The Market Today

Earnings Reports, Tariff Talk, TPP Back on Table, and Some Economic Data

by Craig Dismuke, Dudley Carter


Bank Earnings Kick off with a Bang – Vining Sparks on CNBC to Explain:  In the first bank earnings reports, JPMorgan, Citigroup, and Wells Fargo all beat expectations and started the quarterly earnings news on a solid foot.  Vining Sparks’s Director of Bank and Equity Strategies, Marty Mosby, appeared on CNBC’s Squawk Box this morning detailing the solid reports.  JPMorgan posted a better-than-expected revenue and bottom line result as improved net interest income drove margins higher helping offset a slightly higher level of charge-offs. The recent volatility in equity markets also supported overall trading revenue as fixed income activity slowed.  Citigroup reported an ROE close to the 10% threshold for the first time in many years.


Job Openings and Consumer Confidence Expected to Pull Back from Recent Highs:  The February Job Openings and Labor Turnover report is scheduled for 9:00 a.m. CT today, coming off a report showing a new record-high number of job openings at 6.3 million.  According to the regional data, there are now more job openings in some parts of the country than unemployed persons.  Job openings are expected to pull back some in the February data.  Also this morning, the University of Michigan’s April read on consumer confidence is also expected to show a small pullback after hitting a cycle high in the March report.  Also worth watching this morning, reports are that the U.S. is considering toughening its stance on trade with China while China is looking for allies in the discussions.  According to the WSJ, “But there are signs China is buckling. Publicly, Chinese officials deny they are bending to Washington’s pressure, but privately, they acknowledge that the trade threats are leading them to accelerate their plans to liberalize.”  And trade talk could roil the market more so than anything in the job openings or consumer confidence reports.



Yesterday – Stocks Rebounded as Syria Strike Appeared Less Imminent: Treasury yields moved up as equities leapt at the open after the President walked back his previous day’s indication that a missile attack on Syria was a coming certainty. A subsequent boost, albeit a small one, occurred on a headline that the President was considering rejoining the Trans-Pacific Partnership. Those firmer trends were briefly disrupted by news that samples from Syrian victims confirmed a chemical weapons attack and a report that the U.S. was considering a strike against eight targets in the country. But the downturn proved brief and both yields and stocks bounced back, ignoring a headline that Saudi Arabia had intercepted another missile. For the day, the 2-year yield rose 4.1 bps, its biggest single day increase since February 1, to a new cycle-high of 2.35%. The 5-year yield rose 5.8 bps, the largest daily increase since February 14, to 2.67%. The 10-year yield closed 5.5 bps higher, its biggest move since March 2, at 2.84%. The Dow outperformed with a 1.2% improvement and financial companies led the S&P to a 0.8% gain.


Overnight – Equity Sentiment Strengthens as Banks Kick-Off What’s Expected to be a Strong Earnings Season: Except for moderate losses for Chinese equities, global stocks improved and U.S. futures were stronger in front quarterly earnings results from several major U.S. banks. The small losses in China came after the country posted an unusual trade deficit for March. In Dollar terms, the $5.0B deficit was the result of a surprise drop-off in exports, although February’s activity was unusually strong and March has historically been a weaker month. Asian markets also likely received a boost from yesterday’s news that the U.S. was contemplating membership in the TPP. Equity sentiment strengthened after the first bank earnings report this morning from JPMorgan, with that sentiment increasing after Citigroup and Wells Fargo’s reports.



Economists Raise Growth Forecasts Further on Government Spending Deal: The April 2018 Bloomberg Survey of Economists shows economists continuing to revise their GDP growth projections higher after Congress lifted their self-imposed spending caps.  Since Congress revised their spending caps, economists have revised higher their government expenditure projections for all quarters of 2018 and 2019, including further revisions higher in the April survey.  The impact to GDP growth is expected to be modest. The economy is now expected to expand 2.8% in 2018 (up from 2.7% prior to the spending package) and 2.5% in 2019 (up from 2.3%).  Inflation expectations were notched higher at both the core and headline levels.  Core PCE inflation is now expected to average 1.9% in 2018 (up from 1.8% in the March survey) and 2.1% in 2019 (up from 2.0%).  Expectations for the labor market were largely unchanged. Given the slight adjustments to GDP growth and inflation, there were only fractional revisions higher to economists’ interest rate projections.  Expectations for Fed Funds remained unchanged with economists expecting three more rates hikes in 2018 followed by two additional hikes in 2019.  However, confidence in those rate hikes appears to have risen, evidenced by slight revisions higher to 2-year Treasury yield projections.  The 2-year yield is now expected to end 2Q at 2.46%, 3Q at 2.58%, and 4Q at 2.70%.  The 10-year Treasury yield is only expected to rise 2 bps more than in the previous survey, ending 2018 at 3.16%.

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