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Before the Bell: Oct 14

Equities

Wall Street futures turned higher early Friday after the previous session’s rally as traders await results from some of the biggest U.S. banks. Major European markets were positive in early trading. TSX futures were steady.

In the early premarket period, futures tied to the three key U.S. indexes traded above break even. On Thursday, markets saw a volatile session with stocks initially selling off in the wake of a hotter-than-expected reading on U.S. inflation, only to later turn sharply higher. The Nasdaq, Dow and S&P 500 all ended the session up more than 2 per cent. Canada’s S&P/TSX Composite Index, which fell as much as 1.8 per cent in early trading, finished the day up 2.2 per cent.

“[Thursday’s] market reversal was a head-scratcher,” OANDA senior analyst Ed Moya said. “Despite a hot inflation report, U.S. equities turned positive as some investors are convinced core inflation will soon start trending lower.”

“[The] rally probably got a boost from short covering as well, but given the path for rates is higher, this market reversal won’t last long,” Mr. Moya said.

Friday’s analyst upgrades and downgrades

Friday morning, traders will get results from some of the biggest U.S. lenders, including JPMorgan, Citigroup and Morgan Stanley. All are slated to report before the start of trading.

U.S. investors will also get September retail sales. Expectations are for a modest rise of 0.2 per cent.

In this country, Canada’s housing market will be in focus with the release September home sales from the Canadian Real Estate Association. Sales are seen falling 32 per cent from year-earlier levels with prices down an average 6 per cent.

Canadian markets also get August factory sales figures. Early estimates from Statistics Canada suggest a 1.8-per-cent decline is likely, largely the result of a drop in prices led by petroleum products, RBC chief currency strategist Adam Cole said.

Overseas, the pan-European STOXX 600 was up 1.01 per cent in morning trading. Britain’s FTSE 100 rained 0.89 per cent. The Associated Press reports that Britain’s Treasury chief is dashing back to London for urgent talks with Prime Minister Liz Truss amid growing expectation that they will scale back unfunded tax cuts to calm financial markets.

Germany’s DAX and France’s CAC 40 advanced 0.76 per cent and 0.79 per cent, respectively.

In Asia, Japan’s Nikkei jumped 3.25 per cent. Hong Kong’s Hang Seng closed up 1.21 per cent.

Commodities

Crude prices were relatively steady but looked set for a weekly decline as tighter supply helps offset global recession concerns.

The day range on Brent was US$93.75 to US$95.11 in the premarket period. The range on West Texas Intermediate was US$88.39 to US$89.73.

Both benchmarks were down about 4 per cent for the week, following two weeks of gains.

“The output cut from OPEC+ last week triggered a surge in prices but that has partially been offset by the increasingly dire forecasts for the economy which will naturally weigh on demand,” OANDA senior analyst Craig Erlam said.

“The alliance will no doubt be pleased with oil trading back in the $90-$100 range, the question is whether the U.S. will. Or if another coordinated SPR [strategic petroleum release] release could be on the cards.”

Crude prices were also supported by a steep drawdown in U.S. distillate stocks, though there has been a larger than expected surge in U.S. crude oil in storage, Reuters reported.

Gold prices edged higher, helped by a pullback in the U.S. dollar.

Spot gold rose 0.3 per cent to US$1,670.00 by early Friday morning. Prices were down more than 1 per cent so far in the week.

U.S. gold futures were flat at US$1,676.60.

Currencies

The Canadian dollar was slightly weaker while its U.S. counterpart held steady against a basket of world currencies.

The day range on the loonie was 72.50 US cents to 72.97 US cents.

Canadian investors get August wholesale and manufacturing sales early Friday.

On world markets, the U.S. dollar index was last up very slightly at 112.62, having fallen 0.6 per cent during the previous session despite expectations the Federal Reserve will deliver another outsized rate hike at its next meeting.

After making steep gains on Thursday, the pound was last down 0.27 per cent at US$1.1301, according to figures from Reuters.

The Australian dollar was up 0.42 per cent against the U.S. dollar at US$0.6322, coming off a two-and-a-half year low seen a day earlier.

In bonds, the yield on the 10-year note was slightly lower at 3.92 per cent in the predawn period.

Economic news

(830 am ET) Canada manufacturing sales for August.

(830 am ET) Canada wholesale trade for August.

(9 am ET) Canada existing home sales for September.

(9am ET) MLS Home Price Index for September.

(830 am ET) U.S. retail sales for September.

(830 am ET) U.S. import prices.

(10 am ET) U.S. business inventories for August.

(10 am ET) U.S. University of Michigan Consumer Sentiment for October.

With Reuters and The Canadian Press

JPMorgan Chase earnings are out – Here are the numbers

JPMorgan Chase reported third-quarter earnings before the opening bell Friday.

Here are the numbers:

• Earnings: $3.12 a share, may not be comparable with the $2.88 estimate, according to Refinitiv.
• Revenue: $33.49 billion, vs. $32.1 billion estimate.

