Take Five: Banks, bottom lines, Brexit

In this news, we discuss the Take Five: Banks, bottom lines, Brexit.

(Reuters) – 1 / BANK ON RECOVERY

After US Q2 earnings beat expectations, Q3 will show whether the dire predictions for corporate earnings were warranted.

Most sectors will once again post sharp drops in profits, but this should be less dramatic than in the previous quarter; expectations are for an average decline of 21%, against the contraction of 31% in Q2, when coronavirus-related lockdowns decimated economic activity.

Energy companies are doing poorly, according to Refinitiv, with profits down 115% from a year ago. Tech revenues are expected to drop only 0.5%.

Banks – Citi and JPMorgan reported on Tuesday – could see their profits fall by 19% on average, but it is hoped that after two quarters of large provisioning against bad loans, potential loan losses have been mostly covered.

(Chart: Wall Street braces for lower incomes -)

2 / LOOK AT THE CURVES

Will the Fed do something on the Treasury yield curve?

Bets on increased spending from any incoming administration – Democrat or Republican – have seen record shorts accumulate in long-term treasury futures, and rising long yields have pushed the gap between the costs of long-term treasury contracts. ” five-year and 30-year loan at the largest since 2016.

The steepening of the curve isn’t bad news if it signals higher growth and inflation, but for an economy recovering from a recession, moving too fast is a threat and a headache for the Fed.

He did not commit to cap yields or buy bonds of a particular maturity. But further steepening could test his patience. Fed research suggests bond holdings may need to rise an additional $ 3.5 trillion to stimulate the economy. The decision-makers who will speak in the coming days will certainly be asked about this.

(Graphic: steeper curve -)

3 / BREXIT ENDGAME?

With the UK’s October 15 deadline for a post-Brexit trade deal with the EU, there are signs that a simple deal is taking shape. But is the end of the game really in sight?

Negotiators warn of a huge amount of textual work even if a deal is struck. Another report suggests that the EU is preparing for negotiations which will last until mid-November. Several points of friction remain.

The EU summit October 15-16 will assess progress. The pound is on the rise during this time, but even if a deal is struck, the ebb and flow of Britain’s new relationship with the EU could continue to hold markets hostage.

(Chart: British pound and the ebb and flow of Brexit -)

4 / SECOND WIND

China returns to work on Monday after a week of rest and, hopefully, leisure.

Policymakers and investors will have new trade and credit data in the coming days. But they’ll also look at railroad bookings, box office sales, and gas mileage to gauge consumer spending while on vacation. With consumption still a weak spot in an otherwise remarkable post-COVID rebound, a jump in spending could give the economy a second wind.

One of the first indicators could be traffic. Returning to last year’s levels for the first time since the outbreak, it’s a clue that Chinese travelers are on the go, but prefer private transportation.

(Graphic: congestion in the city of China -)

5 / VIRTUAL IMF

Each year, up to 10,000 policymakers, businessmen, NGOs and journalists gather in downtown Washington for the semi-annual IMF / World Bank shindigs. This year the meetings are virtual but there is still some urgent business to be done.

More than 100 countries have requested IMF assistance; demand for support could reach $ 100 billion. One problem is a possible extension of the G20 Debt Service Suspension Initiative (DSSI) for poor countries. Extending that for six months would provide another $ 6.4 billion in relief, which would rise to $ 11.4 billion if it ends at the end of 2021.

But amid warnings 100 million people could fall into extreme poverty, World Bank President David Malpass wants banks and investors to provide aid to DSSI countries as well. It may face opposition, with many arguing over defaults that could prevent countries from borrowing for years.

(Chart: How Much Debt Relief Will DSSI Provide to Countries -)

Reporting by Sujata Rao, Dhara Ranasinghe and Marc Jones in London; Tom Westbrook in Singapore and Ira Iosebashvili in New York; Edited by Catherine Evans

Original © Thomson Reuters

Originally posted 2020-10-12 02:16:12.

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