King Dimon, Great start to earnings, US CPI raises Fed cut odds, Oil steadies, Gold’s pullback continues

JP Morgan kicked off earnings season with a bang! Expectations were for the banks to have a decent start after we saw the yield curve uninvert itself in early September, which will broadly help net interest income for all the banks. JP Morgan posted a stunning FICC trading gain, over a billion dollars higher than analysts' expectation. First quarter guidance was strong regarding net interest income and shares for the largest US bank were sharply higher. JP Morgan remains best of breed in banking and Dimon should feel like the king of FICC trading.

Regarding the US consumer, CEO Dimon stated, "The U.S. consumer continues to be in a strong position and we see the benefits of this across our consumer businesses." Dimon's comments on the US consumer are not shocking anyone but provide added confirmation the US record long expansion is still running strong.

Earnings Recap

JP Morgan and Citigroup impressed after posting strong banking and capital markets results, while Wells Fargo delivered disappointing results that were highlighted with higher than expected expenses. The strong results from JP and Citi could be a good sign for consumer lenders which could mean a strong results from Bank of America who will report tomorrow.

Delta Air Lines delivered strong results as demand picked up and lower fuel prices helped their margins. Delta was also fortunate to not have any impact from the Boeing 737 Max saga.

US Inflation

The US CPI readings for December came in softer than expected across the board, showing no real inflation pressures at all. The monthly core inflation reading rose only 0.1%, missing the 0.2% estimate, which was also the prior reading. The dollar gave back some its earlier gains as the odds for further easing from the Fed however edged higher following the inflation data. If inflation expectations take a further hit later this quarter, markets will quickly start pricing in a 25-basis point rate cut this year.

Oil

Oil prices are showing signs of life following a wrath of selling pressure that wiped away the rise we saw from the OPEC + deeper than expected cuts and US-Iran war fears. Oil prices are tentatively rebounding after seller exhaustion kicked as investors await the next developments on the trade front and whether we see a strong pickup with global demand following the phase-one trade deal.

Oil also found some technical support from the 200-day simple moving average. The bearish sentiment however still hangs with oil as prices did not push even higher following better than expected trade data that suggests China's economy is showing further signs of stabilizing. Demand expectations will likely wait until Thursday's Chinese GDP data to decide if the world's second largest economy can help drive the economic rebound in Asia. Oil volatility may calm down a bit until we get further details on the phase-one trade deal. Markets may be becoming overly optimistic on the trade front as we could easily see China come up short on delivering their promises and as the US ratchets up the transatlantic trade war. Energy traders are also cautiously awaiting the next escalation from Iran and the risks of an actual to disruption to oil production is still very possible. If West Texas Intermediate crude settles below $58 a barrel, bearish momentum could target $55.50 before oversold conditions become apparent. The $60 a barrel will remain key resistance.

Gold

Gold prices are getting dragged down as trade tensions have eased in the short-term and as US earnings season gets off to a great start. The banks are painting a picture that the US consumer remains strong and that should support fresh record highs with US stocks. Gold's pullback may continue on continued optimism that the US stock market is invincible for now, both trade and military conflict tensions ease and as the US dollar stabilizes. Gold will remain the favored safe-haven trade and should start to see buyers emerge around the $1,520 region.