Here’s what Wall Street expects:

• Provision for credit losses: $1.37 billion, according to StreetAccount
• Trading Revenue: Fixed income $4.18 billion, Equities $2.65 billion, according to StreetAccount
• Investment banking revenue: $1.74 billion, per StreetAccount

JPMorgan, the biggest U.S. bank by assets, will be watched closely for clues on how banks are navigating a confusing environment.

On the one hand, unemployment levels remain low, meaning consumers and businesses have little difficulty repaying loans. Rising interest rates mean that banks’ core lending activity is becoming more profitable. And volatility in financial markets has been a boon to fixed income traders.

But investors have dumped bank shares lately, pushing JPMorgan and others to fresh 52-week lows this week, on concern that the Federal Reserve will inadvertently trigger a recession. Investment banking and mortgage lending revenue has fallen sharply, and firms could disclose write-downs amid the decline in financial assets.

On top of that, banks are expected to begin to boost reserves for loan losses as concerns of a recession increase; the six biggest U.S. banks by assets are expected to set aside a combined $4.5 billion in reserves, according to analysts.

That aligns with the cautious tone from CEO Jamie Dimon, who said this week that he saw a recession hitting the U.S. in the next six to nine months.

Last month, JPMorgan president Daniel Pinto warned that third-quarter investment banking revenue was headed for a decline of up to 50%, thanks to the collapse in IPO activity and debt and equity issuance. Helping offset that, trading revenue was headed for a 5% jump from a year earlier on strong fixed income activity, he said.

As a result, investors should expect a mishmash of conflicting trends in the quarter and a wider-than-usual range of outcomes among the six biggest U.S. institutions.

Shares of JPMorgan have dropped 31% this year through Thursday, worse than the 25% decline of the KBW Bank Index.

Morgan Stanley, Wells Fargo and Citigroup are also scheduled to report results Friday, followed by Bank of America on Monday and Goldman Sachs on Tuesday.

This story is developing. Please check back for updates.

Xi wanted China to be at the tech frontier. 5 years on, tensions with the U.S. have dented that goal

• Xi Jinping once declared China should “prioritize innovation” in “cutting-edge frontier technologies, modern engineering technologies, and disruptive technologies.”
• Five years on, at the Communist Party of China’s 20th National Congress, Xi will take stock of China’s achievements in science and technology, which have yielded mixed results.
• The global reality for China has transformed as an ongoing trade war, Covid and a change in political direction at home has hurt some of Beijing’s goals.
• U.S. export curbs and restrictions are likely to hurt China’s ambitions in areas such as semiconductors and artificial intelligence in the future, analysts said.

Xi Jinping once declared China should “prioritize innovation” and be on the “cutting-edge (of) frontier technologies, modern engineering technologies, and disruptive technologies.”

Since that speech in 2017, Beijing has spoken about technologies it wants to boost its prowess in, ranging from artificial intelligence to 5G technology and semiconductors.

Five years since Xi’s address at the Communist Party of China’s last National Congress, the global reality for the world’s second-largest economy has transformed. It comes amid an ongoing trade war with the U.S., challenges from Covid and a change in political direction at home that have hurt some of Beijing’s goals.

On Sunday, the 20th National Congress — held once every five years — will begin in Beijing. The high-level meeting is expected to pave the way for Xi to carry on as head of the Communist Party for an unprecedented third five-year term.

Xi will take stock of China’s achievements in science and technology, which have yielded mixed results.

“I agree it is a mixed bag,” Charles Mok, visiting scholar at the Global Digital Policy Incubator at Stanford University.

He said China sets “lofty” goals as it targets to be the best, but “they are limited politically and ideologically in terms of the strategies to reach them.”

Private tech enterprises are faltering under stricter regulation and a slowing economy. China is far from self-sufficient in semiconductors, a task made harder by recent U.S. export controls. Censorship on the mainland has tightened as well.

But China has made some notable advancements in areas such as 5G and space travel.

https://www.cnbc.com/2022/10/14/china-communist-party-congress-2022-xi-jinpings-tech-policy-in-focus.html

https://www.cnbc.com/video/2022/10/12/consumer-price-index-inflation-interest-rates-economy-fed.html

Here’s the inflation breakdown for September 2022 — in one chart

• Inflation jumped by 8.2% in September versus a year earlier, hotter than expected though a slight decline from August.
• Consumers have seen prices for food, energy and housing rise sharply over that time.
• “Core” inflation, which strips out food and energy costs, jumped to its highest level since 1982, suggesting inflation is broad-based.

https://www.cnbc.com/2022/10/13/heres-the-inflation-breakdown-for-september-2022-in-one-chart.html

US earnings Season Begins

JPMorgan Chase is set to report third-quarter earnings – here’s what the Street expects

https://www.cnbc.com/2022/10/14/jpm-jpmorgan-chase-earnings-3q-2022-.html

Morgan Stanley is set to report third-quarter earnings —here’s what the Street expects

https://www.cnbc.com/2022/10/14/ms-morgan-stanley-earnings-3q-2022.html

Stock futures are lower ahead of Friday’s big bank earnings

Stock futures ticked down early Friday as investors turned their attention to big bank earnings after the major averages staged a historic turnaround rally.

