JPMorgan Chase & Co posted better-than-expected profits but said it has allocated $1.4 billion in anticipation of a mild recession. Wells Fargo & Co and Citigroup also set aside sums to prepare for an economic decline. Bank of America recorded better-than-expected profits, but CEO Brian Moynihan warned about an "increasingly slowing economic environment".

A part from these results, things are getting better for financial markets, after a year 2022 marked by a severe correction for risky assets. OK, this is not the first time I've had to write something like this over the last 12 months, but this time there are a few signals that are very encouraging.

And among them, the major element remains the slowdown in inflation in the US and Europe. Central banks would like to see a more proof that the economy is cooling to prove that their monetary policy transmission belt is effective, but no one is listening to them in this case.

An analytical approach to the available data has tipped the scales in favor of optimism. Yesterday, the release of US inflation for December, which showed a decrease in line with expectations, boosted sentiment. The session was choppy to say the least on Wall Street, but it ended moderately higher by 0.3% for the S&P500, 0.5% for the Nasdaq and 0.6% for the Dow Jones. The indexes would probably have accelerated more strongly if inflation had declined more than expected, which is what the more bullish investors were hoping for. In a way, these measured developments are reassuring, because they avoid the +4% sessions, which intoxicate investors and help to decouple the stock market from reality. The bond market is saying the same thing: the yield on 10-year US debt has fallen further to 3.47%. This is a sign that specialists are endorsing the scenario of a lower rate peak than was feared last fall.

In this context, investors are taking new bets and readjusting their risk grids. In Bank of America's monthly survey of global asset managers, the main risk identified since the fall of 2021 was inflation, followed by a strong global recession, continued high rates for a long time and geopolitical deterioration. With the decline in overheating prices, the number one fear of investors could change.

In other news, Chinese authorities are reportedly considering taking strategic stakes in some of the country's technology stars, such as Alibaba and Tencent, in order to maintain control over these companies. I imagine that Western investors will not be happy to be co-shareholders of a company alongside the Chinese Communist Party, even if they are already de facto shareholders in many cases.

 

Today's economic highlights:

Two main indicators today: European industrial production and the University of Michigan consumer confidence index. All the agenda here. 

The dollar is up 0.5% against the euro to EUR 0.9258 and 0.3% against the pound to GBP 0.8215. The ounce of gold is up to 1901 dollars. Oil is strengthening, with North Sea Brent crude at USD 84.42 per barrel and US light crude WTI at USD 79.18. The yield on 10-year US debt is climbing back up to 3.47%. Bitcoin is trading around 18,900 dollars.

 

In corporate news:

* Citigroup saw its quarterly net banking income and profit decline as the bank increased its provisions to better cope with the deteriorating economic environment. It was down about 3% in pre-market trading.

* JPMorgan Chase announced Friday that it increased provisions to $1.4 billion in anticipation of a recession, sending its stock down 3% in premarket trading.

* Wells Fargo fell 4 percent in premarket trading after reporting a 50 percent drop in quarterly profit as the U.S. bank booked more than $3 billion in charges related to the phony accounts scandal and increased its credit risk provisions.

* Bank of America reported better-than-expected fourth-quarter profit on Friday, benefiting from rising interest rates.

* Blackrock reported a decline in quarterly profit, due to lower commission revenue.

* Goldman Sachs on Friday revised the pre-tax loss on its newly formed financial solutions subsidiary to $1.2 billion for the first nine months of 2022, the bank said in a financial advisory.

* Delta Air Lines expects current-quarter profit to fall short of expectations due to higher operating costs, although fourth-quarter profit beat analysts' estimates.

* Tesla slashed prices on its flagship vehicle models in the U.S. and Europe, with discounts of up to 20%, the electric carmaker's website shows, with its stock down 5.3% in pre-market trading.

* Warner Bros Discovery was up 1.1% in premarket trading as the Financial Times reported that the company is considering selling its music library, which could be valued at more than $1 billion.

* United Health on Friday reported quarterly profit above market expectations, helped by lower medical costs, growth at its Optum health services unit and strength in its health insurance business.

* Carlyle is in talks with Wall Street executives to take over as chief executive of the investment fund, the Financial Times reported Thursday, citing several sources.

* The Wendy's Co was down 4% in premarket trading. Activist investor Nelson Peltz's Trian Fund Management said it would not make a bid for the fast-food chain.

* SouthWest Airlines - Shareholders filed a lawsuit against the airline, accusing it of covering up malfunctions that led to thousands of flight cancellations in late December.

 

Analyst recommendations:

  • Air Products: Societe Generale downgrades to hold from buy. PT up 9.6% to $340.
  • AutoNation: Wells Fargo Securities downgrades to equal-weight from overweight. PT up 8.7% to $126.
  • Copa Holdings: J.P. Morgan upgrades to overweight from neutral. PT jumps 50% to $132.
  • D.R. Horton: RBC Capital Markets downgrades to underperform from sector perform. PT down 20% to $76.
  • KB Home: RBC Capital Markets downgrades to sector perform from outperform. PT down 2.6% to $34.
  • Lennar: RBC Capital Markets downgrades to underperform from sector perform. PT down 23 to $76.
  • Lockheed Martin: Goldman Sachs downgrades to sell from neutral. PT down 28% to $332.
  • Masonite: RBC Capital Markets downgrades to sector perform from outperform. PT inches down 0.7% to $89.
  • Mosaic: Exane BNP Paribas downgrades to underperform from neutral. PT down 11% to $42.
  • Northrop Grumman: Goldman Sachs downgrades to sell from neutral. PT down 23% to $375.
  • Overstock: Jefferies initiated coverage with a recommendation of hold. PT set to $20.
  • Pendragon: Berenberg resumes its Buy rating, targeting GBp 35.
  • Raytheon Technologies: Goldman Sachs downgrades to neutral from buy. PT up 4.3% to $105.
  • Vulcan Materials: RBC Capital Markets upgrades to outperform from sector perform. PT up 5.6% to $191.
  • United Health: Fubon Securities initiated coverage with a recommendation of buy. PT set to $618.