Markets hesitate as the earnings season begins

Dow sank 164, but advancers over decliners 4-3 & NAZ was up 16.  The MLP index crawled up in the 256s & the REIT index added 1+ to 390.  Junk bond funds inched higher & Treasuries had limited buying which lowered yields.  Oil rose 1+ to the 73s after US leads strikes against Yemen over Red Sea attacks & gold jumped 37 to 2056, nearing its record high.

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Inflation at the wholesale level moderated more than expected in Dec, providing evidence that price pressures within the US economy are continuing to gradually fade.  The Labor Dept said that its producer price index, which measures inflation at the wholesale level before it reaches consumers, fell 0.1% in Dec from the previous month.  On an annual basis, prices remain up 1%, up slightly from the 0.8% recorded in Nov.  Those figures are both lower than the 0.1% monthly gain & the 1.3% annual figure predicted.  In another sign that suggests high inflation is dissipating, core prices, which exclude the more volatile measurements of food & energy, were also unchanged for the month, lower than the 0.2% estimate.  The figure was up 1.8% on a 12-month basis, down from 2.2% the previous month.  The data comes a day after the Labor Dept reported that the consumer price index, which measures the prices paid directly by consumers, rose 0.3% in Dec, above expectations.  The back-to-back inflation reports will have major implications for the Federal Reserve, which has raised interest rates at the fastest pace in decades as it tries to cool the economy.   The central bank approved 11 rate hikes in the span of just 16 months, lifting the federal funds rate to the highest level since 2001.  Central bank officials have suggested in recent weeks that rate hikes are over & that they will soon pivot to cutting rates.  However, policymakers have offered little guidance on when they may begin to reduce rates.  Despite the hotter-than-expected CPI report, a majority of investors are pricing in a qtr-point reduction as early as Mar, according to the CME Group's FedWatch tool, which tracks trading.

Wholesale inflation cools more than expected in December

The US & the UK have “successfully conducted strikes” against Houthi targets in Yemen, Pres Biden said.  “Today, at my direction, U.S. military forces, together with the United Kingdom and with support from Australia, Bahrain, Canada, and the Netherlands, successfully conducted strikes against a number of targets in Yemen used by Houthi rebels to endanger freedom of navigation in one of the world’s most vital waterways,” Biden said.  The Iran-backed Houthi militia group began their drone & missile attacks on shipping vessels & cargo ships traversing the Red Sea late last year, drawing global condemnation.  The strikes on Houthi targets were “in response to continued illegal, dangerous, and destabilizing Houthi attacks against vessels, including commercial shipping, transiting the Red Sea,” according to a joint statement from the govs of Australia, Bahrain, Canada, Denmark, Germany, Netherlands, New Zealand, Republic of Korea, UK & the US.  Together with Greece, Singapore & Sri Lanka, the nations make up a coalition, Operation Prosperity Guardian, that was launched in Dec to combat Houthi attacks.  But they did not all participate in the strike: The US & Great Britain were the only 2 militaries that carried out the latest strikes.  According to a senior administration official, the Houthis launched about 20 drones & multiple missiles directly against US ships in the Red Sea on Jan 9.  It was the largest attack yet on merchant vessels in the Red Sea & Pentagon officials said that 4 coalition warships were deployed in response.  “This attack was defeated by the US and UK naval forces,” the senior administration official added.  “We have no doubt that ships would have been struck and perhaps even sunk, including, in one case, a commercial ship full of jet fuel.”  While the latest strikes on the Houthis were “significant” in size, the US did not expect them to degrade Houthi capabilities entirely.  “We would not be surprised to see some sort of response.”

U.S., UK strike Houthi targets in Yemen in response to Red Sea attacks

JPMorgan Chase (JPM), a Dow stock, reported its best-ever annual profit & forecast higher-than-expected interest income for 2024 even as quarterly profit fell due to a $3B charge the bank took to replenish a gov deposit insurance fund.  The largest US lender has benefited from its acquisition of failed First Republic Bank in May that brought in Bs of $s of loans & bolstered its net interest income (NII), the difference between what banks make on loans & pay out on deposits.  The bank said it expects full-year net interest income (NII) of $90B.  That was higher than estimates of $86B.  In the qtr, NII rose 19% to a record of $24.2B.  CEO Jamie Dimon said the US economy continued to be resilient & markets were expecting a soft landing, but sounded a note of caution on inflation & interest rates.  "There is also an ongoing need for increased spending due to the green economy, the restructuring of global supply chains, higher military spending and rising healthcare costs. This may lead inflation to be stickier and rates to be higher than markets expect," Dimon said.  Profit for the 4th qtr was $9.3B ($3.04 per share) for the 3 months ended Dec 31.  That compares with $11B ($3.57 per share) a year earlier.  Annual earnings hit a record $49.6B.  The bank reported a 12% jump in revenue to $38.6B.  JPM & several major banks are taking a hit to their quarterly profits as they are required to pay a bulk of the $16B to replenish the Federal Deposit Insurance Corp's deposit insurance fund (DIF), which was drained after Silicon Valley Bank & Signature Bank failed last year.  The stock went up 1.12.

JPMorgan profit shrinks as it sets aside $3B for deposit insurance fund

Early signals from bank earnings suggest earnings season could bring in choppy results.  Additionally, activity in the Red Sea may be challenging for shipping intl merchandise.  The latest from the Atlanta Fed: The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the 4th qtr of 2023 is 2.2% on Jan 10, unchanged from Jan 9 after rounding.

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