Banks are setting aside more cash to cover bad loan risk, suggesting weaker U.S. growth prospects heading into the start of the fourth quarter earnings season.
U.S. equity futures slumped lower Friday, while Treasury bond yields extended their weekly decline and the dollar tested fresh six-month lows, as markets looked to re-set rate hike expectations into the unofficial start to the fourth quarter earnings season.
A largely in-line reading for U.S. inflation, which slowed to the lowest levels in more than year last month, alongside last week’s better-than-expected jobs report and a host of data indicating softening price pressures, has triggered big changes in rate bets and sparked notable rally in Treasuries.
Benchmark 10-year note yields, which move in the opposite direction of prices, were trading at a four-week low of 3.43% in overnight dealing and are down nearly 20 basis points for the week. Over the same timeframe, 2-year have retraced by around 17 basis points to 4.112% as bets on big near-term rate hikes continue to fade.
The U.S. dollar index, which tracks the greenback against a basket of six global currency peers, was marked 0.19% higher at $102.432, but still close to the lowest levels in in more than six months.
The CME Group’s FedWatch now indicates a 93.3% chance of a 25 basis point rate hike from the Fed on February 1, up from around 75.7% this time last week, with traders expecting the Fed Funds rate to peak at a range of between 4.75% and 5% in the early spring.
That’s given stocks solid momentum heading into the earnings season, which kicks-off with a series of investment banking earnings, along with Dow component UnitedHealth Group, prior to the start of trading.
Analysts expect S&P 500 earnings to fall 2.2% from last year to a share-weighted $447.1 billion, the first quarterly decline in more than two years. Stripping out the energy sector, however, and the decline expands to around 6.7%.
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Heading into the start of the trading day on Wall Street, futures tied to the the S&P 500 are priced for a 39 point opening bell decline while those linked to the Dow Jones Industrial Average are set for a 275 point slump. The tech-focused Nasdaq, which is on its best four-day run since November, is looking at a 130 point pullback.
JPMorgan (JPM) – Get Free Report shares moved 2.6% lower after it topped Street forecasts with earnings of $3.57 per share on revenues of $34.38 billion, but set aside $2.3 billion in reserves to set against bad loans and credit losses, topping analysts’ forecast of a $1.8 billion total for credit provisions.
Wells Fargo (WFC) – Get Free Report also posted stronger-than-expected fourth quarter earnings, but booked a larger portion of its reserves to compensate for rising loan risks as interest rates rise and the economy slows. Share were down 4% in pre-market trading.
UnitedHealth Group (UNH) – Get Free Report fell 1.5% despite posting better-than-expected fourth quarter earnings, powered once again by double-digit revenue gains from its Optum division, and confirmed its full-year profit forecasts.
Tesla (TSLA) – Get Free Report shares slumped 5.6% after the carmaker unveiled yet another round of deep price cuts in its key global markets ahead of its fourth quarter earnings later this month.
Boeing (BA) – Get Free Report shares edged 0.97% lower following news that the planemaker’s workhorse 737 Max jet made its first commercial flight in China in nearly four years.
In overseas markets, the the region-wide MSCI ex-Japan index rose 1.27% to a fresh seven-month high into the close of trading, while Tokyo’s Nikkei 225 slumped 1.25% as the yen surged to a seven-month high against the U.S. dollar amid reports of tighter monetary policy next week from the Bank of Japan.
Europe’s Stoxx 600 was marked 0.46% higher in early Frankfurt dealing, while London’s FTSE 100 was up 0.51%.