U.S. equities are lower in pre-market trading with the Street digesting a slew of results from the banking sector to kick off Q4 earnings season. Dow member JPMorgan Chase, Bank of America, and Wells Fargo all bested estimates, but each posted significant increases in provisions for loan losses, while Citigroup fell short of forecasts. Inflation remains in focus as well, as a read on import prices surprisingly increased, detracting some from yesterday's tamer read on consumer prices. Treasury yields are trading higher, and the U.S. dollar is nudging to the upside, while crude oil prices and gold are little changed. Later this morning, a read on consumer sentiment will hit the tape. Asia finished mostly higher, and Europe is mixed as investors assess yesterday's U.S. consumer price data and inflation reports within the region.
As of 8:55 a.m. ET, the March S&P 500 Index future is 37 points below fair value, the Nasdaq Index future is 126 points south of fair value, and the DJIA future is 291 points under fair value. WTI crude oil is increasing $0.12 to $78.52 per barrel, and Brent crude oil is gaining $0.03 to $84.06 per barrel. The gold spot price is trading $0.80 higher to $1,899.60 per ounce. Elsewhere, the Dollar Index is increasing 0.2% to 102.44.
Dow member JPMorgan Chase & Co. (JPM $139) reported Q4 adjusted earnings-per-share (EPS) of $3.57, ahead of the FactSet estimate for $3.08, as revenues jumped 18.1% year-over-year (y/y) to $34.55 billion, mostly in line with analysts' forecasts. Consumer banking, along with debit and credit card sales, were up 9%, with total revolving balances back to pre-pandemic levels. JPM also declared a $2.3 billion provision for credit losses for expected defaults, a 49% increase from last quarter. Chairman and CEO Jamie Dimon said while the U.S. economy remains strong, "…we still do not know the ultimate effect of the headwinds coming from geopolitical tensions including the war in Ukraine, the vulnerable state of energy and food supplies, persistent inflation that is eroding purchasing power and has pushed interest rates higher, and the unprecedented quantitative tightening."
Bank of America Corp. (BAC $34) posted adjusted Q4 EPS of $0.85, eclipsing the $0.77 FactSet estimate, with revenues rising 11.2% y/y to $24.53 billion, slightly north of the Street's forecast of $24.17 billion. BAC said net interest income rose 29% y/y to $14.7 billion amid the rise in interest rates, slightly below the Street's expectations, but helping to offset a 50% decline in investment banking fees of $1.1 billion. The bank also implemented $1.1 billion for credit losses, up $1.6 billion from a year ago, despite net charge-offs remaining below pre-pandemic levels.
Citigroup Inc. (C $49) reported Q4 adjusted EPS of $1.10, falling short of the Street's $1.14 estimate, and a 21% tumble from the same quarter a year ago. Revenues rose 5.8% y/y to $18.01 billion, a shade higher than the $17.90 billion that the Street was forecasting. Net interest income for the period was $13.7 billion, above expectations and helping to offset at sharp decline in investment banking revenues, while proceeds from its services segment were up 32%.
Wells Fargo & Company (WFC $43) posted an adjusted profit of $0.67 per share, slightly ahead of the $0.60 FactSet estimate, as revenues declined 5.7% y/y to $19.66 billion, short of analysts' estimates of $19.98 billion. The company said its results reflect a $2.8 billion, or $0.70 per share, loss as a result of the impact of legal and regulatory costs. WFC said it set aside $957 million during the quarter for credit losses after reducing such provisions last quarter, with $397 million of that increase for the allowance reflecting a shortfall in loan growth and an unfavorable economic environment. WFC's results come just days after it announced that it would reduce the size of its U.S. mortgage lending business.
As Q4 earnings season, gets rolling, investors continue to grapple with the ultimate impact of aggressive Fed actions to try to combat rising prices. Last week’s December job report added to the uncertainty regarding the Fed’s monetary policy decisions. Schwab’s Chief Investment Strategist Liz Ann Sonders discusses in her latest article, Hurts So Good: Jobs Picture Stays Mixed, how there was something for everyone—even those supportive of an economic soft landing—in December's jobs report, but recessionary signals have not subsided.
The Central Bank downshifted in December from a string of four-straight 75-basis point (bp) rate hikes to a 50-bp increase. However, the deceleration remained unusually aggressive, and the Fed signaled that restrictive policy will likely have to remain in place for longer and at a potentially higher "terminal rate" than expected.
