Economy

(Reuters) -Some of the largest U.S. banks said on Friday they got a profit boost from higher rates and painted a picture of a resilient economy, with sparks of hope in some businesses like deal-making that have been in the dumps of late. But they also warned of risks ahead, with U.S. consumers pulling back on spending and losses building up in areas such as credit cards and office commercial real estate. Investors brushed aside their initial enthusiasm for results from JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC) and Citigroup (NYSE:C), fearing things were as good as they would get for a while.”We’re in a very unusual environment – higher inflation, these rate levels and a strong labor market,” Citigroup CEO Jane Fraser said. But she added, “I don’t think we should be overly concerned here about the health of the U.S. consumer.” JPMorgan Chase and Wells Fargo reported sharp increases in net interest income, which measures the difference between what banks earn on loans and pay out on deposits, that drove up profits. For Citigroup, however, weakness in its trading business overshadowed gains in interest income. That’s a headwind that other banks more dependent on Wall Street businesses, such as Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS), are also likely to face when they report results next week. Separately, BlackRock (NYSE:BLK), the world’s biggest asset manager, handily beat second-quarter profit estimates but showed a slowdown in money inflows.U.S. custodian bank State Street Corp (NYSE:STT) beat profit estimates for the second quarter after interest income climbed 18% year-on-year, though it fell on a quarterly basis by 10% due to lower average non-interest bearing deposit balances.State Street warned of a further decline of 12-18% on net interest income on a sequential basis on its earnings call, driven by lower deposit levels. Deposits at large banks have been dropping as consumers move money in search of higher yields. State Street shares closed down 12%, while JPM’s shares rose 0.6%. Wells shares were down 0.3%, while Citi fell 4% and BlackRock fell 1.5%. “If interest rates rise, loan demand could continue to deteriorate,” said Brian Mulberry, client portfolio manager at Zacks Investment Management. The bank results provide the latest insights into the health of the U.S. economy. Investors have been worried that an aggressive rate hike campaign by the U.S. Federal Reserve to fight inflation will tip the economy into recession but the outlook remains highly uncertain. “The U.S. economy continues to be resilient,” JPMorgan Chief Executive Jamie Dimon said. But he added that consumers are “slowly using up their cash buffers.” CONSUMER WORRIES Some bank executives said U.S. consumers, who are the key drivers of the economy, still have healthy finances but warned spending was slowing and there had been a modest deterioration in some consumer debt. Weekly data from the Federal Reserve has shown consumer borrowing slowing. Bank credit card lending saw its growth rate peak in October 2022 after two years of strong increases and has moderated since. The main drag on consumer lending is auto loans. Annual growth peaked there in early 2022 and turned negative in April.Wells Fargo said consumer charge-offs, meaning debts that a bank has written off and does not expect to recover, continued to modestly deteriorate. Citi flagged that delinquency rates in credit cards and other retail lines are rising and expected to reach “normal levels” by the end of the year.Wells CEO Charlie Scharf said the range of scenarios for the economy should narrow over the next few quarters. For now, the economy is performing better than many expected but will likely continue slowing. Larry Fink, BlackRock’s chief executive, said in an interview with CNBC he expects the economic environment to remain challenging. “Inflation will be stickier than market is assuming,” he said, adding it will bounce around 2% and 4%.Meanwhile, deposit levels have fallen for big banks for more than a year, and the annual growth rate turned negative last October and hit negative 6% in April, the steepest drop ever.JPMorgan said it expects a modest downward trend in deposits. RISKS AHEADInvestment banking and trading businesses, a drag on earnings in recent quarters, did so again. Some executives held out hope, saying they had seen early signs of recovery in parts of those businesses but shied away from calling it a turning point. JPMorgan’s Barnum said the bank was seeing “green shoots” in trading and investment banking but it was too early to call a trend.Both JPMorgan and Wells Fargo also set aside more money for expected losses from commercial real estate loans, in the latest sign that stress is building up in the sector.Wells reported that provision for credit losses included a $949 million increase in the allowance, mainly for potential losses in commercial real estate (CRE) office loans, as well as for higher credit card loan balances. “While we haven’t seen significant losses in our office portfolio to-date, we are reserving for the weakness that we expect to play out in that market over time,” Scharf said. The three banks kicked off earnings season. Bank of America (NYSE:BAC) and Morgan Stanley will announce their results on July 18, followed by Goldman Sachs on July 19. More