Futures tied to the Dow Jones Industrial Average dropped 110 points, or 0.37%. S&P 500 futures dipped by 0.4%, and Nasdaq 100 futures fell 0.7%.

JPMorgan Chase, Wells Fargo, Morgan Stanley and Citigroup are all scheduled to report before the bell. U.S. Bancorp and PNC Financial are also on the schedule, along with UnitedHealth.

The reports will come a day after the market staged a massive comeback. The Dow ended Thursday’s session up 827 points after being down more than 500 points to start the day. The S&P 500 rose 2.6% to break a six-day losing streak, and the Nasdaq Composite jumped 2.2%.

The moves followed the release of the consumer price index, a key U.S. inflation reading that came in hotter than expected for the month of September. Initially, this weighed on markets as investors braced themselves for the Federal Reserve to continue with its aggressive rate-hiking plan. Later, however, they shrugged off those worries.

“The best excuse for today’s bounce is ‘sell the news’ paired with highly negative sentiment/positioning,” said Ross Mayfield, investment strategy analyst at Baird. “The market had already fallen six straight days, de-risking the report a bit, and September CPI likely doesn’t change the near-term path of the Fed (which was already quite hawkish).”

Still, persistent inflation remains a problem for the Fed and for investors’ worries around the central bank’s policy tightening.

“The turnaround is a welcome respite for investors, but the market still requires greater clarity on the extent of tightening still ahead,” said Brian Levitt, global market strategist at Invesco. “The focus remains on the pace of inflation and the underlying strength in the jobs market. A market rally will likely commence when the market believes that a Fed tightening pause is in the offing.”

There’s still more economic data this week, too. September’s retail sales will come out at 8:30 a.m. ET. Later in the morning, investors are looking forward to the latest consumer sentiment figures from the University of Michigan.

https://www.cnbc.com/2022/10/13/stock-market-futures-open-to-close-news.html

Japan stocks up more than 3%, Asia markets gain after Wall Street’s rally

Shares in the Asia-Pacific jumped on Friday, taking the lead from Wall Street overnight as investors shook off a strong inflation report.

The Nikkei 225 in Japan was 3.25% higher at 27,090.76, while the Topix gained 2.35% to 1,898.19. Japan’s yen plunged to its lowest levels against the U.S. dollar since 1990 overnight before paring losses, and is still trading at 147-levels.

The Hang Seng index in Hong Kong was 1.93% higher in the final hour of trade after climbing 3.9% earlier in the session, and the Hang Seng Tech index was up 2.16%. In mainland China, the Shanghai Composite was up 1.84% at 3,071.99 and the Shenzhen Component rose 2.81% to 11,121.72.

In Australia, the S&P/ASX 200 gained 1.75% to 6,758.80. South Korea’s Kospi advanced 2.3% to 2,212.55 and the Kosdaq climbed 4.09% to 678.24. MSCI’s broadest index of Asia-Pacific shares outside Japan was 2.15% higher.

Singapore’s GDP grew 4.4% in the third quarter and is expected to further tighten its monetary policy

https://www.cnbc.com/2022/10/14/asia-markets-us-stock-rally-inflation-cpi-singapore-gdp-japan-yen.html

Dow slumps more than 500 points after key consumer inflation reading is hotter than expected

Stocks fell Thursday morning, erasing earlier gains, after a key consumer inflation report came in hotter than expected, signaling that the Federal Reserve will likely continue with aggressive interest rate hikes.

The Dow Jones Industrial Average fell 500 points, or 1.73%. The S&P 500 slipped 2.10% and the Nasdaq Composite slumped 2.80%. The yield on the 10-year U.S. Treasury spiked above 4% as bonds sold off – yields are inverse to price.

The reversal in early gains came after the September consumer inflation report was higher than economists expected. The consumer price index increased 0.4% for the month, more than the 0.3% estimate from Dow Jones. On an annual basis, inflation was up 8.2%.

The report signals that inflation is a persistent problem even amid large interest rate hikes from the central bank. Going forward, the Fed will likely have to keep delivering increases and keep rates high until there are signs that inflation is cooling off.

“A lot of times you can try to find a silver lining in some of the numbers – I can’t. I think that’s why you’re seeing this truly atrocious reaction right now,” said Steve Sosnick, chief strategist at Interactive Brokers.

Stock futures had surged as the British pound gained more than 1% versus the U.S. dollar on a report that the government there may be rethinking a tax cut plan that had exacerbated a decline in the currency to the lowest in decades at the end of September, putting global markets on edge.

Thursday’s CPI report comes a day after the government said the producer price index, another inflation gauge, rose more than expected.

Investors also digested minutes from the September Federal Reserve meeting, released Wednesday. The minutes showed the central bank expected to keep hiking interest rates until it sees receding inflation. But one comment made some think the Fed might instead slow the rate hikes, if not roll them back, if financial markets tumult continued.