Inflation data and bank earnings boost equities

General market commentary

U.S. equity markets closed the mid-week session sharply higher following a favourable consumer price index (CPI) report, which showed core inflation continuing to moderate. Headline CPI rose by 2.9% year-over-year in December, slightly above expectations due to a spike in energy prices, while core CPI increased by 3.2%, below the anticipated 3.3%. Bond yields fell sharply in response, with the 10-year Treasury yield dropping by 0.14 percentage points to 4.65%. The positive inflation data, coupled with strong fourth-quarter earnings from major U.S. banks including JPMorgan Chase, Wells Fargo, Citigroup, and Goldman Sachs, fueled risk-on sentiment. The S&P 500 gained 1.8%, the Nasdaq rose by 2.5%, and the Dow Jones surged by 1.65%, marking its best session since 11th November.

Sector performance was broadly positive, with banks up by 3%, semiconductor and consumer shares gaining 2-2.3%, and "networks" rising by 1.7%. Investor optimism was further supported by massive buybacks and easing rates, with the US 10-year yield falling from 4.79% to 4.655%. Additionally, expectations for Federal Reserve rate cuts in June and December gained traction. Meanwhile, economic activity in New York State showed a decline in January, according to the Empire State Manufacturing Survey, with the general index falling to -12.6. Although companies reported stable employment levels, they noted a reduction in the average length of the working week, and an acceleration in input and selling prices, though they were optimistic about future conditions.

Latest market and economic update

Asian equities rose on Thursday, buoyed by softer U.S. inflation data and renewed rate-cut expectations, with Australia’s S&P/ASX 200 leading gains after strong jobs data. Japan’s Nikkei 225 lagged due to a stronger yen, while South Korea’s KOSPI climbed despite the central bank holding rates amid political unrest.

U.S. equity futures are steady ahead of Thursday's trading, with investors awaiting key economic data and earnings reports.

European equities rose over 1% on Wednesday, boosted by positive U.S. inflation data that increased expectations of a Federal Reserve rate cut. The pan-European STOXX 600 gained 1.3%, with real estate and financial shares leading the rally, while UK equities outperformed after British inflation unexpectedly slowed.

The U.S. dollar index hovered around the 109 level this morning, weakened by cooling inflation data and expectations of further Federal Reserve interest rate cuts. Despite this, concerns over President Trump's policy plans limited the dollar's decline, with the euro trading at 1.0284 against the greenback.

Oil prices rose for the second consecutive session, supported by concerns over supply due to U.S. sanctions on Russia and a larger-than-expected drop in U.S. crude oil stocks. While global demand continues to improve, gains were limited by a deal between Israel and Hamas to halt fighting in Gaza and exchange hostages.

In the US, headline CPI rose by 0.4% in December and 2.9% annually, driven largely by energy costs, while core CPI increased by 0.2% monthly and 3.2% annually, below expectations. Combined with soft producer price inflation data, this suggests the disinflationary trend remains intact, with further moderation expected in 2025.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Goldman Sachs reported earnings per share of $11.95, significantly surpassing consensus of $8.21. Revenue increased 23% year over year to $13.87 billion, exceeding the $12.36 billion average estimate. Global banking and markets drove growth, led by record net revenue in equities trading and a rise in investment banking fees. Goldman noted an increase in completed M&A transactions in its release.

JPMorgan Chase reported earnings of $4.81 per share, exceeding consensus of $4.09. Revenue grew 11% year over year to $42.8 billion, above the consensus estimate of $41.9 billion. CEO Jamie Dimon highlighted solid results across all business lines. The commercial and investment banking segments saw significant activity, with investment banking fees rising 49% and market revenue growing 21%.

Wells Fargo’s earnings per share of $1.43 exceeded consensus of $1.35, while revenue declined 0.5% year over year to $20.38 billion, falling short of the $20.58 billion consensus. Net interest income declined, but noninterest income rose 11%, driven by improved venture capital investment results and higher fees in the wealth and investment management business. The company provided guidance for better-than-expected 2025 net interest income growth of 1% to 3%.

Citigroup reported earnings per share of $1.34, beating the consensus of $1.22. Quarterly revenue reached $19.6 billion, up 12% year over year and slightly above Wall Street's estimate of $19.49 billion. The bank highlighted record results in services, wealth, and U.S. personal banking. Net income for the quarter was $2.9 billion, a turnaround from a net loss in the same quarter last year.

BlackRock reported 23% quarterly revenue growth and adjusted net income growth compared to the prior year. Total assets under management reached nearly $11.6 trillion by year-end, driven in part by flows into its bitcoin exchange-traded fund.

Apple was overtaken by Vivo and Huawei as China's top smartphone seller in 2024, with its shipments declining by 17% and marking its worst-ever annual performance in the country. The decline is attributed to factors such as the lack of artificial intelligence features in the latest iPhones and growing competition from domestic brands like Huawei and Vivo.

Hindenburg Research, led by Nate Anderson, will disband after completing its latest investigations, including reports on companies like Adani Enterprises and Super Micro Computer. The firm, known for exposing fraud, has helped regulators charge nearly 100 individuals and plans to share its investigative methods in the coming months.

Muddy Waters Research has taken a short position on FTAI Aviation, alleging the company misrepresents its revenue by incorrectly classifying engine sales as maintenance income. This has led to a 24% drop in FTAI's shares, with Muddy Waters suggesting that much of the reported growth comes from asset sales rather than sustainable revenue.

Seaport upgraded Netflix to "Buy" from "Neutral" with a price target of $955, citing expectations for higher subscriber growth and the release of popular content like the second season of Squid Game. The brokerage anticipates 9 million new members in the fourth quarter and highlights positive factors such as advertising growth and live sports rights acquisition.

Wolfe Research downgraded Lam Research to "Peer Perform" due to concerns over oversupply in the NAND market and its valuation premium over Applied Materials. The firm sees risks to Lam's growth projections, particularly for NAND, which is expected to drive a significant portion of its revenue growth in 2025 and 2026.

Bernstein analysts highlighted an improved valuation for Novo Nordisk despite challenges with its obesity drug Wegovy, anticipating improved prescription levels in the coming quarters. They also noted the company's strong performance with Ozempic and expect continued growth in the obesity market, projecting Wegovy sales to rise 82% year-on-year in FY24.

Seaport Research Partners has upgraded First Solar Inc to "Buy," setting a price target of $274, citing its strong position in the utility-scale solar and storage sector. The firm highlights First Solar's vertically integrated U.S. manufacturing base and potential benefits from anticipated tariffs on solar imports, along with its ability to capitalise on potential shifts in the Inflation Reduction Act.

Upcoming data and events

Today, key market focus will be on December retail sales data, providing insights into consumer spending trends. Additionally, earnings reports from Morgan Stanley, UnitedHealth, Taiwan Semiconductor, and Bank of America are expected to shape market sentiment.

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