ATHENS/PHOENIX (Reuters) -Greece closed the ancient Acropolis during the hottest part of the day on Friday to protect tourists as southern Europe suffered in a fierce heatwave, while more than 100 million Americans also faced a prolonged spell of sweltering weather.The European Space Agency (ESA), whose satellites monitor land and sea temperatures, has warned that Italy, Spain, France, Germany and Poland are all facing extreme conditions.Temperatures next week could break Europe’s current record – 48.8 Celsius recorded in Sicily in August 2021.Italian meteorologists have dubbed the next phase of the European heatwave “Charon” – a reference to the ferryman of the souls of the dead in Greek mythology. That succeeds this week’s “Cerberus” named after the three-headed dog of the underworld.The world recorded its hottest day ever last week, with scientists blaming the combination of long-term global warming caused by greenhouse gases, with the short-term boost from El Niño, a regular warm-weather pattern originating in the Pacific.DEATH, BURNS AND DEHYDRATIONIn many places in the Southwest of the United States, where hot summers are the norm, extreme temperatures that could break records are forecast in the coming days.The city of Phoenix in Arizona has already had 15 days in a row with temperatures exceeding 110 degrees Fahrenheit (43.3 Celsius), with mobile clinics treating homeless people suffering from third degree burns and severe dehydration.The impact of extreme summer heat has been brought into focus by a study this week that said as many as 61,000 people may have died in the sweltering heat across Europe last summer.Joan Ballester, a professor at the Barcelona Institute for Global Health, said France had learned lessons from a deadly 2003 heatwave that countries such as Italy, Greece, Spain and Portugal could follow.”There are measures that are relatively cheap, like for example, coordinating public entities also doing a census of vulnerable populations,” Ballester, a co-author of this week’s study, said.”But there are much more expensive measures, like for example, the redesign of cities to improve housing conditions,” he told Reuters.ACROPOLIS NOT NOWIn Athens, with temperatures peaking above 40 Celsius, authorities closed the Acropolis Hill, home to the Parthenon temple that is visited by millions of tourists every year, from noon to 5 p.m. (0900 GMT-1400 GMT).Huge crowds had earlier formed long queues in the heat to enter the site, many donning hats and fanning themselves, others drinking water and carrying umbrellas. The hill becomes particularly stifling due to its altitude and lack of shade.One woman seated on the ground was attended to by paramedics after feeling faint. Others were brought down from the Acropolis Hill in golf carts and transferred to wheelchairs.Greece’s civil protection ministry warned of the risk of forest fires in five areas and told people to avoid tasks such as burning weeds for fear of setting off blazes. Wildfires also hit parts of Croatia close to the Adriatic coast.Doctors warned that poorer elderly people with existing health problems were most at risk.”They suffer from heart issues, chronic bronchitis, stroke, kidney failure,” said Angel Abad, from the office of sustainable development at Madrid’s La Paz hospital.”Most have a low socio-economic background and we know that in these cases people who don’t have air conditioning are more vulnerable. They face a higher risk and higher mortality upon arriving at an emergency ward,” added Abad, a preventive medicine and public health specialist. More

