Morning Report: Earnings season begins

Vital Statistics:

Stocks are higher this morning as we kick off earnings season. Bonds and MBS are flat.

J.P. Morgan reported second quarter earnings that came in better than expected, however the First Republic impact makes comparisons difficult. On the economy, Jamie Dimon said:

“The U.S. economy continues to be resilient. Consumer balance sheets remain healthy, and consumers are spending, albeit a little more slowly. Labor markets have softened somewhat, but job growth remains strong. That being said, there are still salient risks in the immediate view—many of which I have written about over the past year. Consumers are slowly using up their cash buffers, core inflation has been stubbornly high (increasing the risk that interest rates go higher, and stay higher for longer), quantitative tightening of this scale has never occurred, fiscal deficits are large, and the war in Ukraine continues, which in addition to the huge humanitarian crisis for Ukrainians, has large potential effects on geopolitics and the global economy.”

Provisions for credit losses in the commercial real estate market increased to almost $3 billion, an increase of $2 billion compared to last year. Mortgage origination volume came at $11.2 billion, which was almost double what the company did in Q1. Volume was still down about 50% compared to a year ago.

Separately, Wells Fargo’s earnings were better than expected while Citi missed.

Consumer sentiment improved in July, according to the University of Michigan Consumer Sentiment Survey. Sentiment is improving, however we are still at very low levels.

Inflationary expectations ticked up to 3.4% from 3.3%, however long-term inflationary expectations remained in the narrow 2.9% – 3.1% range.

This could be a headwind for consumer spending going forward. 1 in 3 student loan borrowers have spent student loan money they thought was going to be forgiven. Biden’s student loans forgiveness executive order was found to be unconstitutional by SCOTUS and student loan payments are set to resume in October.