billion.SPENDING VS INFLATIONThe strength of U.S. consumers is being tested by inflation, which has touched levels not seen in four decades, but spending trends are still largely holding up, bolstering the bank’s profit.”Our U.S. consumer clients remained resilient with continued strong deposit balances and spending levels,” Chief Executive Officer Brian Moynihan said.Spending trends are key indicators of the financial health of consumers and are closely intertwined with the performance of BofA’s crown jewel, its consumer banking unit, where revenue rose 12% to $9.1 billion in the reported quarter.Combined credit and debit card spend for the bank rose 11% to $220.5 billion over the immediately preceding quarter. That figure was also up 10% year over year.BofA’s total loans and leases, excluding those from the government’s Paycheck Protection Program, grew 14% year-over-year. That figure was also up 4% from the immediately preceding quarter.However, the Fed’s aggressive turn toward bringing down inflation has the outlook for loans in a bind, as rapidly rising costs of borrowing have the potential of hurting demand. More

(Reuters) – U.S. stock indexes looked set to open higher on Monday after Goldman Sachs (NYSE:GS) beat profit expectations, extending last week’s positive momentum amid easing bets of a super-sized interest-rate hike by the Federal Reserve.Dow futures rose nearly 300 points in premarket trading, picking up from Friday when U.S. economic data showed stronger-than-expected retail sales, an uptick in consumer sentiment, and lower inflation expectations.”You’re getting the feeling that perhaps all the bad news is out of the way and investors are looking to see if this would be a reasonable entry point,” said Rick Meckler, partner at Cherry Lane Investments.Goldman Sachs gained 3.4% as it reported a smaller-than-expected 48% slump in second-quarter profit, helped by strength in its fixed-income trading. The investment banking giant’s results follow upbeat quarterly results from Citigroup Inc (NYSE:C) on Friday.Most big U.S. banks were higher on Monday, but Bank of America Corp (NYSE:BAC) fell 0.9% after posting a nearly 34% drop in second-quarter profit.At 8:22 a.m. ET, Dow e-minis were up 282 points, or 0.9%, S&P 500 e-minis were up 31.75 points, or 0.82%, and Nasdaq 100 e-minis were up 117.5 points, or 0.98%.U.S. futures, however, pulled back from session highs, tracking a fall in European markets after Russia’s Gazprom (MCX:GAZP) declared force majeure on some gas supplies to Europe.Among other shares, Boeing (NYSE:BA) Co jumped 4% after Delta Air Lines (NYSE:DAL) said it will buy 100 MAX 10 jets worth about $13.5 billion at list prices and has options to buy another 30 at the Farnborough air show.With second-quarter earnings season in full swing, analysts now expect aggregate year-on-year S&P 500 second-quarter profit growth of 5.6%, down from the 6.8% estimate at the beginning of the quarter, according to Refinitiv data. More

(Reuters) -Goldman Sachs Group Inc on Monday reported a smaller-than-expected 48% slump in second-quarter profit, buffered by the strength in its fixed-income trading as investors realigned their bets amid market volatility.It shares rose 3.7% as revenue at the global markets unit, which houses Goldman’s trading desks, jumped 32% to $6.47 billion, with fixed income, commodities and trading revenue surging 55% and equities revenue adding 11%.This helped the bank offset a hit to investment banking business due to a plunge in underwriting activity and deals.Its quarterly report rounds off earnings from big banks and mirrors peers JPMorgan Chase & Co (NYSE:JPM) and Morgan Stanley (NYSE:MS), both of which saw weak revenue from investment banking. Goldman’s revenue from the segment fell 41% to $2.14 billion in the quarter. Revenue from both equity and debt underwriting fell along with those from advising on stock listings and mergers and acquisitions.Runaway inflation and rising borrowing costs to stamp it out have rattled global financial markets, forcing companies to curb their appetite for deals and go slow in raising cash through stock or debt offerings.In the second quarter, the global market for initial public offerings saw 305 deals raising $40.6 billion, down 65% from last year, according to data from Ernst & Young’s report.The value of announced deals dropped 25.5% year-on-year to $1 trillion in the quarter with M&A activity in the United States plunging 40%, according to Dealogic data.”The banks news certainly was very poor for the most part,” said Rick Meckler, partner at Cherry Lane Investments.”It was not unexpected when you consider that investment banking income is really falling off the table and that some of the banks have taken large credit reserves.” Peer JPMorgan Chase & Co’s investment banking revenue had slumped 61% to $1.4 billion, mainly due to a 54% drop in fees, while Morgan Stanley had reported a 55% slide in revenue from the segment.Goldman’s net revenue fell 23% to $11.86 billion for the second quarter and profit nearly halved to $2.8 billion, or $7.73 per share.Asset management was another weak spot for Goldman, with net revenue of $1.08 billion, 79% lower than the second quarter of 2021.CONSUMER FOCUSGoldman’s Chief Executive David Solomon has been working to reduce the bank’s reliance on volatile trading and investment banking by shifting focus to Marcus, its consumer banking unit.Consumer and wealth management recorded a 25% jump in net revenues to $2.18 billion, driven by higher management fees and credit card balances.However, if the U.S. Federal Reserve further raises the borrowing cost to a level that restricts consumer spending, the demand for loans could take a hit.Goldman kept aside $667 million to cover credit losses, compared with a net benefit of $92 million in the same period a year ago.The U.S. central bank has been trying curb a relentless surge in prices and has committed to a “soft landing”. But market participants worry that policymakers will need to engineer a recession to bring inflation under control.In June, the Fed raised its benchmark federal funds rate by 75 basis points, the biggest hike since 1994, as inflation unexpectedly rose despite expectations it had peaked. Goldman’s net interest income jumped 6% to $1.73 billion. More