(Reuters) – Two U.S. senators are pursuing a legislative plan to track U.S. investments in China, as the White House works to complete long-awaited action that would also restrict investment in certain, highly targeted sectors. The Outbound Investment Transparency Act, filed late on Thursday as an amendment to a defense bill, is the latest bipartisan legislation introduced by Democratic Senator Bob Casey and Republican John Cornyn aimed at tackling the risks of U.S. investment going to foreign adversaries like China.Unlike an unsuccessful version the senators introduced in 2021, the latest measure requires notification of some outbound investments, rather than review or prohibition of certain deals, and targets fewer industry sectors. “As a matter of national and economic security, we need greater insight into which of our nation’s critical technological capabilities have been moved overseas and at what scale,” Casey said in a statement. The Biden administration, meanwhile, is finalizing an executive order that would also restrict certain investment in sectors including advanced semiconductors, quantum computing and artificial intelligence. A senior administration official, who spoke on condition of anonymity, said the aim was to wrap up legal and other reviews of the outbound investment order by Labor Day. “We are working really hard at it,” the official said. “The pace of meetings has certainly picked up.”The White House had no comment.U.S. Treasury Secretary Janet Yellen said on Sunday at the end of a four-day trip to China that she had spoken with her Chinese counterparts about the proposed order, and said that any investment curbs would be “highly targeted, and clearly directed, narrowly at a few sectors where we have specific national security concerns.”She said the order would enacted in a transparent way, through a rule-making process that would allow public input. Reuters reported in February that the proposed order was likely to track restrictions on artificial intelligence chips, chipmaking tools and supercomputers, among other technologies, imposed on exports to China in October. The order, which has been repeatedly postponed, was expected to also require notice for a broad swathe of transactions. The senators’ proposed legislation was filed as an amendment to the annual National Defense Authorization Act.While the U.S. House of Representatives passed its version of the NDAA on Friday, the chances of its becoming law were uncertain after Republicans added a series of culturally conservative amendments.Debate in the Senate on its version of the must-pass bill is set to begin on Tuesday. A final measure would then have to be hammered out before it could go to President Joe Biden to approve or veto. More

NEW YORK (Reuters) – A handful of massive growth and technology names that have dominated the U.S. stock market in 2023 are set to report earnings in coming weeks, potentially determining the path for this year’s equity rally. Lately dubbed the “Magnificent Seven” by investors, shares of the U.S. companies with the biggest market values soared between 40% and over 200% so far this year. Those moves have accounted for a lion’s share of the S&P 500’s 17% year-to-date rise and propelled the index to its highest level since April 2022. The outsized gains have come with big earnings expectations for the seven companies: Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Nvidia (NASDAQ:NVDA), Tesla (NASDAQ:TSLA) and Meta Platforms. BofA Global Research projects they will increase earnings by an average of 19% over the next 12 months, more than double the an 8% estimated rise for the rest of the S&P 500.They will need strong results to justify premium valuations. Those companies trade at an overall trailing price-to-earnings ratio of about 40 times, versus 15 times for the S&P 500 excluding those companies, according to BofA.Their results may be crucial to the market as a whole. Fueled by their recent gains, megacap stocks have climbed to dominate benchmark indexes, causing headaches for some managers of active funds. In the S&P 500, the seven stocks comprise 27.9% of the index’s weight.Investors will look beyond second quarter results, said Bill Callahan, an investment strategist at Schroders (LON:SDR). “It’s also how do these big companies, which are carrying the market … guide for the rest of the year and into 2024,” he said.Overall, the seven companies account for 14.3% of overall S&P 500 estimated earnings for the second quarter, and 9.3% of estimated revenue, according to Tajinder Dhillon, senior research analyst at Refinitiv.Among the reports in the previous quarter, Nvidia was one of the standouts. The semiconductor company’s revenue forecast blew past estimates as it said it was boosting supply to meet surging demand for its artificial-intelligence chips, further fanning the market’s excitement over AI. Nvidia shares are up well over 200% this yearTesla is the first of the growth giants to report, with earnings expected on Wednesday. The Elon Musk-led company this month said it delivered a record number of vehicles in the second quarter. Microsoft and Meta are among the companies due to report the following week, and investors are expected to focus on how companies are seeking to harness AI.While AI benefits may not immediately materialize for every company, investors are eager to learn “more about how they are going to convert that into money, essentially,” said Thomas Martin, senior portfolio manager at Globalt Investments. “It’s going to take some time for that to work its way through and to show up,” said Martin, who is overweight some of the megacap stocks. “Along the way, people are going to want to see some sort of progress.”There are signs market gains are broadening beyond the megacaps. The equal-weight S&P 500, a proxy for the average stock, is modestly beating the S&P 500 over the past month — up 3.6% versus about 3% for its counterpart. The equal-weight version trailed badly for most of 2023. Strong U.S. data have driven confidence the economy can avoid a long-feared recession. A so-called “soft-landing” could lift cyclical stocks such as industrials and small-caps that are trading at cheaper valuations. But many investors say the corporate giants are nevertheless here to stay as critical holdings. Yung-Yu Ma, chief investment officer at BMO Wealth Management said that while “there is a lot priced in” to megacaps’ valuations, that did not mean they are overvalued. “If you think about the megacaps broadly … they have gone from a core holding of a portfolio to an almost absolute necessary major component of the portfolio once you factor in trends such as AI,” he said. More

