Bank Earnings Impress, Inflation Expectations and Hawkish Fed Speak rattles stocks

• Fed rate hike odds emerge for June meeting +16.7%
• UMich keeps Fed focused on inflation fight
• Early bank earnings impress

Wall Street got scared after strong results from JPMorgan, surging inflation expectations, and some hawkish Fed speak, supported the idea that the Fed could raise rates not just in May but also in June. ​ There was too much news to digest this morning, but the key takeaway is that the Fed has room to do more harm. ​

Retail sales posted a second consecutive monthly drop, as the US consumer shows a shift in spending behavior. Spending on autos were clearly impacted by higher rates, which weighed on the overall index by nearly one-third. ​ The headlines retail sales drop of 1.0% in March was much worse than the eyed decline of 0.5%. ​

Fed’s Waller said core inflation has not shown much improvement. Adding that inflation is still too high and that my job is not done. ​ The way Fed’s Waller talking about inflation is as if it is hotter than a billy goat with a blow torch.

JPMorgan

JPMorgan kicked off this earnings season with a BANG! This is how you crush an earnings report. ​ JPMorgan delivered record first-quarter revenue and posted a profit boost of 52%, while raising their net interest income by $7 billion for the year. No surprises came from loans or deposits. ​ This was a strong report that obviously contained a cautious tone as storm clouds remain. ​ ​

JPMorgan CEO Dimon said, “The U.S. economy continues to be on generally healthy footings – consumers are still spending and have strong balance sheets, and businesses are in good shape.”

The other bank earnings from Citigroup and Wells Fargo were solid as well. ​ More importantly, one of the first major retail banks, PNC reported earnings that showed deposits slightly rose q/q, falling towards the lower third of the consensus range of estimates. Wall Street will closely watch the rest of the banks have renewed deterioration in asset quality and if deposits can remain stable. ​ ​ ​

FX

The euro was softer as the dollar staged a rally as surging inflation expectations sent yields sharply higher.  Fed rate hike expectations are now pricing in an 18.4% chance of a hike at the June 14th meeting.

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