US stocks fell on Friday as investors looked past a rally in bank stocks, following better than expected corporate earnings from some of the country’s biggest lenders and focused on the outlook for interest rates.
JPMorgan Chase beat estimates with first-quarter profit rising 52 per cent. Wells Fargo and Citigroup also exceeded analysts’ expectations for earnings. JPMorgan led the gainers, up 7.6 per cent, as the KBW Nasdaq bank index added 1.1 per cent.
The results indicated that the turmoil in the US banking sector last month had little immediate effect on the profitability of the biggest companies, which also helped boost shares in European lenders.
Still, the blue-chip S&P 500 declined 0.2 per cent on Friday, but added 0.8 per in the week. The tech-heavy Nasdaq Composite lost 0.4 per cent on Friday, but gained 0.3 per cent across five sessions.
Thursday’s session gave stocks the biggest boost after traders were encouraged by lower producer prices and higher jobless claims than expected, two signs of a cooling US economy.
Friday’s moves came as investors weighed the outlook for US rates as they digested a fresh batch of economic data that showed retail sales fell 1 per cent in March, more than estimated, and that Americans’ raised their inflation expectations for the year ahead.
Analysts at Deutsche Bank said the latest data painted a conflicting picture. “On the one hand, an array of leading indicators are pointing to a US recession over the coming year . . . But if you wanted to take the opposite view, you could point to unemployment around its lowest in decades . . . along with growing signs that inflation is softening and the [Federal Reserve] are nearing a pause in their rate hikes.”
Fed governor Christopher Waller on Friday signalled he backs another rate rise adding to the debate among US central bank officials over whether to pause the tightening cycle or push ahead with one additional rate rise. Waller said the turmoil sparked by the bank crisis had not led to a significant tightening of credit conditions and inflation remained elevated enough to warrant further tightening, though he would be guided by the data.
“While we think there are plenty of positives in the March inflation data, we are hesitant to place too much emphasis on any one month of data, particularly given past head fakes,” Bank of America analysts wrote on Friday.
“Core CPI inflation is still running at 5.1 per cent annualised over the last three months and 4.6 per cent over the last six months, which are well above the levels consistent with the Fed’s 2 per cent PCE inflation target.”
Investors are pricing in a more than 80 per cent chance that the Fed will raise rates by 0.25 percentage points at its next meeting in May rather than leave them unchanged, and roughly even odds that the European Central Bank will choose to raise rates by half a percentage point over a quarter percentage point rise.
In currency markets, the dollar index, which measures the greenback against six peer currencies, retraced early losses to trade 0.6 per cent higher. The euro fell 0.4 per cent and sterling dipped 0.8 per cent against the US currency.
Two-year Treasury yields rose 0.08 percentage points to 4.09 per cent and the yield on 10-year notes gained 0.06 percentage points to 3.51 per cent. Yields move inversely to prices.
In Europe, the region-wide Stoxx 600 finished 0.6 per cent higher at its highest level in a year. Germany’s Dax gained 0.5 per cent while France’s CAC 40 rose 0.5 per cent to another record high.
In Asia, the CSI 300 closed up 0.6 per cent and the Hang Seng index rose 0.5 per cent.
Gold was down 1.7 per cent at $2,005.24 per ounce, after reaching its highest price since March 2022 on Thursday.