(Reuters) -Cryptocurrency exchange Binance has cut jobs just days after it was hit by a wave of executive exits, a source familiar with the matter told Reuters on Friday.The layoffs at the world’s biggest crypto exchange come at a time when the industry’s future in the U.S. market is uncertain, with regulators aggressively clamping down on what they deem are illegal activities. The job cuts were first reported by the Wall Street Journal, which said more than 1,000 people had been let go in recent weeks. “As we continuously strive to increase talent density, there are involuntary terminations. This happens in every company. The numbers reported by media are all way off,” Binance CEO Changpeng Zhao tweeted, adding that the exchange is “still hiring.”Last month, the Securities and Exchange Commission (SEC) sued Binance and Zhao for allegedly operating a “web of deception.” Binance has said it would defend itself vigorously.The lawsuits against Binance and peer Coinbase (NASDAQ:COIN) Global underpin SEC Chair Gary Gensler’s tough approach towards the industry, but a U.S. judge recently siding with crypto firm Ripple Labs highlights that the regulator is facing an uphill battle. Applications for spot bitcoin exchange-traded funds (ETFs) from asset management giants BlackRock (NYSE:BLK) and Fidelity have also been viewed as a vote of confidence for the industry. “Over the last six years, we have grown from 30 to a team of almost 8,000 across the globe. As we prepare for the next major bull cycle, it has become clear that we need to focus on talent density across the organization to ensure we remain nimble and dynamic,” a spokesperson for Binance said.Last week, a string of executives quit Binance, which included its Chief Strategy Officer Patrick Hillmann. More

Deposits at large U.S. banks rose by $24.9 billion to $17.368 trillion from a week earlier, on a seasonally adjusted basis.The rise in deposits comes just as investors digested quarterly earnings from major Wall Street banks including JPMorgan (NYSE:JPM) and Wells Fargo (NYSE:WFC), with both warning that customer deposits were likely to decline further.Commercial bank lending slipped $7.00B to a seasonally adjusted $12.091T during the week, the Fed data showed.Residential lending decreased $11.3B, commercial real estate loans climbed $2.1B, while consumer loans were down $8.6B from the prior week. Commercial and industrial loans were slightly up $0.2B from a week ago on a seasonally adjusted basis. More

British tourists are choosing cheaper destinations in southern Europe and hunting for package deals to make their summer getaway more affordable in the face of high inflation and rising mortgage rates at home.This summer’s holiday season, which will begin in earnest when most schools in England and Wales break up next week, is set to be the busiest for outbound travel since before the pandemic, but European destinations will not benefit evenly from demand from British holidaymakers.More than 8,600 flights to Greece and Turkey are scheduled to leave from UK airports in August, more than one-third higher than the 6,300 flights in 2019, according to aviation data provider Cirium.In contrast, flight numbers to more premium destinations, such as France, Italy and Spain, still lag 2019 levels. In total, more than 185,000 flights are scheduled to depart from UK airports in July and August, about 90 per cent of pre-Covid levels.Turkey and Portugal have so far this year ranked among the destinations with the biggest rise in demand from outbound British tourists, compared with 2019, outpacing the recovery in other destinations, such as France, Spain and Italy, according to arrival data up until May collated by the European Travel Commission.Montenegro benefited from the biggest percentage jump in visitor numbers, but only about 50,000 Britons travelled to the country last year. A significant reason behind the high demand for Turkey was the strength of sterling against the lira, the tourism group noted.Tom Jenkins, chief executive of the European Tourism Association, a trade body, said prices for “honeypot destinations” such as Paris, Rome and Venice had “gone through the roof as demand has surged and capacity has been constrained”. As a result, he said, Britons were “increasingly looking elsewhere” to help with budgeting.From January until near the end of May, visits by British holidaymakers to Montenegro were more than double the number of stays recorded over the same period in 2019, while trips to Turkey were up 59 per cent on pre-pandemic levels, according to the ETC. Visits to Portugal were up 14 per cent.A surge in bookings earlier this year began to slow in early June “as focus grew on where mortgage rates could be headed”, said Richard Sofer, commercial and business development director at the UK and Ireland division of Tui, Europe’s biggest tour operator.

