Read on the Trading Floor - 13 Oct 2023
Today’s focus… Bank earnings, weekend fear, House leadership, week ahead and more….
Theme 1 - Earning Season
Strong start from US banks led by JPM, Citi and Wells Fargo. Dimon's charges have hit another Net Interest Income record whilst CITI beat the markets low expectations of “falling” profits and Wells Fargo also boosted their NII. Banks could do with some positive news, KBW Nasdaq is trailing the broader index by over 35% this year (WSJ). Tighter regulations, fight for deposits, slower consumer activity, higher capital requirements reducing the ability to lend, fear net interest margin is close to peaking as well as loan provisions and the much-vaunted US recession ahead... The clouds on the horizon are still grey. However, as SVB proved, its mainly the regional banks that the market is concerned about as a two-tier system forms due to deposit protection insurance that shelters some and not all.
Should we be that surprised that the banks are beating?... not according to The Gryning Times (Earnings Season Preview) - "They will be reporting on the third quarter, where they were operating in an economy that was hot, growing at about a 5% annualized pace (based on the Atlanta Fed's GDP model). With that, the contraction in S&P 500 earnings should be behind us. But, as usual, the estimates on Q3 earnings look quite conservative - FactSet is still looking for a 0.3% decline in S&P 500 earnings. That sets up for positive surprises."
Despite the beat Dimon was not particularly "positive"... "persistently tight labor markets as well as extremely high government debt levels with the largest peacetime fiscal deficits ever are increasing the risks that inflation remains elevated and that interest rates rise further from here. Additionally, we still do not know the longer-term consequences of quantitative tightening, which reduces liquidity in the system at a time when market-making capabilities are increasingly limited by regulations." (Quote source - MacroVisor Breakfast Bites)
FT - Citi profits edge higher despite worries over consumer finances
Reuters - Major US banks show profit boost, but cautious on outlook, consumer health
Maintaining the positive vibes, BofA's Hartnett via Bloomberg - US Stocks Can Avoid Big Drop If Yields Stay Below 5%
Theme 2 - Geopolitical Risks Heading into the Weekend
Higher oil, US fixed income rallying / unwinding the CPI move, softish equities .... the market is settling into a defensive posture across assets as we head towards the weekend close. Israel have given a 24hour warning to all civilians to leave northern Gaza. The troop build-up continues along the Gaza strip whilst Iran Foreign Minister said "the continuation of war crimes will receive a response from the rest of the axes". A ground offensive runs the risk of raising tensions and will further reduce the likelihood of any Saudi/Israel deal as well as potenally increasing risks of sanctions on Iranian oil supply.
Bloomberg - Israel Latest: Mideast Rallies Spread as UN Warns of Gaza Crisis
Bloomberg - Iran Says New Israel Front Possible as Minister Amirabdollahian Visits Hezbollah
HFI Research - What To Make Of The Current Geopolitical Situation (Israel) And What It Means For Oil?
Axios - Israel tells UN to evacuate the northern Gaza Strip within 24 hours
Steno Research - EM by EM #25 Lighting the fuse in the Middle East?
Theme 3 - Week Ahead
As always, the week ahead channel on our bespoke aggregator (harkster.com) is garnering attention...
S&P Global - Week Ahead Economic Preview Week Ahead Economic Preview
Nomura Podcast - The Week Ahead: The Week Ahead: BOK and BI Meetings, Japan, UK, Canada and New Zealand CPI, US Retail Sales and China GDP
Livesquawk - Focus On The Week Ahead
Theme 4 - Who's next up after Scalise?
Doomberg - Minority Report. A chaotic US Congress faces a multi-front war.
Bloomberg - Steve Scalise Drops Out Of The House Speaker Race, Adding Chaos
Bloomberg - A House With No Speaker? What This Means for the US
MishTalk - House Speaker Vacant for the 10th day, no agreement in sight, Scalise drops out
Axios - Inside the Jim Jordan and Steve Scalise meeting on the House speaker race
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Further reading and listening of note... TLT, term premium, Ford/UAW and more...
Nordea Macro & Markets: Term premium to return with a vengeance?
Bloomberg - Treasury Bond ETF (TLT) Backfires With $10 Billon Loss
Fortune - Ford says it has reached the end of the road with UAW contract talks
FT - China proposes stock stabilisation fund to lift economic confidence
FT - Jeremy Hunt warns of tough decisions on UK deficit as interest costs rise
Cognitive Dissidents - What You Missed During the War
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