Inflation Data And Bank Earnings Mold This Week

Key Takeaways

• CPI, PPI And Fed Minutes Later This Week
• Situation In Taiwan Continues To Escalate
• Bank Stocks Kick Off Earnings Season

It was a quiet week for stocks. Major indices were relatively unchanged on the holiday shortened week, although we are on a 3 week winning streak. Volume was also light with many schools out on break and people out of town. That could all change this week though with a bunch of economic data scheduled to be reported and then banks reporting earnings starting on Friday.

Last Friday’s jobs report had investors on edge, not just
just
because of the number itself, but because it was coming out on a day markets were closed. However, the number appears for now to be a non-event. New jobs added came in at 236 thousand, slightly below estimates of 239 thousand. The unemployment rate ticked down slightly to 3.5% from 3.6%.

Given the lack of surprise in that number, attention will now quickly shift to this week’s Consumer Price Index (CPI), scheduled for Wednesday and the Producer Price Index (PPI) report, which comes out Thursday. Both numbers are watched closely by the Fed and offer visibility into the inflation picture. On Wednesday, we’ll also get a look at the minutes from last month’s Fed meeting and some ideas as to what they are thinking moving forward. Coming into Monday, there is a 65% chance of a quarter point hike at next month’s FOMC meeting. That is a number I’ll be watching as the week progresses.

Between the crisis in the banking sector and relatively subdued inflation numbers of late, we’ve seen a sharp drop in bond yields. Rates on the 2-year note, which broke 5% just last month, are now down around 3.8%. Meanwhile, the benchmark 10-year note has seen its yield fall to 3.29%, down from 4.08% in March.

One potential source of inflationary pressure reemerged last week when a group of oil producing countries announced plans to cut production. That news sent oil prices higher by roughly 7% last week. However, a small group of oil producing countries (Iran, Guyana, Norway, Kazakhstan, Brazil and Nigeria) have increased production, largely offsetting the cuts from last week. As a result and despite last week’s jump in prices, oil continues to run into resistance at around $82/barrel. Also making news this morning in oil is a story from the Wall Street Journal saying Exxon Mobil is in talks to buy Pioneer Natural Resources
PXD
. That news has shares of Pioneer higher by about 6% in premarket trading, while shares of Exxon are down less than 1%.

While many of the domestic concerns of late have subsided for now, international concerns are growing as China and the U.S. ratchet up tension over Taiwan. The simmering feud over Taiwan has passed the point of two siblings being irritated with one another and is reaching a level that I find concerning. We’re nearing a potential point of some serious consequences. Therefore, this is a situation that I’m closely monitoring.

Speaking of Taiwan and China, Taiwan Semiconductor announced revenues fell in March from a year ago. That is the first time revenue has dropped in almost four years. Meanwhile, Tesla announced plans to build a factory in Shanghai. The EV automaker will produce its Megapack battery in the new facility starting in 2024.

Later this week, earnings season will begin. Analysts are expecting earnings for the S&P 500 to be down nearly 7% in the first quarter. A big part of this quarter’s earnings narrative will come from the banking sector, which leads off reporting this Friday. JP Morgan, Citigroup
C
and Wells Fargo
WFC
are all scheduled to report before the bell on Friday. I think it’s safe to say we’ll all be listening closely to hear what the banks have to say in the wake of last month’s crisis and if the worst of that is indeed behind us. As always, I would stick with your investing plan and long term objectives.

tastytrade, Inc. commentary for educational purposes only.