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  • 🔔 Big returns for banks - Limited upside from here?

🔔 Big returns for banks - Limited upside from here?

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🔥 Hot and 🚫 Not

🔥 Macrodesiac founder David Belle and his appearance on the Black Heart Red Spade podcast this morning - Give it a listen 👇👇

 Excellent interview with @davidbelle_ !

Here's the link to view the episode in case you missed it. https://t.co/xxdY7xhPJf— BlackHeartRedSpade (@bheartrspade) April 14, 2021 

🚫 U.S. banks: JP Morgan & Goldman Sachs absolutely SMASHED it on their earnings today, with Wells Fargo also posting some strong numbers...

JPMorgan Q1 Earnings

  • Q1 Adj. EPS $4.50 (est $3.01)

  • Q1 Revenue $33.12 Bln (est $30.42 Bln)

  • Q1 Investment Banking Revenue $2.85 Bln (est $2.46 Bln)

Goldman Sachs Q1 Earnings

  • Q1 Adj. EPS $18.60 (est $10.07)

  • Q1 Revenue $17.70 Bln (est $12.55 Bln)

  • Q1 FICC Sales & Trading Revenue $3.89 Bln (est $2.89 Bln)

  • Q1 Investment Banking Revenue £3.57 Bln (est $2.68 Bln)

Wells Fargo Q1 Earnings

  • EPS: $1.05 (est $0.70c)

  • Revenue: $18.06BB (exp $17.53B)

  • Net Interest Income: $8.80B (exp $9.08B)

Seriously impressive quarter, but banks might start to face headwinds from here...

The big reason? Yields and more specifically the spread between short-dated yields and longer yields...

Simply, banks borrow at shorter-dated rates (currently pegged near zero), and lend at longer rates, pocketing the difference between the two...

The 10Y yield has fallen from 1.75% to 1.63% in recent days, and the 30Y has fallen to 2.30%...

Add in some 'overweight' positioning...

 🔎 BofA | Fund Manager Survey: Banks most overweight sector for 1st time since May’18

🔹Net 30% of FMS investors now overweight banks pic.twitter.com/ELaBAw1ZRy— PiQ (@PriapusIQ) April 14, 2021 

Note that financials (XLF) are already up over 20% on the year...

And it's hard to make the case for further strong gains (unless yields push higher again...)

“Although there was substantial volatility during the year, this contrasts with a slow and steady decline in productivity during the 2008-09 economic downturn,” the ONS said.

But what does this actually mean?

Many workers in relatively low-paid retail and hospitality roles lost their jobs or were furloughed last year, while employees able to work from home were typically in higher-paid sectors which boost the productivity numbers.

During the 2008-09 recession, there was a greater loss of high-paid financial services jobs, exacerbating a longer-term slide in productivity growth which began before the crisis and persisted for years afterwards.

Soooo, once everyone goes back to work we'll see UK PRODUCTIVITY FALLS as lockdown ends and low-paid sloggers return to the workforce - what's the point?

Productivity is one of those hard-to-measure things - if it was a company they'd try and book it under intangible assets...

It's hard to get excited about productivity measures in isolation, but give me a paper (or study) on The Role of Innovation and Entrepreneurship in Economic Growth and I'm all over it...

Trade idea via ING

ING look for the pair to return to 0.75 by the fall/Autumn...

Go premium 👇👇👇