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Hot Inflation Surprise, Choppy Stock Session, Earnings JPM, GS, & Pepsi, Bitcoin Lower

US stocks initially shrugged off a strong start to earnings seasons and traded lower after a hot inflation report unnerved some investors as expectations grow that the Fed will have to acknowledge that higher inflation will stick around. Today’s earnings season kick-off saw spectacular results from Pepsico, solid numbers from Goldman Sachs and mixed earnings from JPMorgan. The bar is set very high for this earnings season and given the valuation peaks with tech stocks, it will take several upside surprises to keep the major indexes making fresh record highs.

After Wall Street had some time to digest the hot CPI report, the transitory argument still holds water and stocks quickly pared those losses. Boeing’s news that they have a new issue and will cut 787 Dreamliner production was very disappointing and is weighing heavily on the Dow Jones Industrial Average.

JPMorgan

JPMorgan shares traded lower after a busy earnings report showed many strong beats that could not beat all the high expectations. A slight miss in both managed Net Interest Income and fixed income sales & trading miss disappointed many as that is actually their bread and butter. Second quarter Managed NII fell 9% from a year ago to USD 12.9 billion, also a miss of the $13.1 billion analysts’ forecast, while FICC sales and trading came in at USD 4.10 billion, a miss of the USD 4.12 billion.

JPMorgan’s cash situation improved after a USD 3 billion credit reserve release.

The bar was set too high for JPMorgan and today’s results don’t paint a good picture for the rest of the banks. Loan growth might not really improve until next year and that might be a drag for financials in the short-term.

Goldman

Goldman Sachs shares initially surged after a robust earnings beat, EPS of USD 15.02, much higher than the USD 9.57 estimate and revenue of USD 15.4 billion which easily beat the USD 11.5 billion estimate. Goldman had lighter FICC sales and trading revenue, but lower expenses which highlight an efficiency advantage over JPMorgan.

Goldman Sachs noted that inflation is likely to be transitory, but also emphasized concern about the prospect of a pandemic resurgence.

Pepsi

PepsiCo had a textbook solid earnings report, strong organic revenue growth and raised forecasts sent shares higher. The return of restaurants is driving Pepsico’s success and that allowed them to raise their full-year earning growth target.

US CPI surges in June

The June CPI report showed that everything is getting more expensive for the US consumer. Wall Street reacted strongly to a hotter than expected CPI data that sent short-end Treasury yields higher. Pricing pressures were most notable with used auto prices, hotel room rates, airline fares, clothing and food and lodging away from home. A lot of this still looks transitory, but if prices continue to stay elevated, the Fed will have to concede that parts of the surge prices will be transitory.

Today’s CPI data continues to support the idea of a taper announcement at the Jackson Hole Symposium.

Oil steadies, gold whips around

Crude prices are all over the place as energy traders try to price in a tighter market thanks to OPEC+ while a hot inflation report sent the dollar higher. Many traders are looking ahead to the US crude oil inventory data which could show yet another significant drop in stockpiles. The supply deficit story along with still improving demand in Q3 suggests whatever oil weakness is happening could be short-lived. The oil market could get a lot tighter very quickly and that could mean the recent pullback might have run its course.

Gold retreats after US CPI jumps

Gold gave up earlier gains after hot inflation data sent the dollar higher as investors scrambled to sell Treasuries. Expectations were for inflation to remain tame or slightly ease and that did not happen today. Despite a little inflation shock, after traders processed the report, the argument can still be made that most of this will be transitory. Used cars and trucks were responsible for one-third of the seasonally adjusted increase. The playbook for the Fed still looks like a taper announcement to be made at Jackson Hole, or at the September policy meeting at the latest. Policy normalization expectations may move forward following today’s data, but the bull case still remains in place for gold.

After the dust settled from the hotter-than-expected CPI report, gold prices edged higher as this still probably won’t move the needle for the Fed.

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