Market 01/12: Positive PPI as banks start Q4 ER season

Producer inflation PPI continues downward trend - Fed rate cut expectations return

Contrary to yesterday's unfavorable CPI report, today's PPI report makes the market happy again:

Overall PPI growth: +1% y/y — although higher than previous month (0.8% y/y) but lower than expectations (+1.3% y/y)
- Core PPI maintains downward trend: +1.8% y/y (lower than estimates and previous month's data: +2%).

Notably, monthly PPI growth maintains the longest decline streak (3 consecutive months) since 2020: December decline -0.1% MoM.

Compared to previous month, the decline in PPI index mainly comes from prices of energy and construction costs.

In addition, prices energy and food are contributing to slowing PPI (y/y growth negative).

Service inflation remains persistent even at producer level: Service prices rise again.

But goods continue deflationary streak: Goods PPI declines -0.4% MoM:

Of which, diesel oil prices decline -12.4% accounting for half of the final goods price decline.
- PPI excluding food, energy and trade (less volatile index) increases +0.2% MoM, in line with forecasts.

Market continues to become excited as it returns to betting that: interest rates will be cut at all meetings in 2024 from March…

~ 7 cuts to reach level 3.50%-3.75% in December.

Meanwhile, the number of planned Fed cuts is only 3, and officials are still debating whether a March cut is too early.

Q4/2023 Earnings Report

Q4 earnings reporting season officially begins with major banks like JPM, BofA, Citi and Wells. Additionally, UnitedHealth also releases earnings report today.

(1) JPMorgan: Record annual net interest income

Revenue: 39.94 billion USD (expected 39.78 billion USD).
EPS: 3.04 USD (lower than expected 3.32 USD).
Profit declines -15% QoQ remaining 9.31 billion USD due to 2.9 billion USD fees from regional bank bailouts.

2024 net interest income forecast: 90 billion USD, higher than the 86.5 billion USD estimate (assuming 6 rate cuts in the year).

(2) Bank of America: Stock drops as earnings miss expectations

Revenue: 21.96 billion USD, missing expectations of 23.7 billion USD and lower than 2023 (24.53 billion USD).
Profit: 3.1 billion USD, down from 7.1 billion USD in 2023.
EPS: 35 cents, below expected 53 cents.
Net interest income: 1.395 billion USD, in line with analysts' predictions.

BofA stock drops 2.5% to 32.24 USD after earnings miss expectations

(3) Wells Fargo: Bleak outlook for 2024 revenue

Wells Fargo stock falls as the bank announces increased credit loss provisions and expects net interest income to decline next year

Revenue: 20.49 billion USD, beating expectations of 20.3 billion USD.
EPS: 86 cents, in line with Wall Street estimates.
Credit loss provisions: 1.28 billion USD, compared to 957 million USD a year ago, mainly from credit cards and commercial real estate loans.
Net interest income: 12.77 billion USD, above expectations of 12.76 billion USD.
Wells Fargo shares fell -2.2% on Friday to 48.01 USD.

(4) Citigroup: Disappointing Q4 results and plans to lay off 20,000 employees

Net loss: 1.8 billion USD due to a series of costs such as 780 million USD layoff, other restructuring-related costs, 880 million USD loss from Argentine peso devaluation,… → EPS down 2 USD.
Revenue down -3% YoY, reaching 17.4 billion USD (below expectations of 18.7 billion USD).
- Citi says revenue would rise 2% excluding divestitures and peso devaluation impact.
2024 revenue expected to rise 4% from 2023, reaching 80-81 billion USD, excluding divestitures.

Citigroup says it is cutting 10% of staff (~20,000 employees) to boost business results and stock price.

(5) BlackRock: Earnings and revenue beat estimates

Revenue: 4.63 billion USD, above expectations of 4.6 billion USD.
EPS: 9.66 USD, well above forecasts of 8.84 USD.
BlackRock also announced acquisition of Global Infrastructure Partners (GIP), an asset manager worth 100 billion USD, for 12.5 billion USD. → This makes BlackRock the world's second-largest infrastructure asset manager.

(6) UnitedHealth Group: Stock falls despite revenue beat due to higher medical costs

Revenue: 94.43 billion USD, up from 82.79 billion USD last year.
EPS: 6.16 USD, beating expectations of 5.78 USD.

UnitedHealth Group shares fell about -3% in the trading session despite positive revenue report, mainly due to increased medical claims costs in Q4.

Credit card delinquency rate rises to decade high

According to Philadelphia Fed, credit card delinquency rate has surged since early 2021 amid high inflation.

As of September: ~3.2% credit card debt delinquent >30 days, highest in 10 years.
60- and 90-day delinquency rates also surged.

→ Large banks (assets >100 billion USD) are trending toward reducing credit limits.

Revolving balances also rose sharply from the lowest level since Covid.

In Q3 last year, revolving balances also rose to over 600 billion USD.

This is the third time in 75 years that the savings rate on gross national income (GNI) is declining.

Red Sea tensions escalate, putting pressure on inflation and oil prices

US and UK conduct about 70 airstrikes targeting Houthi forces in Yemen early morning on 01/12.

WTI oil price rises 2.4% to 74 USD/barrel, Brent oil price rises 2.25% to 79.15 USD/barrel after the airstrikes.

Other news:

S&P 500 officially surpasses 4,800 for the first time since January 2022, just 20 points below the all-time high.

Alibaba shares plunge -77% from 2020 record high, at a price only half that of rival Tencent.

Tesla cuts prices 6% on electric vehicles Model 3 and Model Y in China to maintain leading position in premium segment.
- Electric car sales in China rose 37% last year, accounting for about 60% of global sales.

At its German factory, Tesla halts production for 2 weeks due to Red Sea shipping disruptions causing parts shortage.

US regulator considers revoking Boeing's self-inspection rights for aircraft after the mid-air explosion of 737 Max 9.

Morgan Stanley settles SEC fraud allegations for 249 million USD to reach non-prosecution agreement over leaking customer confidential info before selling large stock positions.