WSt30_m takes CPI in stride, awaits bank earnings

The latest readings on the US consumer price index (CPI) offered up mixed messages surrounding the Fed’s next moves on US interest rates.

But another major catalyst looms for the WSt30_m on Friday, as JPMorgan releases its latest quarterly earnings as the unofficial curtain raiser to the US earnings season.

 

First, we break down the latest US inflation report.

On one hand, the headline March CPI number came in at 5%, slightly lower than the forecasted 5.1% print, but still a notable step down from February’s 6% year-on-year figure.

Similarly, the March month-on-month number (March 2023 vs. February 2023) also posted a 0.1% print that’s just shy of the expected 0.2%.

On the other hand, the core CPI print (excludes more volatile items such as food and energy prices) ticked back up to 5.6%, slightly higher than February’s 5.5% year-on-year number.

This shows that underlying inflation remains stubborn, despite the Fed having already raised rates by 475 basis points over the past 12 months in hopes of vanquishing inflation.

The mixed-messaging within the CPI report served to maintain market bets for a 25-basis point rate hike at the FOMC meeting in early May, with such odds hovering above 70%.

 

How did WSt30_m react to the CPI announcement?

The Wall Street 30, which mirrors the underlying Dow Jones Industrial Average index, quickly gave up immediate gains following the CPI release to end Wednesday’s session lower by 0.11%.

However, at the time of writing, the WSt30_m is paring yesterday’s losses.

This index has also been, in recent sessions, testing a critical resistance level: the 33,776 mark which is also the 61.8% Fibonacci retracement level from 2022’s plummet between January through October.

 

Markets eager to learn about recent health of US financial system

Banking heavyweights traditionally serve as the curtain raiser for the once-per-quarter US earnings season.

And here are some big names on Wall Street that are due to release their respective earnings in the coming days:

• JPMorgan (the largest US bank): Friday, April 14^th
   
• Goldman Sachs: Tuesday, April 18^th

 

And lest we forget, the earnings coming out of these US banks are set to be framed within the context of last month’s banking turmoil.

Not only did 3 regional banks collapse in the world’s largest economy, but contagion fears reverberated around the world, stoking rumours of a repeat of the 2008/2009 Global Financial Crisis.

Shareholders, prospective investors, and traders are eager to find out just how well these banks weather the store:

• Could these banks have benefitted financially from either the heightened market volatility and increased deposits?
   
• Or did they also incur damage from the strains on the financial system, with the likes of JPMorgan, Wells Fargo, and Citigroup pledging US$30 billion in cash for First Republic Bank in order to prevent yet another collapse.

 

How might WSt30_m react to banking earnings?

Note that Goldman Sachs accounts for about 6.5% of the total weightage of the Dow, while JPMorgan accounts for about 2.5% of the index.

Hence, the market’s collective reaction to the Q1 financial results of these banks, which together account for 9% of the Dow index, is set to have a major influence on WSt30_m’s performance in the days ahead.

• Should these Wall Street titans produce better than expected financial results despite the Q1 banking turmoil, while allaying fears of further contagion, that may see the WSt30_m punch above this key Fibonacci resistance level and potentially breach the 34,000 psychological line.
   
• However, should the banks’ C-suite unveil evidence of carnage within their respective institutions, while refusing to rule out further contagion and recession risks, that may invite bears to test support at the WSt30_m’s 100-day simple moving average (SMA).