Highlights of the week - Fed, CPI and start of earnings season on Wall Street

Minutes of the last Fed meeting – 12/04 – Despite the turmoil in the US banking system in March, the Federal Reserve raised rates by 25 basis points, but the tone of the statement was much more dovish as it removed the reference that “continuous increases would be appropriate” and replaced it with “some additional policy tightening may be appropriate. This change gives the Fed room for maneuver to hold off on the decision at the next meeting, if the data allows it, and also indicates that the end of rate hikes may be near. This week's minutes will also likely be informative as to how seriously the option to hold rates was discussed and whether going this route may have sent a signal that the Fed is more concerned about the current situation than the markets would like.

Powell admitted that a rate hold was considered due to the banking crisis, but the challenge for the Fed will always be how to present this change without spooking the markets even more. Powell said the prospect of a rate cut this year was not on the table, which some said could have been an option. A cursory analysis of the latest dot plot confirmed that Fed officials were not considering a rate cut, even as markets continued to price in the possibility. Expect the minutes of the meeting to focus on the uncertainty surrounding recent events, as well as the data dependency component of any further interest rate moves.

US inflation data - 12/04 – Headline inflation in the US has been steadily declining since last June's record highs of 9,1%. Since then, prices have steadily slowed down, falling to 6% in February and the lowest levels since October 2021, from 6,4% in January. On the other hand, core prices are slowing much more gradually, falling to 5,5% in February and still well above the levels seen throughout 2021. In some ways, this slowdown is encouraging given the rise in consumer spending seen at the start of the year, however, elsewhere in the economy, US inflation remains stubbornly high. This week's core inflation data is expected to rise to 5,6%, which may dampen expectations for an imminent Fed pause at the next central bank meeting in May.

US Retail Sales (March) - 14/04 – after a strong start to the year, US retail sales came to a standstill in February, falling by -0,4%, following a 3,2% increase in January. Personal spending also saw a similar slowdown in the same months, slowing from 2% in January to 0.2% in February. With all the concerns about the US bank run in March and the shifting of funds from smaller US banks to the biggest ones, consumer confidence has held up pretty well. However, this does not necessarily mean that we will see a similar increase in retail sales. Another weak reading of -0,4% is expected, but the caveat on this is that the US labor market is still holding up well and gasoline prices have fallen to a 15-month low. That could help support spending in other areas of the US economy.

UK GDP - 13/04 - after the UK economy corrected Q0,1 GDP growth to 0,3%, thus avoiding the infamy of a technical recession, economic data since late last year began to show further signs of improvement. This is particularly evident in the services sector, which, after a weak fourth quarter, recorded a strong recovery in terms of monthly PMI indices in February and March. Consumer spending has also skyrocketed, with many recent retail data updates showing that consumers have money to spend but spend it more wisely. The UK economy grew by 0,9% in January despite skyrocketing inflation as consumer spending bottomed out and retail sales gained 1,2%. February saw an increase of 2023%, although sales volume lagged due to higher prices. In this context, another positive GDP result for February may increase the chances of a positive GDP result for QXNUMX XNUMX.

Wall Street's Q2023 XNUMX earnings season kicks off.

JPMorgan Chase Q1 23 - 14/04 – it was a difficult quarter for US banks with the collapse of Silicon Valley Bank, Signature Bank and attempts to stabilize the US regional banking sector. When JPMorgan announced its fourth-quarter results in January, the bank offered a cautious outlook for the US economy, despite strong year-end results. Revenue was $35,57 billion and earnings were 3,57c per share, or $11 billion. In detail, Investment Banking, FICC and Trade Sales performed below expectations at $1,39bn and $3,74bn respectively, while equities also performed poorly at $1,93bn vs. $1,98bn forecast. Higher interest rates helped increase Net Interest Income by 48% to $20,3 billion, and this is where we see real revenue and earnings growth. Higher interest rates appear to be costing other parts of the US banking system, the effects of which could be felt for the rest of the year.

The bank set up a fairly large provision of $1,4 billion, reflecting a large increase in borrowing costs to $2,3 billion as the economic outlook deteriorated. In light of recent events, these concerns can only increase, and in US bank earnings season the main focus is on how much the recent turbulence has hit the sector's earnings, not only in terms of its impact on loan demand but also deposit inflows. Many SVB clients moved their funds to JPMorgan and other US banks in the wake of the bank's collapse. Earnings for the first quarter are expected to be $3,40 per share.

Citigroup Q1 23 - 14/04 Citigroup shares slid towards October lows amid March turmoil in the US banking sector. Here, too, we can expect an influx of deposits as US customers direct their funds to larger and safer US banks. The stock price has seen a modest recovery over the past few weeks, but gains have been limited. When the bank released its fourth-quarter reports, it echoed the warnings of its colleagues about various risks to the outlook.

In Q4, the bank managed to beat expectations, reaching USD 18bn, up 6%, although earnings were lower than expected at 1,16c per share, down 21% from last year. The FICC sector outperformed expectations at $3,16 billion, but this was overshadowed by a sharp drop in equity trading revenue, which fell 22% from Q789 to $58 million. Investment banking also disappointed, with revenues down 645% compared to the previous year and amounting to USD 640 million. As with other banks, Citigroup added another $1,18 million to its reserves as the bank posted $1,17 billion in loan losses during the quarter. Earnings are expected to be $XNUMXc per share.

Wells Fargo Q1 23 - 14/04 – Wells Fargo is another US bank that has seen an influx of deposits as a result of the recent turmoil in the US banking sector. Much more domestically focused stocks have seen a much larger decline on the back of recent turmoil moving to 2-year lows before rebounding. In January, the bank reported disappointing fourth-quarter figures, but this was largely expected due to various litigation and regulatory issues. Fourth quarter revenues were $19,66 billion and losses for the period were $3,3 billion. After deducting this fact, earnings were 0,67c per share, or $2,86 billion. Interest income was solid, up 11% quarterly and 45% over the same period last year to $13,4 billion.

In the case of housing loans, one of the main areas of the bank's activity, it was 57% lower due to higher interest rates and a more difficult housing market. Looking ahead, there is a deterioration in consumer credit as delinquency rates start to increase and write-offs have increased to $525 million. On a business-wide basis, the company added a total of $957 million in additional reserves. Operating costs also increased to $16,2 billion. Earnings are expected to be $1,14 per share.