This Will Be a Big Week in the Financial Sector

North American markets today, Monday, viewed several hours before opening at 9:30 a.m. EST, appear set for a mixed start with all major indicators in the red at time of writing. However, the S&P 500 and the NASDAQ are improving, and it is possible – though not a given – that they will turn positive during the morning.

The safe havens of gold and silver are in the red. The British pound and Euro are up while the Canadian dollar is down.

Even if the S&P 500 and NASDAQ do not turn positive, this is a slight retreat after Friday’s trading. The S&P 500 and DOW hit record highs, sustained by low interest rates, stimulus checks and the job creation promises of the Biden administration

European markets are open at time of writing and are mixed with the DAX and CAC 40 in positive territory and the FTSE 100 in the red.

This week is going to be an important one for the financial sector, both in terms of reports from blue chip institutions and in terms of eye-popping fallout.

JPMorgan Chase & Co reports first-quarter results on Wednesday, and investors will be looking for clues about consumer and corporate lending. Goldman Sachs Group also reports first quarter results on Wednesday and investors will be looking for whether its trading division can sustain its high revenue levels. Wells Fargo & Co. also reports first quarter results on Wednesday. Bank of America Corp reports its first quarter results on Thursday and it also expected to provide clues on consumer and corporate behavior. Citigroup Inc. also reports first quarter results on Thursday and Morgan Stanley is expected to report first quarter results on Friday.

Taken individually, these results mean news for shareholders of these institutions but taken together they will represent a composite picture of the recovery and some of what can be expected.

Less positive but no less important, the fate of Credit Suisse’s asset management operation may become at least a little clearer this week.  The Swiss financial institution is reportedly exploring options for the arm after costly scandals, most recently including the Archegos Capital Management collapse which led to a $4.75 billion charge. BlackRock, Pegasus Europe, State Street Corp. and other European companies are reported interested. A Credit Suisse spokeswoman says that the bank has no plans to sell any part of the business, according to a Reuters report.

Credit Suisse’s asset management arm was already in the throes of an overhaul following the collapse of Greensill Capital.

Also on deck this week is Microsoft Corp’s reported plan to buy Nuance Communications a deal valued at about $16 billion according to Bloomberg and Reuters. The deal could be announced early in the week and if consummated would amount to a triumph for Microsoft, according to Dan Ives, Managing Director of Equity Research at Wedbush Securities. “In our opinion, Microsoft is on the M&A warpath over the next 12 to 18 months and Nuance could be the first step in an increased appetite for deals in 2021 with Discord (video game chat community) another potential trophy,” Ives says.

Also this week, let’s keep an eye on New York-listed Chinese multinational corporations such as Alibaba Group Holding Ltd. and whether there is any share price impact due to the increased muscle-flexing of the Chinese government.

A Reuters report says that the Chinese government is ramping up its competition watchdog with additional resources and strengthening its competition law to include an increase in fines and expanded authority for judging a company’s activities. This follows Chinese President Xi Jinping’s comment last month about the need to ‘strengthen antitrust powers’.

Two days ago, the watchdog – the State Administration for Market Regulation --fined Alibaba an astounding $2.75 billion after a probe declared that it had abused its dominant market position for several years. That follows the antagonism between the Chinese government and Alibaba founder Jack Ma. Other New York-listed Chinese companies such as JD. Com have received warnings about anti-competitive behavior from the Chinse government.

Implicit in these developments is an erosion of the Chinse government’s previous seeming laissez faire policy towards domestic multinational corporations. Foreign-owned companies with China operations will also be eyeing the bulking-up of the watchdog.

“Other tech companies would be wise to assume they may be receiving the same level of scrutiny and penalty,” said Fred Hu, chairman of private equity firm Primavera Group, referring to the fine imposed on Alibaba, in the Reuters report.

The extent of the impact of these actions on Wall Street remains to be seen.

It will be a busy week in the markets.

Related: We Have Lot to Study This Week