The US earnings season kicked off yesterday with the largest US banks proving once again they can top analysts’ expectations by wide margins. Growth in investment banking, capital markets, and paring back loan loss reserves were major factors contributing to the bottom lines of JP Morgan, Goldman Sachs, and Wells Fargo. Citigroup and Bank of America will also announce results today and it will be interesting to see if the positives surprises continue.
Despite the strong kickoff in earnings this season, the wider markets were not overly excited. The one percent drop in technology and consumer cyclical sectors overshadowed the rally in energy and financial stocks. Coinbase’s direct listing on the Nasdaq exchange actually made the biggest headlines yesterday, with the company valued at $86 billion at the end of a volatile session having reached a market cap of $112 billion earlier in the day.
While there’s lot of excitement in equities, traders are also keeping an eye on the fixed income markets. US Treasuries are showing that investors are becoming more convinced by the Federal Reserve’s message that inflation spikes are only transitory and won’t lead to a tightening of policy anytime soon. US 10-year Treasury yields dropped to a low of 1.61% yesterday, dragging the dollar close to a one-month low. The drop in yields also explains the recent outperformance of growth stocks relative to value.
Traders will be closely watching today’s US retail sales data for March and weekly jobless claims. An upside surprise in retails sales won’t necessarily translate into a higher dollar. Tuesday’s CPI data release topped market forecasts and increased at the largest annual pace in almost three years, but still, the dollar ticked lower. For the greenback to resume this year’s uptrend, it requires strong positive surprises on the economic front that convince investors again of increasing inflationary pressures.