US EARLY MORNING: Index futures are a little lower ahead of earnings from Big Banks

US PRE-MARKETS: US equity futures are slightly lower, Treasury yields are widening (short-end underperforms), while the Dollar Index is flat (sub-100.00). Equity futures are on course to book solid gains this week, amid a mix of cooling inflation dynamics combined with gauges which still suggest a solid labour market, giving rise to 'Goldilocks' framings of the US economy. Many desks are now also becoming more bullish, and are refocussing on the potential for US stocks to climb to all-time highs once again. Today, the narrative will be coloured by the health of the financial sector, with big banks on the slate to begin reporting Q2 earnings; we provide a primer below. 

PRIMER - US BANK EARNINGS: US bank reporting season gets underway today, with numbers due from JPMorgan (JPM), Citigroup (C), Wells Fargo (WFC), BlackRock (BLK) and State Street (STT). JPMorgan's analysts, previewing bank earnings, say investors will be broadly focussing on five key themes: 1) Trends in investment banking; JPM predicts a challenging quarter for investment banks, expecting a decline in revenues. FICC revenues to drop more than equity revenues, but it expects forward-looking commentary to be slightly more optimistic given the emergent green shoots on the capital markets side despite M&A volumes remaining impaired. 2) Credit quality; JPM says quality is normalising, with a slight increase in net charge-off ratio is expected. Reserve builds for regional banks will be driven by office CRE exposure. 3) Trends in deposits; deposits are expected to stabilise after being a major focus last quarter. Small banks to see modest growth, while large banks to experience declining deposits. JPM looks for a shift towards interest-bearing deposits to continue. 4) How net interest margins are evolving; JPM says that higher deposit costs will contribute to a sequential decline in sector net interest margins in Q2. Loan and securities yields increase, but are outweighed by increased deposit costs. 5) Regulatory challenges; JPM says stress test results and Basel 3 finalisation are key. Liquidity stress and potential liquidity rule changes to be addressed. Questions arise on the impact on Global Systemically Important Banks regarding standardised risk-weighted assets, available for sale marks, and long-term debt for larger banks.

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14 Jul 2023 - 09:30- MetalsResearch Sheet- Source: Newsquawk

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