Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets in the day ahead. Today is Friday, Jan. 12, 2024. The Bottom Line segment of today’s podcast starts at (5:52) for listeners who want to skip ahead.
0712: Updates with earnings below.
State of Play
Stocks didn’t move much yesterday with the exception of small caps, which dropped again. If this sounds like a familiar story it’s because the same thing has transpired in markets the last couple of days. Then yesterday evening we had US and UK airstrikes against Houthi targets in Yemen. As we look at our board of indicators at 0635, most of the action is in the commodities market, specifically oil:
Crude oil is rallying on the Red Sea news, with WTI up 4% to trade around $75/barrel. Copper is unchanged. Gold is up 1.5%, presumably as a disaster hedge;
Stock index futures are mixed, with tech down a bit (Nasdaq -0.3%) but small caps pointing to modest gains (Russell 2000 +0.2%);
Bonds are unchanged. The 10-year yield is 3.99% whilst the 2-year yields 4.27%. Both of these are down a bit from yesterday, which means bonds rallied despite a hotter-than-anticipated CPI print.
Earnings
Today marks the unofficial start of earnings season. There have been a few companies report through the week but these were almost all small potatoes. Today brings major banks and financial institutions and these are coming fast and furious already. Blackrock (BLK 0.00%↑) just reported an earnings beat and also announced that it is acquiring Global Infrastructure Partners for $12 billion.
UnitedHealth (UNH 0.00%↑) beat on top- and bottom-line estimates and reaffirmed guidance. Delta Air Lines (DAL 0.00%↑) also beat on top- and bottom-line estimates but the stock is dropping pretty precipitously presumably due to outlook.
JPMorgan (JPM 0.00%↑) and Bank of America (BAC 0.00%↑) results were mixed and those stocks are moving lower in the pre-market. Wells Fargo (WFC 0.00%↑) beat on top- and bottom-line estimates but that stock too is dropping.
That leaves Citigroup (C 0.00%↑) as the last major name we’re still waiting on.
It’s not all about earnings however, as we also get producer prices at 0830. Also known as wholesale prices, these can be seen as a leading indicator for consumer prices under the premise that producers pass higher costs off to consumers.
Economists expect the headline PPI to come in at 0.1% month-over-month, a slight increase over last month when it was unchanged. That would raise the annualized figure to 1.3% from 0.9%. Core PPI, which excludes food and energy, is expected to print at 0.2% MoM compared to 0.0% last month. The annualized Core PPI would decrease slightly however, to 1.9% from 2.0%.
The Bottom Line©️
Even though producer prices hold up pretty well as a leading indicator for consumer inflation, this datapoint doesn’t always move markets. When it comes to earnings, these early reporting banks almost always beat top- and bottom-line estimates. More interesting will be data on loan loss provisions and of course the outlook.
The whole Red Sea stuff is attracting a lot of attention but judging by oil prices investors aren’t particularly concerned about it. Yeah oil is higher but 4% does not panic make. A friendly reminder that financial markets are often a better gauge of geopolitical calamities than news headlines — much less armchair analysts on social media.
Presumably earnings will drive things today. May have to update this once the big banks all report.
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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Earnings, Producer Prices, Red Sea Trouble