Import prices surprisingly rise, consumer sentiment on deck
The Import Price Index increased by 0.4% month-over-month (m/m) for December, versus the Bloomberg consensus estimate of a 0.9% drop, and compared to last month's negatively adjusted 0.7% decrease. Versus last year, prices were up by 3.5%, higher than November's unrevised 2.7% rise, and compared to the expected 2.2% increase.
Inflation has driven aggressive monetary policy tightening by the Fed, along with a continued tight labor market. Schwab's Chief Fixed Income Strategist Kathy Jones discusses in her article, Fixed Income Outlook: Bonds Are Back, how we see opportunities in 2023 for the bond market to provide attractive yields at lower risk than we've seen for several years.
Treasury rates are higher following the inflation data, as the yields on the 2-year and 10-year notes are increasing 4 bps to 4.12% and 3.49%, respectively, while the yield on the 30-year bond is rising 3 bps to 3.61%.
Later this morning, the economic calendar will bring the preliminary University of Michigan Consumer Sentiment Index for January, expected to move higher to 60.5 from December's final reading of 59.7.
Europe mixed amid more inflation data
Stocks in Europe are mixed in afternoon action as the markets digest yesterday's December U.S. consumer price report, as well as some inflation data within the region. Consumer prices in Spain rose during December, but fell in France, with both measures cooling from the month prior. The data comes amid recent optimism that Europe may be able to avoid a recession even as monetary policies tighten, aided by eased energy crisis concerns, as well as the implications of China's reopening. Equities have been positive to start 2023 despite uncertainty regarding the ultimate impact on the economy and financial conditions of recent global monetary policy decisions to aggressively tighten policies to combat inflation. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses his Top Global Risks of 2023, highlighting our top five risks that may define the global markets, considering that a new year almost always brings surprises of one form or another.
In other economic news in the region, industrial production in the Eurozone improved markedly, and the trade deficit narrowed significantly, while GDP in the U.K. rose 0.1% in November, above expectations for a contraction of 0.2%, and following 0.5% growth in the prior month. The euro and British pound are trading lower versus the U.S. dollar, while bond yields in the Eurozone and U.K. are decreasing.
The U.K. FTSE 100 Index and Spain's IBEX 35 Index are up 0.4%, France's CAC-40 Index is rising 0.2%, Germany's DAX Index is little changed, Italy's FTSE MIB Index are ticking 0.1% lower, and Switzerland's Swiss Market Index is trading 0.2% to the downside.
Asia mostly higher following U.S. inflation reports
Stocks in Asia finished mostly higher in the wake of gains in the U.S. following a consumer price report that showed inflation has cooled, raising hopes of a less aggressive Fed. The moves also come amid some economic data out of China and central bank action in the region. China's exports fell less than forecasts, but at the fastest pace since February 2022, while imports also shark at a pace that was below expectations, but the net result indicated softer global demand, and a lull in domestic activity amid the surge in COVID infections. However, recent reopening announcements out of China has continued to buoy sentiment, as Hong Kong and mainland China have begun to allow quarantine-free travel after keeping borders restricted for almost three years. In his article, Global Outlook: Recovery and Risk, Schwab's Jeffrey Kleintop notes how markets may continue to see volatility in 2023 as they navigate between global economic growth and inflation fears, with central banks' decreasing rate hikes and China's reopening.
Investors also digested the Bank of Korea's (BoK) decision to raise its benchmark interest rate by 25 bps to 3.50%, matching expectations, and what many analysts are forecasting could be its last increase, as the country's exports have tumbled, and it faces a deterioration in consumption and corporate investment. In its statement accompanying the decision, the BoK said it sees GDP growth in 2023 to slow more than expected, and that it will extend measures in place to provide support to short-term money markets. However, it made no mention of future rate increases.
Japan's Nikkei 225 Index was the lone bourse in the red in today's session, finishing 1.3% lower amid some strength in the yen versus the U.S. dollar. China's Shanghai Composite Index and the Hong Kong Hang Seng Index both were 1.0% higher, South Korea's Kospi Index advanced 0.9%, Australia's S&P/ASX 200 Index gained 0.7%, and India's S&P BSE Sensex 30 Index advanced 0.5%.
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