The first quarter earnings season is set to start in earnest this week, with the big banks set to report results on Friday as investors shift their attention slightly from Fed policy to the state of affairs at US companies.
Some of America’s largest financial institutions are due to release results ahead of Friday’s market open, including JPMorgan (JPM), Wells Fargo (WFC), Citi (C) and BlackRock (BLK). Also on the weekly schedule are consumer price index (CPI) inflation data on Wednesday morning and Friday morning’s monthly retail sales report.
Last week markets were little changed during a bank holiday shortened trading week as US markets were closed for Good Friday. The Dow was up about 0.7% while the S&P 500 was marginally lower and the Nasdaq was down about 1%.
The main event of the past week was that markets were closed on Friday as the March jobs report showed that hiring in the US economy had slowed over the past month, although that probably wasn’t enough to warrant another rate hike in the US Federal Reserve next month.
Data from the Bureau of Labor Statistics showed that the economy added 236,000 jobs last month, while the unemployment rate fell to 3.5%.
Wall Street economists were broadly in agreement on Friday that another 0.25% hike in Fed interest rates is likely to come on May 3, but that it would be the last hike of the current cycle.
“Total the [March jobs] The numbers still suggest that jobs markets are moving the way the Fed wants, albeit perhaps not quite fast enough,” said Theodore Littleton, senior economist at IFR Markets, in an email on Friday.
“It certainly doesn’t stop the FOMC from making at least one last rate hike, with lower wage increases, but still at a rate they don’t think is consistent with their headline inflation target.”
Data from CME Group showed Friday’s investors see a roughly 70% chance of a Fed rate hike next month.
The story goes on
Of course, key to that calculation will be Wednesday’s CPI data, which is expected to show headline inflation in March rising 0.2% from last month and 5.2% from last year, an increase that would mark the slowest pace of consumer price increases since August 2021.
On a “core” basis, which excludes more volatile food and energy costs, March prices are expected to rise 0.4% mom and 5.6% yoy.
This would be the first time since January 2021 that “core” inflation has risen more than the headline figure year-on-year.
A sustained rise in housing costs, which rose 8.1% in February from a year earlier, has kept core inflation high. In a press briefing last month, Fed Chair Jerome Powell said that the fall in housing market inflation — which was largely driven by rent extensions a year ago — “is really a matter of time.”
“We forecast that next week’s CPI report will show only a modest slowdown,” Barclays economists led by Marc Giannoni wrote in a note to clients last week.
On the earnings side, all eyes will be on how the impact of last month’s collapse of Silicon Valley Bank and Signature Bank has affected the nation’s largest banks.
In recent weeks, smaller regional banks like Western Alliance (WAL) and First Republic (FRC) have tried to calm investors’ nerves by offering updates on deposit outflows. JPMorgan, Citi and Wells Fargo were part of a consortium last month that injected about $30 billion in deposits into First Republic to prop up the troubled lender.
Last week Federal Reserve data showed that another $65 billion in deposits left the US banking system, with Bloomberg’s Alex Tanzi noting that most of that drop came from big banks. About $120 billion flowed out of small banks in each of the previous two weeks, while about $126 billion exited the entire banking system in the week ended March 22.
In his annual letter to shareholders, published last week, JPMorgan CEO Jamie Dimon wrote: “As I write this letter, the current crisis is not over and even when it is behind us, it will be years away. “
Jamie Dimon, Chairman and CEO of JPMorgan Chase, arrives to testify during a Senate Committee on Banking, Housing and Urban Affairs hearing on annual oversight of the nation’s largest banks on Capitol Hill in Washington, DC September 22, 2022 . (Photo by SAUL LOEB/AFP) (Photo by SAUL LOEB/AFP via Getty Images)
Dimon noted that while these events were challenging, they were “nothing” like 2008. But avoiding a 2008-like scenario doesn’t make this banking crisis a good thing, according to Dimon.
“Any crisis that damages Americans’ confidence in their banks hurts all banks — a fact well known even before this crisis,” Dimon wrote.
“While it is true that larger banks ‘benefited’ from this banking crisis due to inflows of deposits from smaller institutions, the idea that this meltdown was in any way good for them is absurd.”
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