US banks crush expectations, while markets wait on Coinbase

Europe

After an initially subdued start European markets have edged higher today, helped to a large extent by a turnaround in the travel sector.

EasyJet started us off this morning by saying it expected first half losses to be slightly less than anticipated, helping to give the shares an initial push higher on the day.

While this can obviously be construed as a glass half full story the losses are still expected to come in between £690m and £730m. This is largely due to a decrease in costs with cash burn in Q2 coming in at £470m. The airline said it expected to see a significant uptick in late May when overseas travel restrictions are relaxed, saying it would increase flight capacity to 20% of 2019 levels, up from 14% currently.

Passenger numbers are 89% down, to 4.1m, pulling revenues lower by 90% to £235m. Earlier this week HSBC suggested that EasyJet might need to raise fresh equity given the challenges posed by the UK governments new traffic light travel system. This morning’s update would appear to counter that narrative with the airline saying that it has access to £2.9bn of liquidity, having raised over £5.5bn since the beginning of the pandemic.

Having sold and leased back around 43 aircraft to raise cash already, they still have another 141 fully owned and unencumbered aircraft, which represents over 40% of its remaining fleet, so it certainly has plenty of room to boost its liquidity.

In amongst all of this IAG shares are also higher after the sector got a lift from US carrier American Airlines, who said that they expect to fly more than 80% of their international capacity this summer, compared to 2019. This comes across as quite the contrast compared to EasyJet’s more modest 20% estimates; however, it does raise the prospect that international travel may well offer more of a respite for some airlines, and that any recovery could come somewhere in between.

Holiday Inn and Crowne Plaza owner Intercontinental Hotels Group shares are also higher, probably for the same reasons, with the likes of Accor also seeing decent gains.

LVMH latest results have helped the CAC40 push higher after Q1 sales beat expectations after reporting revenues of almost €14bn, a rise of 30%. It has also been helped by its recent acquisition of Tiffany, but even without this the fashion giant still managed to post a 52% rise in revenues in its fashion and leather goods division with China and the US leading the recovery.  

Tesco this morning reported a 20% decline in profits for its latest full year numbers, sending the shares sharply lower. This seems somewhat of an overreaction given the challenges faced by the business, and the fact that profits were still pretty healthy at £825m, despite the increase in costs, and the supermarket returning its business rates relief of £535m. In terms of the outlook Tesco said it expects sales volumes to decline as lockdown restrictions ease, however costs are also expected to decline as well. This should translate into better margins, and an increase in profits, which should head back to the levels seen last year.   

US

US markets opened mixed, before moving to the upside and new record highs for the Dow and S&P500, as investors mulled over the latest Q1 earnings numbers from US banking heavyweights JPMorgan and Goldman Sachs, both of which crushed expectations. The overall reaction was somewhat underwhelming, though that may be more to do with the fact that most of the outperformance was already in the price, in terms of the share price gains seen over the last few weeks.   

At its last set of numbers JPMorgan blew away consensus expectations on both profits and revenues, helped by a big increase in investment banking revenue, while net interest income decreased by 7% due to the flattish nature of the yield curve.

Today’s Q1 numbers have painted a fairly similar picture, crushing expectations, with revenues rising to $33.12bn,…