Proactive Investors -
Wall Street is likely to give back some of Thursday’s strong gains when the market opens as investors anticipate the first quarterly earnings from the US’s largest financial institutions since the failure of Silicon Valley Bank and Signature Bank in early March, while the latest retail sales numbers will give further insight into the health of the US consumer.
Futures for the Dow Jones Industrial Average were up 0.1% in Friday pre-market trading while those for the broader S&P 500 index were flat at 0.04% down and contracts for the Nasdaq-100 shed 0.47%.
The US benchmarks rallied on Thursday after the Producer Price Index (PPI) for March came in lower than expected, boosting hopes that the US Fed could put a pause on rate hikes next month.
That followed Wednesday’s Consumer Price Index (CPI) release which revealed sticky core inflation. The Nasdaq jumped 2% to 12,166, while the DJIA gained 1.1% to 34,030 and the S&P 500 added 1.3% at 4,146.
“Another big fall in US inflation, this time in headline PPI for March as well as core prices is fuelling optimism that we could start to see a similar effect filter down into the CPI numbers in the coming months, thus bringing us closer to possible rate cuts later this year,” commented Michael Hewson, chief market analyst at CMC Markets UK.
“This may well be true, however with the US labour market still holding up reasonably well it’s hard to imagine the Federal Reserve will be in any rush to cut rates while the US economy continues to hold up reasonably well on the jobs front.”
March’s retail sales number will indicate how consumer sentiment has fared in the wake of the banking turmoil, with the latest US retail sales numbers, along with the latest first-quarter updates from JPMorgan (NYSE:JPM), Citigroup (NYSE:C), and Wells Fargo (NYSE:WFC), Hewson noted.
“After a strong start to the year US retail sales stalled in February slipping -0.4%, in the aftermath of the 3.2% surge seen in January. Personal spending also saw a similar slowdown in the same months, slowing from 2% in January to 0.2% in February,” Hewson added.
“With all the concerns over bank runs in the US during March and consumers shifting their funds from smaller US banks to the biggest ones, consumer confidence managed to hold up pretty well. That doesn’t necessarily mean that we’ll see a similar pickup in retail sales. Expectations are for another weak reading of -0.4%.”
“The bigger test, however, will be in how the US banks fared in the first quarter and more importantly, how lending to US businesses and consumers held up during what was a turbulent quarter for the sector,” he said.
JP Morgan’s earnings are seen as a bellwether for the broader financial sector and on the back of recent banking stress in the US, today’s results will be closely watched, commented TickMill Group market analyst James Harte.
“In terms of headline figures, Wall Street is looking for EPS of $3.41 on revenues of $36.125 billion. This would mark a slight uptick in revenues, though a mild drop in earnings,” he said.
FTSE welcomes US bank earnings
FTSE 100 has welcomed positive news among the US banks and looks set to close the week higher.
The index is up 46 points, or 0.59%, to 7,889.
Banks are on top with Standard Chartered (LON:STAN), HSBC (LON:HSBA) and Barclays (LON:BARC) leading the way, up 3.7%, 2.7% and 2.6% respectively.
US banks kick off strong
Wells Fargo and JPMorgan got the US bank earnings season underway, with the sector and wider market hoping it acts as a bellwether for what is to come.
The fourth-largest lender in the US, Wells Fargo, reported a profit of US$4.99bn in the quarter to 31 March, compared with a profit of US$3.79bn in the same period a year earlier.
However, the bank did set aside US$1.2bn to cover potential loan losses, compared to a release of US$787mln a year earlier.
Included in that was a US$643mln increase in the allowance for credit losses that reflected an uptick for commercial real estate loans.
JPMorgan, on the other hand, reported a 52% increase in profit to US$12.6bn in the first quarter, although set-aside provisions rose by 56% to US$2.3bn.
While revenues climbed 80% to US$5.2bn in its consumer and community banking unit, its Wall Street investment arm was weighed down by a damp market for mergers and acquisitions.
FTSE 100 reacted positively to the news and shot up sharply, with the index now up 35 points, or 0.4%, to 7,878.
Lloyds (LON:LLOY) was up 0.7%, Barclays gained 0.9%, Natwest (LON:NWG) jumped 0.9% and HSBC added 0.3%.
Premier Inn owner lifted by Peel Hunt upgrade
Premier Inn owner Whitbread (LON:WTB) saw shares gain over 2% to 3,078p after analysts at Peel Hunt upgraded the hotel owner to a Buy from an Add while hiking its target price to 4,000p from 2,850p.
Peel Hunt said the basis for the upgrades is built on a belief that Whitbread will update the market positively with its prelims on 25 April.
Demand for UK budget hotels remains strong with leisure while “white collar” demand is still recovering, Peel Hunt added.
Cost inflation has also reached its peak, the broker said, and Whitbread may see some upside from lower energy costs further down the line, although for this year it is already hedged at 75%.
In the medium term, Peel Hunt believes Whitbread will begin to reap the rewards of its investment in technology in the form of higher revenues and more efficient marketing.
Longer term, Premier Inn Germany is expected to become the largest hotel chain in the country, proving its investment case and becoming a material contributor to profit.