10 Jan EARNINGS SEASON COMMENCES FRIDAY
Fourth quarter earnings season will commence Friday with the release of Wells Fargo, Citicorp and JP Morgan’s results. Net interest margin is expected to surge given the most aggressive Fed in forty years. It is also expected the banks will add to loan loss reserves in anticipation of an increase in nonperforming assets later in the year if the largely forecasted recession does occur.
S & P 500 forecasted profit margins are still at lofty levels. Is this realistic given monetary policy and inflationary pressures. However perhaps the appropriate question to ask is whether a potential decline in margins is already factored into prices but not yet into analysts’ predictions given the tumultuous 2022 where all major asset groups posted double digit negative returns.
The markets were bifurcated yesterday as the technologies advanced on speculation the Federal Reserve will slow its pace of rate hikes as inflation shows signs of cooling. Whether or not that materializes anytime soon, the belief of such sent “growth issues” higher ahead of Thursday’s reading of December’s CPI.
Swap contracts are again suggesting the terminal fed funds rate to be lower than 5% even though several Fed officials reiterated yesterday—several of whom are regarded as doves—that the rate will be over 5% perhaps around the 5.25% range for “a considerable period of time.”
FRB Chair Powell speaks today. While the Fed Chief’s remarks are not on monetary policy, Powell may make some comments to further cement the Fed’s attempts to remain ahead of inflationary expectations.
What will happen today?
Last night the foreign markets were down. London was down 0.16%, Paris down 0.67% and Frankfurt down 0.43%. China was down 0.21%, Japan up 0.78% and Hang Seng down 0.27%.
Futures are nominally lower on a reassessment of hawkish Fed speak and potential comments from FRB Chair Powell. The 10-year is off 8/32 to yield 3.57%.