Morning Wrap: US bank earnings disappoint, Chinese economic growth slumps, ASX to rise

US markets finished the trading day lower following lower earnings from both Goldman Sachs and Morgan Stanley. Additionally, China released data that showed a near-historic slowdown in economic growth. In the meantime, risk-off investors bought into short-term Treasury bonds while risk-on investors continued to nibble away at Bitcoin. Today is all about global inflation readings and central bank meetings.

Let's go.

MARKETS

• The Dow Jones finished the session much lower than its peers, given the Wall Street banks make up a large component of the index.

• The VIX (volatility index) surged by more than 5%, but continues to remain relatively low by pandemic-era standards.

• The US 10-year yield increased by 2 basis points to 3.529%

• Gold fell slightly while WTI crude oil finished the New York session above US$80/bbl

US EARNINGS

Goldman Sachs shares slumped after its biggest earnings miss in a decade. The bank missed analysts’ estimates on both the top and bottom lines, with loan loss provisions coming in higher than expected.

In contrast, Morgan Stanley’s stock jumped 6% after beating Wall Street’s earnings expectations. The results were boosted by the bank’s record wealth management revenue and growth in its trading business. 

Roblox shares surged nearly 13% after Roblox’s December metrics report showed solid growth for users and bookings. The company said its daily active users rose by 18% year over year.

WORLD NEWS

China growth slows but impact of Covid lockdowns, volatile reopening less severe than feared (Bloomberg)

Company CEOs growth prospects dropped the most since 2007-08 global financial crisis (Reuters)

Allocation to US equities collapses in January (Reuters)

Yen traders braced for volatility as BoJ meets (FT)

ECONOMY

Canadian inflation shrank in December on a month-on-month basis, opening the door for the Bank of Canada to pause rate hikes. The biggest falls were attributed to petrol prices, which saw the biggest one-month plunge since April 2020. 

In the UK, the labour market remains tight with the unemployment rate sitting at 3.7% for another month. But it’s wages that might get your attention, as the average earnings index popped higher to 6.4%. That means wages grew 6.4% year-on-year - which sounds good until you remember inflation is also near 10%. The below chart is real wages (nominal growth minus inflation.)

Today, it’s all about the Bank of Japan meeting. If you would like a preview, you can read this piece over on the Livewire Markets website:

https://www.livewiremarkets.com/wires/the-nail-in-the-coffin-why-the-bank-of-japan-s-policy-change-matters-to-you

TODAY'S TWEET

Reported by Chris Conway at Livewire Markets.

A bit of a nothing day on the ASX yesterday. US markets were closed the nigher before and our market might as well have been, settling just two points lower, and trading in a tight range in what was a fairly listless session.

Things should liven up today but unfortunately, the market will probably be heading lower, after US markets pulled back overnight. I made these comments yesterday and I’ll make them again, the market is at an interesting crossroads at the moment. We’ve seen a sharp rally, up to a key level at 7400, followed by a circuit breaker with the US holiday, and now a down day. Will the bulls stall out at 7400? It looks like it today.

How they respond thereafter will be the interesting part. If they give up the ghost, the market will be right back in the muck that the bulls fought so hard to overcome, and a sideways grind is the most likely outcome as we head toward earnings season – don’t forget, it’s only a couple of weeks away. If the bulls can play a bit of defence today, and then get going again in the next couple of sessions, then there’s every chance the index stays above 7400, with the chance to kick on. Short-term stuff, no doubt, but there is a bit to play for right now.

ASX 200: Big test for the bulls today

US equities mostly lower in fairly quiet, rangebound trading. Downside limited though major averages still ended just off session lows.

S&P 500: Quiet session in the US overnight

Sectors to watch

• Big tech, P&C insurers, multis, airlines, pharma, banks, building products, packaging, and telecom were some of the weaker areas. EVs, payments and fintech, QSRs, cruise lines, semis, beverages, REITs, rails, and HPCs fared better.

• It was a mixed night for commodities, so don’t expect much direction for our commodities names overall; gold pulled back 0.6% but stayed above US$1900 an ounce, WTI crude added 0.4% and settled above US$80 per barrel for the first time in two weeks, iron ore was down 1.1%.

ASX corporate actions occurring today:

• Trading ex-div: None

• Dividends paid: Latitude Group Holdings (LFSPA) - $1.377

• Listings: Today: None

Economic calendar:

• BOJ – Outlook report, monetary policy statement, press conference – tentative

• UK – CPI – 6 pm