Mideast tensions send the Swiss franc, oil and gold sharply higher

• Univ of Mich: Short- and longer-run inflation expectations surge (1-year rises to 3.8% and 5-10 year rise to 3.0%)
• Consumer  sentiment plunges from 68.1 to 63.0, worst slide since June 2022
• Bank stocks initial rally faded

It has been a very busy Friday on Wall Street. Stocks traded mostly lower as investors digested an impressive start to earnings, surging inflation expectations and rising tensions with the conflict between Israel and Hamas.  The latest potential escalation in the Israel- Hamas war triggered a wave of buying of oil and gold.  The Swiss franc remained on firm footing as safe-haven flows continued to come to Treasuries. 

Despite a challenging macro backdrop, US banks delivered upbeat earnings and a cautiously optimistic outlook. Investors expecting a more downbeat outlook for the consumer were surprised today.   

The bond market will remain volatile as the Fed speak will no longer be one sided and over uncertainty as to how the geopolitical risks may escalate in the short-term. Unless the bond market rally extends, this should still be a difficult environment for risky assets.     

Bank Earnings

JPMorgan, Wells Fargo, and Citigroup got this earnings season off to a surprisingly strong start.  JPMorgan posted another record-setting net interest income quarter and boosted their forecasts.  Wells Fargo delivered strong top and bottom beats and raised their guidance for full-year costs.  Citigroup had robust FICC sales trading results, while equities sales and trading revenue came in soft. 

JPMorgan CEO Dimon noted, “Currently, U.S. consumers and businesses generally remain healthy, although, consumers are spending down their excess cash buffer.”

Wells Fargo CEO Scharf said, “While the economy has continued to be resilient, we are seeing the impact of the slowing economy with loan balances declining and charge-offs continuing to deteriorate modestly.”

Cleary an economic slowdown is not quite here for the US economy and that could support the case that the Fed will keep rates higher for even longer.

USD/CHF Weekly Chart

If risk aversion remains the dominant theme next week, USD/CHF could see accelerated selling momentum if the bullish trendline that started in the middle of summer is breached.  To the upside, 0.9275 level provides critical resistance.

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