Rise and shine everyone.

A lot to look forward to today. Firstly, we have the banks reporting earnings, kicking off the official start of Q4, 2024 earnings season.

Then for the US, we have CPI numbers coming in. After yesterday’s downward surprise in the PPI numbers, the market is surely expecting the CPI to be softer as well. However, we saw bond yields still propel higher, and the market reversing some of those early gains. The Mag 7 underperformed, with META, TSLA, and NVDA each declining over 1.4%. LLY dropped 6.8% following a revenue miss in its preliminary report. Despite this, broader market action was stronger, with 75% of S&P 500 stocks closing in positive territory. The Russell 2000 index outperformed with a 1.3% gain.

We can clearly see that the market needs further reassurance that inflation will decelerate sustainably. The hawkish tone that the Fed has set needs to be reversed and for that, we would need a softer CPI numbers over the next few months.

Meanwhile, UK December inflation softened, with CPI rising 0.3% MoM and 2.5% YoY, both below expectations. Services CPI hit its lowest since March 2022, easing to 4.4% YoY. Following this, 10-year gilt yields dropped nearly 10bps to 4.81%, and BOE futures now price 50bps of cuts in 2025, up from 35bps previously.

In Asia, BOJ Governor Ueda reaffirmed Deputy Governor Himino’s remarks that next week’s policy meeting (Jan 24) will be “live,” pushing JPY/USD up 0.5%. Markets now price a 70% chance of a rate hike, up from 50% last week. Japan’s 2-year JGB yield hit its highest level since October 2008, while 30-year yields climbed to levels not seen since 2009.

South Korea arrested suspended President Yoon on a second attempt by anti-corruption investigators. Markets remained unaffected, similar to the first attempt.

Company news:

• TikTok is preparing for a U.S. shutdown on January 19, as the ban is expected to take effect.

• The Dutch government plans to tighten export controls on chip equipment starting April 2025, requiring permits for specific tools. Watch ASML for potential implications.

Bank Earnings

Large banks have had a bumpy ride lately, but optimism is brewing post-election, thanks to hopes for lighter regulations and stronger revenues. Investment banking is likely to shine in Q4, with equity underwriting and loan syndications leading the charge. Rising long-term rates are a double-edged sword—good for margins but mixed for fixed-rate assets. On the regulatory side, a friendlier Fed outlook could boost larger banks, while regionals may face pressure but could benefit from M&A activity. Inflation and policy uncertainty keep things interesting.

As always we will be watching JP Morgan closely, because it presents the most well-rounded picture among the large banks. Here’s my cheatsheet for decoding bank earnings:

Chart of the Day - GS CPI Preview

GS Research anticipates a 0.25% rise in December core CPI, aligning with a year-over-year rate of 3.27%, slightly below the consensus of 3.3%.

Headline CPI is forecasted to climb 0.40%, driven by higher food and energy costs.

Used car prices are expected to rise 1.0%, airfares 1.0% due to seasonal factors, and car insurance premiums 0.3%.

Over the next year, disinflation is projected in autos, housing rentals, and labor markets, with core CPI expected to decelerate to 2.7% by December 2025.

What We’re Watching

I will be out for the rest of the week and back on Tuesday. So for the next three days we’re watching:

• Bank earnings today and tomorrow

• US CPI today

• China’s 4Q GDP numbers; House Price Index; and Retail Sales (Thursday late night for the US; Friday morning in Asia)

• US Building Permits and Housing Starts on Friday

Calendars

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)