Friday, January 11, 2013
Data about a bigger than expected rise in Chinese inflation, a
wider than expected trade deficit in the U.S. and a positive
start to big-bank earnings provide the backdrop for today's
trading action. The Chinese inflation picture may not actually be
that worrisome, but the domestic trade deficit numbers could be
problematic for GDP growth estimates in the fourth quarter.
Overall though, stocks may not do much today after reaching
5-year highs on Thursday, particularly with the fourth quarter
reporting getting into high gear next week.
The rise in China's December CPI at a bigger than expected 2.5%
pace could potentially limit the monetary authorities'
flexibility. But the rise may not be worrisome enough at this
stage as it still remains below their target and pressures at the
wholesale level appear contained. The Chinese authorities lowered
interest rates twice in 2012 and have largely relied bank reserve
requirements as a choice monetary policy tool. But it hasn't
lowered reserve requirements since May last year either despite
widespread clamor in the market for such action. A key concern
for them remain pricing trends in the property markets. The
December survey shows that average home prices in China's 10
biggest cities increased for the second time in 2012. Overall,
one could reasonably infer from today's inflation data that China
could afford to keep current policy in place without stoking
) earnings beat this morning kick-starts earnings results for the
big banks. Wells Fargo along with other major banks like
Bank of America
) and others were in the news this week with respect to the $8.5
billion settlement about foreclosure issues.
Wells Fargo has been a standout performer in the group, with a
track record of consistent profitability quarter after quarter.
The bank's large mortgage business has helped it offset the other
difficult operating environment of compressed net interest
margins and weak loan demand. Notwithstanding the earnings and
revenue beat and a decent loan growth, Wells Fargo's net
interest margin was lower than in the previous quarter, which
some may find as problematic.
Overall the banking sector is expected to be once again one of
the strongest earnings performers this quarter though estimates
have been coming down since the announcement of the foreclosure
settlement earlier this week. Excluding earnings from the Finance
sector, total fourth quarter earnings for companies in the
S&P 500 fall into the negative territory.
BANK OF AMER CP (BAC): Free Stock Analysis
CITIGROUP INC (C): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
WELLS FARGO-NEW (WFC): Free Stock Analysis
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Director of Research