Update Equities: Earnings season begins

The major lenders have had their second-most profitable year, thanks to interest-rate shifts and an increase in investment banking fees. The market volatility spurred by Trump's election and policy signals, along with unexpectedly strong job numbers affecting Federal Reserve rate expectations, have all contributed to these higher earnings. Notably, Goldman Sachs and JPMorgan achieved record trading revenues, while Wells Fargo significantly boosted its investment banking revenue. Under the Trump administration, US banks are expecting more favourable regulatory discussions, less oversight and reduced capital requirements. This optimism has led to increased shareholder payouts, with Citigroup planning a USD 20-billion stock buyback. So far this year, the four major banks have seen their share prices rise by an average of 7.6%.

Taiwan Semiconductor Manufacturing (TSMC) is also off to a strong start with impressive results and an optimistic outlook. Driven by the demand for artificial intelligence (AI) hardware, TSMC has projected higher-than-expected quarterly sales and plans to invest between USD 38 billion and USD 42 billion in upgrades, despite ongoing US-China tensions. TSMC's robust performance is fuelling optimism about AI growth, with potential gains in smartphone chips, AI-enabled PCs and outsourcing orders from Intel.

Shell's early results indicate a strong beginning to the year, driven by rising oil prices. This highlights the shifting dynamics in the energy sector, as Trump has promised to lower energy prices, either by boosting domestic oil production or by easing Russian oil sanctions if a peace deal with Ukraine is reached.

Bloomberg's consensus suggests that S&P 500 companies will see earnings grow by a high single-digit percentage, with revenues increasing by a mid-single-digit percentage. Much of the attention will be on major tech companies, particularly in the area of AI developments. On the other hand, European companies are projected to experience only modest gains, with low single-digit growth in both earnings and revenue. This is largely due to weak car sales and a sluggish German economy.

European firms might also face challenges from potential US tariffs, while American exports could be impacted by the strong dollar. Given these uncertainties, European companies are likely to be cautious in their forecasts, especially regarding the impact of new tariffs during Donald Trump's presidency. However, the recent decline of the euro against the dollar is providing some relief to EU companies, and, in particular, German automakers. Additional support might come from potential interest rate cuts by the European Central Bank.

Jan Wirken