US banks in focus, as earnings season gets underway

European markets have enjoyed an upbeat start to the day, with all the major indices gaining over 1% to leave behind the jitters that have dominated much of the week. Concerns over the likely delay to the Fed’s first rate cut looks to have eased for now despite Wednesday’s higher-than-expected inflation reading. Instead, traders in Europe can look towards the projected ECB and BoE June rate cuts for bullish inspiration, while the inception of US first quarter earnings season brings a welcome distraction from the Fed’s struggles in bringing inflation back down to target.

This morning saw a raft of UK data released, with the 0.1% February GDP reading helping to allay fears of a continuation of the recession into Q1 2024. The one area of weakness within the GDP report came from construction, although the 1.9% contraction was overshadowed by a 0.1% services expansion and 1.1% industrial production figure. All-in-all the Bank of England appear to have done a good job in guiding the UK economy into a relatively soft landing, with inflation expected to move back down to target in the coming months. 

Today sees the big banks kick off earnings season in the US, with JP Morgan Chase, Wells Fargo, Blackrock, Citigroup, and State Street all reporting before the bell. With the US economy holding up relatively well over the course of the first quarter, there is a hope that the banks will be able to take advantage of the higher rates to bring strong profit margins over the period. Crucially, this year is expected to see a shift away from overreliance on tech growth and instead see a more widespread expansion in growth rates as the economy benefits from a more growth-focused policy mix from the government and central bank. Unfortunately, that wider expansion in the economy may be delayed should the Fed continue to hold off in response to stubbornly high inflation.