Head of Equity Strategy
Summary: The three major US banks JPMorgan Chase, Wells Fargo, and Citigroup have reported Q1 earnings all showing strong growth in net interest income and higher than estimated earnings. From a relative perspective it is clear from the deposit figures and provisions from credit losses that JPMorgan Chase was the big winner and the market reaction today is reflecting this. While the three banks are all mentioning that they have not tightened their credit conditions, Well Fargo says that consumer spending has softened in late Q1.
Net interest income growth pulls earnings higher
US equities are unchanged today but financials are up 1.2% driven by the banks industry group up 3.2% driven by better than expected results from JPMorgan Chase, Wells Fargo, and Citigroup.
JPMorgan Q1 earnings:
Wells Fargo Q1 earnings:
Citigroup Q1 earnings:
Judging from the market reaction JPMorgan Chase was the biggest winner in Q1 by the big banks while Wells Fargo clearly was the biggest relative loser.
Tighter credit conditions or not?
An interesting comment from JPMorgan during the conference call was that the bank it not tightening credit yet, but the Conference Board US Leading Credit Index suggests that credit conditions are indeed higher than observed in most months since the Great Financial Crisis. While JPMorgan may not be tightening credit standards yet but the CEO Jamie Dimon said that people need to be prepared for higher rates for longer which will add to tighter credit conditions over time. Dimon also said on the call that the banks that could get into trouble could be counted on one hand and that many regional banks have sticky mid-market deposits. Next week we get the first test of Q1 earnings from US non-large financial institutions such as US Bancorp and Charles Schwab.
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Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
