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Research Market strategy
by Swissquote Analysts
Morning News

Citigroup Posts Higher Profit But Trading Revenue Falls

Topic of the day

Citigroup Inc. bounced back from a year-earlier loss, but its vital trading business struggled under tough market conditions in the fourth quarter. The bank's net income was $4.3 billion in the latest quarter, versus a loss of $18.9 billion a year earlier, when it took a large one-time charge related to the 2017 corporate tax cut. But overall revenue at the bank was $17.1 billion, down 2% from a year ago. That decline was led by a 14% drop in the trading business, where revenue fell to $2.6 billion.
December's volatility was especially tough for traders on desks dealing in interest rates, currencies and bonds, where it became harder for banks to commit capital to their clients. Traders across Wall Street stepped back from the market at the end of 2018 and low-cost algorithms took over, leading prices to swing wildly. Rates and currencies trading, normally a stalwart for Citigroup, fell 26% from a year earlier. The bank said that a "risk-off sentiment" among investors made it harder for the bank to buy and sell to facilitate trades for clients. In response, Citigroup said it shrank the risky assets carried on its balance sheet. That performance in trading overwhelmed the rest of Citigroup's lending and banking business, which broadly showed little impact from the global growth fears that have roiled markets. Lending rose 3% from a year ago, and Citigroup improved the net interest income it generated, even as consumers and corporations sought out higher deposit rates. The bank also reduced its lending losses from a year earlier. "We clearly see a disconnect between what we see in our business on an anecdotal basis and what the markets are saying," Citigroup Chief Executive Michael Corbat told analysts. "Right now, we see the biggest risk in the global economy is one of talking ourselves into the next recession, as opposed to the underlying fundamentals taking us there."

Swiss stocks

The SMI slid 0.8 percent to 8,760 points Monday, with market participants saying weak Chinese foreign trade data indicated the US-China trade conflict was already leaving its mark, as well as noting uncertainty before Tuesday’s vote on the Brexit deal in the UK House of Commons. Yet small and medium-sized Swiss companies said at a conference they were confident, but not euphoric, about business prospects for 2019. Richemont fell 1.2 percent after analysts gave a mixed reception to Friday’s sales figures. Competitor Swatch recovered to rise 0.4 percent. Lonza brought up the rear in the SMI, slumping 2.3 percent, which market participants viewed as profit-taking, since the stock had outperformed the SMI for several years running. Geberit fell 1.8 percent after a bank voiced scepticism towards the stock, according to traders. Bank stocks performed better than the market in the wake of well-received financials from US bank Citigroup. UBS and Credit Suisse fell 0.1 percent respectively.

International markets

Europe

The Stoxx Europe 600 dropped 0.5%, or 1.69 points, to 347.51 as weaker-than-expected Chinese trade data dampened sentiment. The figures from Beijing showed imports dropping 7.6% while exports fell 4.4%. "Despite the decline, China's December exports remain the third strongest for 2018," an analyst said. The DAX and CAC-40 were off 0.3% and 0.4%, respectively, and the Dow Jones Industrial Average declined 52 points, though Citigroup surprised the market with better-than-expected fourth-quarter profits.

United States

U.S. stocks fell after worse-than-expected Chinese economic data added to mounting signs of slowing economic growth around the world. The Dow Jones Industrial Average lost 0.3% intraday, to 23919, paring earlier declines. The S&P 500 fell 0.4% and the Nasdaq Composite declined 0.6%. Data early Monday showed China's exports and imports both fell in December from a year ago as the impact of U.S. tariffs started to kick in and demand weakened. The figures were the latest sign that the world's second-largest economy is slowing. While many investors believe the U.S. economy remains on relatively strong footing, nervousness around the slowdown in global growth has kept stocks under pressure. The S&P 500 is up for the year, but still around 11% below its record after a steep selloff in the final months of 2018. Utility shares led losses in the S&P 500 on Monday as PG&E faced mounting issues related to its role in helping spark the deadliest wildfires in California history. The utility, which said Sunday that its chief executive was stepping down, saw its shares slump 48%-on course for their biggest one-day slide ever. The company also said Monday that it was planning to file for bankruptcy protection by the end of the month.

Asia

Asian indexes made gains across the board with Hong Kong's Hang Seng the top performer, rising nearly 2% before paring back slightly. China announced a range of measures designed to spur economic growth, alleviating investors' fears about slowing growth in the nation's economy.

Bonds

U.S. government-bond prices were flat following the release of soft economic data out of China and the eurozone. The yield on the benchmark 10-year U.S. Treasury note settled at 2.710%, according to Tradeweb, compared with 2.701% late Friday. Yields, which decline when bond prices rise, initially fell after data early Monday showed that China's exports and imports both fell in December from a year ago, while eurozone factory output recorded in November its largest annual decline in six years.

Analysis

CFRA downgrades Conti target to 135 (150) EUR - Hold
HSBC trims Chevron to Hold (Buy) - Target 122 (136) USD
BNP trims Glaxosmithkline to Neutral (Outperform)
UBS raises Reckitt Benckiser target to 6.400 (6.300) p - Neutral


Produced by MBI Martin Brückner Infosource GmbH & Co. KG on behalf of Swissquote. All news is acquired with journalistic accuracy. No liability is assumed for delays or errors.

 
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