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But Sofer argued that people were “protecting” their summer holiday budget ahead of other leisure expenditure, because “they want to treat themselves”. He added that the barrage of delays and cancellations that hit the start of the holiday season last year would be avoided this year, despite 950 ground staff at Gatwick airport going on strike for eight days in July and August in a dispute over pay.Nevertheless, he said customers were taking steps to cut costs, including by booking all-inclusive deals, instead of partly catered or self-catered, in order to “know the absolute cost of their holiday”, and were “shaving a few days off” a break instead of trading down.Jet2, Britain’s biggest package holiday provider, said last week in a trading update that it had benefited from an uptick in demand for package deals as holidaymakers looked for budgeting certainty amid rising living costs. This summer, customers who bought packages rather than flights alone accounted for 73 per cent of Jet2’s passengers, up 5 percentage points on last year.A beach in Antalya, Turkey. The strength of sterling against the lira has led to a jump in tourists from the UK © Talip Demirci/Anadolu/Getty ImagesHowever, Paul Charles, a travel industry consultant, warned that soaring prices meant bargains were hard to find. “The escalating costs for holidays at all price levels are the real sticking point for those yet to book.”In June, the average amount spent per booking by customers flying from the UK to the US was up 23.5 per cent on the same month in 2019, while last year it was just 9.4 per cent up on 2019 levels, according to data from Dohop, a flight connections bookings platform used by more than 60 carriers including Spirit, Avianca and Air France.Average daily rates in hotels across Europe are forecast to be $262 (£200) per night in July and August, up from an average of just over $200 per night over the same period in 2019, according to travel technology group Amadeus.ETC chief executive Eduardo Santander said everyone was “choosing a vacation with their pockets in mind this summer but none more so than the British traveller”, noting that stubbornly high inflation in the UK, relative to the rest of Europe, and the after-effects of Brexit had not helped.“We are talking about a record summer for European tourism spending, but the part the British are playing is maybe a bit smaller,” added Santander. More

NEW YORK/LONDON (Reuters) – Global hedge funds rushed to unwind bets that U.S.-listed stocks will fall, as a persistent rally threatens their performance, JPMorgan Chase (NYSE:JPM) and Goldman Sachs (NYSE:GS) told clients in reports.”For hedge funds, shorts have been a challenge since early June especially,” JPMorgan said, adding the unwinding of short positions got “extreme” in recent days.Goldman Sachs said in a note on Friday short covering in the so-called U.S. macro products, which include equity index and exchanged-traded funds, reached the largest amount seen since November 2020. A U.S. bull market has caught portfolio managers off guard, as they positioned earlier in the year for an economic downturn amid interest rates hikes, sticky inflation and geopolitical tension. Such short covering could, in turn, give fuel to the equity rally, further complicating the picture for remaining short-sellers.The performance of the main U.S. indexes, however, has challenged their gloomy positions. The Nasdaq skyrocketed over 42% this year and the S&P 500 surged over 17%, while a basket of the most-shorted U.S. stocks is up 40% since early May, JPMorgan said.The outcome for hedge funds has not been good. Overall, hedge funds went up 3.45% in the first half of the year, lagging the main stock indexes. Amid the rally’s persistence, investor sentiment has turned more positive, JPMorgan added in its note dated July 13.Net buying, which excludes stocks sold, reached its largest level since October last year, according to Goldman Sachs. The move, however, was mainly driven by investors buying shares to cover their short positions.Still, hedge funds also shorted more single stocks, mainly in sectors like staples, communication services and info tech, according to Goldman Sachs.Goldman Sachs and JPMorgan run two of the world’s biggest prime brokerages, a banking sector provides lending and trading services to investors and is able to see how large hedge funds and asset managers are moving. More