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April 13, 2018

Stocks Finish Lower in Volatile Week

 

Banks Beat Earnings Estimates, Prices Fall

Three of the largest US banks reported earnings this morning, all beating expectations and then promptly selling off.  Holistically, banks stand to benefit in a rising rate environment, but the existing flat yield curve, continued geo-political uncertainty and challenges on the regulatory front continue to wreak havoc on bank share prices.  Wells Fargo (WFC) alerted investors that their stronger than expected earnings may change once their settlement with regulators is finalized.  Citigroup (C) beat estimates and posted one of their strongest equity trading revenue numbers in the past 8 years, but fixed income trading failed to meet expectations and the investment banking team continued to struggle.  Jaime Dimon, CEO of JPMorgan Chase (JPM), reflected positively on another robust quarter for his bank, but was cautious about the future saying “the environment is intensely competitive and lending was flat for the quarter.”

 

 

Major US stock indices were slightly lower on the day on the challenges in the financial sector as well as the uncertainty in both Syria and Washington DC.  The DJIA was down 0.50% on the day, while the S&P was down 0.29% and the NASDAQ was down 0.47%.  The 10-year UST rallied about 1.5 basis points on the day closing at a yield of 2.82%, about 2bps higher than where it began the week.  The swap curve continues to be historically flat with the difference between the 2 year and the 10 year swap rates at a paltry 18 bps.  The US Dollar was down a fraction vs most major currencies.

 

 

US Oil Rig Counts Up

For the 10th week in the past 12 US oil rig counts increased. Currently the US has 815 working rigs, the most since March 2015, up 7 from the prior week. The US is adding to the record supply in the world crude markets, even as OPEC works to limit production and curb the surplus that had existed.  According to the International Energy Agency, less than 10 percent of the worldwide crude surplus remains as a result of OPEC efforts to limit their production as worldwide demand climbs.  In spite of this news, WTI Crude Oil Futures were up 0.3% on day closing at $67.25/barrel.

 

 

Consumer Sentiment Still Strong

Today the University of Michigan Sentiment Index came in below estimates of 100.3 at 97.8, albeit the number represented the index’s strongest level since 2004.  Rising costs of borrowing money and a small decrease in the rate of economic growth accounted for the majority of the miss in the figure.  The index was boosted by increasing expectations around income growth, which resulted in increasing confidence in home and auto purchases.   

 

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