JPMorgan Chase & Co kicked off earnings season with a bang. A second consecutive quarter of record trading volume helped the firm deliver strong beats on both the top and bottom lines. JP's reserve builds were higher than expected and that dragged net income more than half. The US consumer is struggling as the credit card sales volume slumped 23% year-over-year and average loans as many Americans requested lending relief, while the company saw the largest June rise in auto loan originations. It was a record report for JP Morgan, the biggest loan-loss provision and highest trading volume mostly countered each other out.
JP Morgan's trading results paint a good picture for investment banks and that should help Goldman Sachs, Morgan Stanley and Credit Suisse today. Commercial banks however will likely struggle as consumer business is very weak and struggling to bounce back sharply.
Delta
Delta slashed their August flight schedule in half due to a choppy recovery. Now only expecting 500 daily flights, they are not expecting that to pick up until consumer confidence improves. Delta has enough cash to last 19 months and they are hoping to get their cash burn down to zero.
It is hard to get excited after Delta's worst quarter ever, but investors who want exposure with the airlines may find comfort with Delta's balance sheet.
US CPI
US consumer prices had the sharpest monthly increase since 2012 but the bigger picture shows the coronavirus impact will likely keep inflation nowhere near the Fed's 2% target. The snapback with energy prices is the catalyst for the sharp monthly rebound in consumer prices. Gasoline prices surged 12.3% and that was responsible for much of the increase with overall CPI.
Today's consumer prices report shows disinflationary pressures may have been short-lived but inflation concerns could become a 2021 story. Today's rise in prices does nothing to change the Fed's outlook with rates, but it could start to trigger some concerns that the inflation risk could quickly come to surface one the global economic recovery is firmly back on track.
Oil
Oil prices are falling on concerns OPEC+ could trigger a taper tantrum as coronavirus restrictions are no longer steadily easing. The big risk event for oil prices is tomorrow's OPEC + recommendation to taper production cuts from 9.7 million barrels to possibly 7.7 million bpd. WTI crude will not be able to stay near the $40 level if coronavirus spread continues to damage reopening efforts that will be accompanied with much softer demand for crude.
Crude prices did not get any favors from Delta's earnings report that slashed their August flight schedule in half. Air travel demand is not coming back anytime soon and this will heavily weigh on the crude demand outlook for the next 12 months.
Gold
Gold is consolidating ahead of what could be the final countdown to the rally to record territory. Gold initially fell below the $1800 after some early Wall Street optimism stemmed from JPMorgan's earnings results. Investors are trying to figure out is gold going to continue to mirror the risky asset trade or finally just return to its traditional role as a safe-haven trade. The answer will likely be the latter.
The headlines today were both short-and-medium term constructive for gold prices. Gold should continue to see strong demand after earnings reports from JPMorgan and Delta confirm the uncertainty ahead of Wall Street, US-China tensions are intensifying at a faster pace than many anticipated, virus fears are not going away anytime soon, and inflation concerns are slowly brewing.
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