Bank Earnings on the Horizon, while Middle East Escalation Looms Large

Geopolitical tensions at the forefront again. Potential for an imminent Iranian attack on Israel spurred a risk-off session, with safe-haven assets seeing high demand and swap rates/UST yields plummeting. Rates grinded lower throughout the session and closed 6-9bps lower across the curve. Oil and the “fear gauge” VIX surged on the conflict escalation as both reached (intraday) their highest levels since October. Brent and WTI crude oil closed at ~$90 and $85.5 per barrel, respectively, while the VIX surged over 15% higher today to ~17.5. Meanwhile, equities sold off as the S&P 500, NASDAQ, and DJIA declined 1.24%-1.62%.

Bank earnings season begins as JPM falls nearly 6%. The first earnings season of 2024 kicked off today and was highlighted by JPM’s results. JPM reported impressive but lower-than-expected net interest income, earning $23.1B of NII in Q1. NII was down 4% sequentially due to “margin compression and lower deposit balances”, the first decline in 11 quarters. Looking ahead, CEO Jamie Dimon expects “normalization” to continue for NII, and the bank expects to earn $90B of NII this year. Elevated expenses also played a role in the ~6% share price decline, as higher compensation and a $725mm charge for an FDIC assessment related to last year’s bank failures drove a 13% Q1 cost increase. On the other hand, JPM reported EPS of $4.44, well ahead of the 4.15% estimate, while revenue rose 6.6% to nearly $42mm.

Consumer sentiment falls on a worse inflation outlook. UMich sentiment data released today showed that consumer sentiment fell more than forecasted vs. March (0.4 est. decline vs. 1.5 act.), largely due to higher inflation expectations. 1-year inflation expectations were 3.1% vs. the 2.9% estimate. Survey director Joanne Hsu said, “while consumers are fully aware that inflation has come down substantially since 2022, they are not satisfied by the current pace of disinflation.” The report also said that “consumers are reserving judgement about the economy in light of the upcoming election, which…could have a substantial impact on the trajectory of the economy.”