JP Morgan kicked off Q1 ’23 earnings season with a record beat. The US’ largest bank by assets saw strong deposit inflows as it raised its guidance for net interest income. The question is how will regional banks report? It’s likely to be a different story. Meanwhile we had a host of important economic data this week – showing inflation is cooling (albeit very slowly) and the economy is stalling. But there was little which will stop the Fed raising rates by 25 bps May 2nd…
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Pop then Drop! Green Light for Fed Hike
Investors cheered the news of a slightly lower than expected CPI print from March. However, Core Inflation exceeded expectations and actually increased. That’s important – as that’s what the Fed are focused on. Here’s the thing: with Core inflation running at 5.6% YoY – don’t expect cuts anytime soon. It’s almost 3x the Fed’s target. Yes inflation is cooling – slowly – but not where the Fed need it to be. From mine, you can lock in another 25 bps for May 2nd. Bond markets see that. Equities are yet to get the memo
A Great Quarter… Can it Continue?
The S&P 500 recorded an impressive gain of ~7% for the first quarter. Optimistic on the resolution of the banking crisis – and prospects of Fed rate cuts in the second half – the bulls have regained their mojo. But this raises a question: why would the Fed cut rates? It’s not because inflation is under control. For example, could it be because the economy needs assistance? Stress in the financial system? A credit event? If so, is that a good thing? Here I also look at the monthly chart – it deserves our attention.