The Market Today
JPM Earnings Call Says Credit Losses Expected to Show Up in 2H21
by Craig Dismuke, Dudley Carter
Small Business Confidence Recovers Strongly: Small business confidence improved more than expected in September, rising from 100.2 to 104.0. The improvement was broad-based with sales expectations up 5 points, plans to hire up 2 points (up 22 points from April), and compensation plans up 2 points. According to NFIB’s Chief Economist, Bill Dunkelberg, “COVID-19 restrictions and regulations put on small businesses vary by state, but we are starting to see a jobs recovery as small businesses continue to increase business operations.” With one more month of survey responses likely to reflect business sentiment under President Trump’s leadership, business confidence is now up 5.6 points from prior to the President’s election (Reagan +3.2; Bush Sr. -3.8; Clinton +0.8; W. Bush +5.0; Obama +5.2).
Mixed Bag of Consumer Prices Shows As-Expected CPI Inflation: Consumer price inflation rose 0.2% MoM at both the headline and core levels in September, both in-line with expectations. Headline inflation inched up from +1.3% to +1.4% on a year-over-year basis while core held at +1.7%. The details show mixed results with a few areas of strength but a broader trend of weaker-than-trend price gains. Housing rents and lodging away from home continued to contribute to softer inflation. Rent prices rose just 0.1%, less than half their 12-month trend rate for a second consecutive month. Prices for lodging away from home fell 0.4% MoM, continuing to remain weak. Apparel prices fell 0.5% MoM. Also on the soft side, medical care prices fell fractionally on soft medical commodities and services. One area of strength, used car prices rose 6.7% and are now up more than 10% on a year-over-year basis.
Prime Day; Barkin and Daly to Speak: Amazon’s Prime Day was postponed earlier this year and is now scheduled to take place today and tomorrow. Economists will be busy for the next two months trying to understand the impact to the holiday sales season. Richmond Fed Bank President Barkin is scheduled to speak at 11:25 a.m. CT and San Francisco Bank President Daly is scheduled for 7:00 p.m.
Equities Rallied Monday on Tech Strength, Bond Market Closed for a Holiday: While the U.S. bond market was closed for a holiday Monday, major tech names led U.S. equities in a broad rally to start the week on the eve of the beginning of the quarterly corporate earnings season. Apple led the S&P 500 to a 1.6% gain as shares in the company soared more than 6% before today’s planned reveal of the latest iPhone models. With Amazon’s popular Prime Day beginning today, the online retail giant’s stock jumped nearly 5% on hopes the post-pandemic surge in consumers purchasing items online will continue. The Nasdaq jumped 2.6% as the Dow added a more modest 0.9%.
Global Equities Mixed as Corporate Earnings Season Kicks Off: Monday’s positive market momentum began to level off during European trading on Tuesday following mixed global economic reports, and as investors prepared for corporate earnings announcements and a big week of U.S. data releases. Equities in Asia posted modest gains after China’s trade data for September showed imports spiked 13.2%, a sharper recovery than the 0.4% gain expected, while exports nearly matched estimates with a 9.9% gain. Europe’s Stoxx 600, however, slipped 0.2% with Germany’s DAX dropping 0.6% to lead widespread losses in the region. A top survey of economic expectations for Europe’s largest economy tumbled from 77.4 in September to 56.1 in October, much worse than the 72.0 expected and the lowest level since May. Many European countries have reintroduced social restrictions as they deal with a second wave of the virus.
Treasury Yields Move Down as Equities Level Off After Big Monday Gain: In the U.S., futures were mixed after Monday’s synchronous rise. Contracts on the Nasdaq were up more than 0.7% just before 7:30 a.m. CT as tech shares continued to tick higher ahead of an important day for Apple and Amazon. The S&P 500 and Dow, however, were down 0.1% and 0.4%, respectively, as several major U.S. banks kicked off a week of corporate earnings announcements that will pile onto a busy economic calendar. JPMorgan Chase beat on earnings as trading revenues topped estimates and the provision for credit losses came in well below expectations. Related to the outlook, the bank’s management said they expect consumer credit losses to show up in earnest in the second half of next year. Results from Citigroup told a similar story. Treasury yields were at their lows of the day heading into U.S. trading, with the 10-year yield down 3.0 bps to 0.74%.
ICYMI – October 9, Weekly Market Recap: President Trump returned to the White House on Monday after spending the weekend at Walter Reed for treatment for his coronavirus infection. Stocks and yields both jumped Monday in a relief rally after a weekend of mixed reports about his health and prognosis. However, the focus quickly shifted to ongoing stimulus negotiations. The sharpest move occurred Tuesday as President Trump caught markets off guard with a tweet that he had told his team to stop negotiating with Democrats until after the election. Markets recoiled sharply, but then recovered Wednesday after a follow-up tweet showed he was open to piecemeal aid bills. On Thursday, the president said talks had restarted and been “very productive” with reports later indicating he was open to “something bigger” than piecemeal stimulus. By Friday, the White House had raised its offer to Democrats from $1.6 trillion to $1.8 trillion, sending the 10-year yield up as high as 0.80% intraday, its highest mark since June 10. The Fed’s September Minutes showed that while there were divergent views on how to publicly explain the outlook for future policy action under the new framework, there was widespread agreement that more fiscal aid would be crucial to keep the recovery moving forward. In a light economic calendar, continuing jobless claims fell more than expected while new claims continued to flatten out at a high level. Click here to view the full recap.