The writer is a senior fellow at Brown University and global chief economist at KrollAmerica’s Democrats have a problem. They face midterm elections in November with inflation outstripping wage growth, which means standards of living are falling. But there’s very little any president or political party can do about it.Inflation is impossible for voters to miss, with consumer prices up 9.1 per cent in June over the past year. According to a Morning Consult survey, more than half of voters blame the policies of President Joe Biden, who has made tackling inflation his top economic priority.Another Morning Consult poll shows that a larger percentage of voters think the president has a lot of control over managing inflation; more than the Federal Reserve (whose official mandate includes price stability), Congress or large companies. It is no wonder the president has declared inflation “the bane of our existence”. There are some fiscal policies the government could implement to cool inflation, but they would only chip away at prices on the margins — more virtue signalling than actual impact. The claim that Biden’s 2021 fiscal stimulus overheated the economy and drove prices up isn’t quite right. A San Francisco Fed study found about half the inflationary surge came from supply factors: supply chain problems, China’s Covid lockdowns and Russia’s war on Ukraine. Only about a third came from increased demand. Even if the stimulus did stoke inflation, it is being unwound this year. The US is undergoing the second largest fiscal retrenchment in its history, which will cool demand. But with US petrol pump prices up more than 40 per cent over the past year and food prices more than 10 per cent, voters haven’t yet noticed. Energy prices are responsible for roughly half the surge in US inflation, yet no president could have the tools to bring them down by election day. The April White House announcement that it would release over 1mn barrels of oil a day from the Strategic Petroleum Reserve stabilised prices for a time. But the International Energy Agency estimates that replaces only about a third of the supply lost to the Ukraine war.The administration is also urging other producers to ramp up supply. Biden sent senior officials to visit Venezuelan leader Nicolás Maduro, and is reportedly considering easing sanctions on the country in exchange for oil. Biden then went to Saudi Arabia for discussions with Crown Prince Mohammed bin Salman, the kingdom’s day-to-day ruler. He left without a public Saudi commitment to increase production. So far, the world has not signed on to the US administration’s proposed price cap on Russian oil. While it could help to reduce oil prices, it would no doubt be leaky. India and China would be likely to buy oil at prices just above the cap, and Opec+ would resent the cut in prices.More oil should mean lower prices. US producers are starting to ramp up drilling, but the Democrats’ desire to increase alternative energy sources limits incentives to invest in carbon assets. One issue with all these efforts is that oil is sold in a global market. Chronic under-investment in fossil fuels and Europe’s turn from Russian energy mean that oil prices will be higher for years, not months. Also, many refineries were mothballed when demand plunged during the Covid lockdown. The lack of capacity means petrol prices will stay high even when oil prices abate. Congress could vote to increase income taxes, dealing a blow to demand, but that’s a political non-starter. Instead, it is considering suspending the federal levy on petrol — it is about 18 cents a gallon, not much compared with an average price per gallon of about $4.50. Drivers wouldn’t get all the benefits, as energy companies pay part of the tax. Cutting petrol taxes also generates higher demand, pushing prices up.Biden waived environmental rules, enabling ethanol to be added to petrol in the summer driving season. But only 2,300 petrol stations countrywide carry this mix. Agricultural analysts worry increased demand for corn to make ethanol could push farmers to shift production from wheat, fuelling food inflation.Beyond oil and gas, the Biden administration wants to crack down on price gouging by firms in industries that lack competitiveness. A White House analysis, for example, found high concentration in the meatpacking industry drives prices up. A poll this year showed more than half of voters blame inflation on a lack of competition among companies but roughly two-thirds of economists disagree. Market concentration has been elevated across a number of US industries for years without sparking an acceleration in inflation.Biden could cut tariffs. According to a study by the Peterson Institute, removing the Trump tariffs on $360bn of Chinese imports might lower consumer price inflation by 1 percentage point. This might not be worth ceding leverage to China in trade negotiations. A broader 2 percentage point tariff-equivalent reduction could reduce the CPI by 1.3 percentage points. Still, the impact would mostly be on merchandise, not where inflation hits the hardest – fuel, food and housing.This makes Biden’s first point in his inflation-busting plan the most effective move for Democrats: leave it up to the Fed to fight inflation. It will take time and there’s a risk that the Fed sparks a vote-killing recession. If bringing down inflation is the top priority, though, that is the one thing guaranteed to work. More

OTTAWA (Reuters) – Canadian housing starts in June fell 3% from the previous month on a decline in both multi-unit urban and single-detached starts, data from the national housing agency showed on Monday.The seasonally adjusted annualized rate of housing starts was 273,841 units in June, beating analyst predictions of 265,000 but coming in below a revised 282,188 units in May, Canadian Mortgage and Housing Corporation data showed. More