Oil prices rose sharply at times on the threat of further escalation on the Red Sea. Meanwhile, the corporate reporting season got off to a mixed start. On the one hand, major US banks reported sharp declines in fourth-quarter profits, partly due to special charges. On the other hand, the largest US bank, JPMorgan, for example, reported a strong increase in earnings and even record profits for the full year. US financial markets are closed today in observance of Martin Luther King Day.
Oil prices rose sharply on Friday. This came after the US, UK and other allies responded to attacks by Iran-backed Houthi rebels on the Red Sea shipping lane with a military strike in Yemen. The price of Brent crude in the North Sea rose above USD 80 in some places for the first time since the end of December, while the price of West Texas Intermediate (WTI) for February delivery rose by around USD 4 at times to just under USD 75.
On Wall Street, a mixed bag of quarterly results from major US banks and heightened geopolitical risks led to a mixed end to the week on Friday. Despite hitting a new record high at the start of trading, the Dow Jones Industrial fell 0.31% to close at 37,592.98. The S&P 500 went into the weekend 0.08% higher at 4,783.83 and the Nasdaq indices were also virtually unchanged on Friday compared to the previous day's close. This meant that the start of the corporate reporting season was subdued for the time being. Meanwhile, in the US bond market, the yield on ten-year US Treasuries remained below the 4% mark at 3.95%.
JPMorgan Chase reported a decline in fourth-quarter profits due to a one-off payment of USD 2.9 billion to a deposit insurance fund, higher loan loss provisions and higher costs. However, thanks to rising interest rates, the largest US bank posted the highest profit in its history for the year at just under USD 50 billion. Net interest income reached a record level of around USD 89 billion. As a result, the share price temporarily hit a record high. Citigroup posted a quarterly loss of USD 1.8 billion due to several large charges and plans to cut 20,000 jobs in the medium term. Bank of America reported a drop in Q4 profits, weighed down by regulatory requirements, and Wells Fargo's quarterly results were weighed down by high costs.
On the inflation front in the US, the latest data on producer prices provided some relief. On a year-on-year basis, producer prices rose 1.0% in December, compared with economists' expectations of a 1.3% increase. On a monthly basis, producer prices fell by 0.1% (consensus: +0.1%). The core annual rate eased to 1.8% in December from 2.0% in November. In contrast, consumer price inflation had unexpectedly surged to 3.4% at the end of last year.
In Asia, mainland Chinese stock markets on Monday reversed Friday's losses after the Chinese central bank left its benchmark medium-term interest rate unchanged. Mainland China's CSI-300 index was flat after falling 0.5% in early trading, while Hong Kong's Hang Seng index slipped 0.4%. The People's Bank of China left its one-year medium-term lending rate unchanged at 2.5%. In Taiwan, share prices rose after the ruling Democratic Progressive Party won a majority for the third time in a row. The Taipei Stock Exchange started the week up around 0.2%. In Tokyo, the Nikkei 225 continued its record run, closing 0.9% higher, while the Topix also hit new highs, rising 1.2%. South Korea's Kospi was flat, while the Kosdaq small cap index was down around 1%. In Australia, the S&P/ASX 200 fell slightly on Monday.
As reported at the end of last week, China's exports fell for the first time in seven years in January-February 2023, although shipments in December beat expectations. Although exports rose by a better-than-expected 2.3 per cent year-on-year in December, China's exports fell by 4.6 per cent for the year as a whole. Imports fell by 5.5% last year. The last decline was recorded in 2020, the year of the outbreak of the Covid-19 pandemic.
Corporate news in focus: No major corporate news today.
Economic data in focus: Eurozone trade balance and industrial production November (10:00), start of the World Economic Forum in Davos.
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.