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Good evening,
Higher US retail inflation triggered a selective sell-off in equities, with the Dow and Russell indices losing 1 and 2% while Nasdaq benchmarks edged marginally higher on the back of a strong semiconductors sector. All sectors except information technology declined despite robust earnings reports from banks. Treasury yields continue to shift upwards with 30-yr yields closing above 5% for the first time in seven weeks, the $ appreciated mainly against the € and ¥ as expectations for a Fed rate cut eased. The Nasdaq Composite reached a new record, driven by a surge in chip stocks after Nvidia, up 4%, said it received White House approval to resume selling its H20 chips in China.
In European markets, the FTSE 100 traded at a record high today as global equity investors seek to diversify away from Wall Street over tariff uncertainty and accumulated a 9.5% gain YTD in £ and 16% in $ versus a 6% increase for the S&P 500.
On trade deals, Trump announced an agreement with Indonesia under which the US will impose a 19% levy on Indonesian imports (compared with a 32% threat last week), while American goods will enter Indonesia tariff-free.
In data today, US headline (CPI) inflation rose 2.7% YoY, in line with expectations but the highest since February, signalling that Trump’s tariffs are pushing up consumer prices. CPI increased by 0.30% MoM, and Core inflation grew by 2.9% YoY, also the highest since February, but a touch below expectations (3%). Prices moved up for furniture, clothing and other tariff-sensitive items, as companies are starting to pass tariff costs on to consumers.
Following the data release, futures traders slightly scaled back their expectations for rate cuts but continue to anticipate around two quarter-point reductions by the end of the year. Futures are pricing in a 97% probability for no rate change in late July by the Fed and 52% for a 25bp cut in September.
JP Morgan CEO Dimon emphasised that maintaining the Fed’s independence is “crucial,” amid growing pressure on Jay Powell from the Trump administration, after Treasury Secretary Bessent said that a “formal process” to select the successor to Powell had begun. (WSJ)
Other data: China released Q2 GDP, industrial production and retail sales for June, showing a slight softening. GDP expanded 5.2% YoY in Q2, a solid rate, but growth has cooled from Q1. The economy is decelerating but still resilient, especially with strong policy support. Industrial output rose 6.8% YoY, the strongest pace since March, particularly in high-tech and export-driven sectors, a positive driver for overall growth. Retail sales slowed to +4.8% YoY, the slowest in several months, as consumer spending is disappointing.
Canada’s headline inflation also accelerated in June, +1.9% YoY, the highest since March and above estimates.
Earnings releases: The Q2 season officially kicked off today with JP Morgan, Citigroup, Wells Fargo, Bank of New York Mellon and Blackrock all beating top and bottom estimates, mainly on better-than-anticipated trading activity, but their outlooks diverged, and shares traded mixed. (Axios)
We’ll cover the details for JP Morgan (mcap $797bn) as it's by far the largest bank. Revenues fell 10% YoY to $45.7bn and net income dropped 17% to $15bn ($5.24/sh). It reported solid fixed income (+14%) and equities trading (+15%) revenues as well as investment banking figures (+7%). JPM shares ended 0.7% lower today but remain 20% higher this year and are near their all-time high.
However, the biggest movers were Citigroup and Wells Fargo. Despite beating estimates, Wells Fargo fell short on net interest income and lowered its full-year growth forecast, while Citigroup exceeded expectations for net interest income, increased its share buybacks, and raised its revenue outlook. As a result, WFC’s shares fell 5.5% and Citi gained 3.7% today. Citigroup rallied 30% YTD compared to a 7% gain for the financial sector and is trading at the highest level since late 2008.
Earnings tomorrow: Goldman, Morgan Stanley, Bank of America, J&J, Progressive and ASML (Dutch), all before the market opens.
Data tomorrow: UK inflation; US producer prices and industrial production. Also, the central bank of Indonesia holds a policy meeting (25bp cut exp).
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