Tuesday April 18

Stocks fell slightly following mixed economic data and poorly received earnings. The S&P 500 fell 0.3% to 2,342 and the Dow Jones fell 0.6% to 20,523. The KBW Bank index lost 1% after an earnings miss from Goldman Sachs and utilities rose 0.2%. Goldman shares were down 4.7% on the day. Economic data today showed that industrial production was up 0.5% last month which was 0.1% higher than expected. However manufacturing fell 0.4% compared to estimates which called for a 0.1% gain. Esther George spoke and said she prefers to begin unwinding the balance sheet this year and called for a steady and predictable decline in the size of the balance sheet. Stocks in the UK sold off after the announcement by Theresa May and the subsequent appreciation of GBP. Johnson and Johnson also missed expectation which sent its stock down 3.1% and health-care stocks down 1% as well. The two year Treasury yield was down 3bp to 1.17% and the ten year Treasury fell 8bp to 2.17%. Accordingly 2yr vs 10yr bull flattened to 1.00%. This comes amid geopolitical concerns and the expectation that the Fed may not move as aggressively as previously thought. According to the CME group fed funds futures are pricing in just a 38% chance of higher rates in June which is down notably from a few weeks ago. The dollar was weaker on the day against peers. USD fell 0.9% against EUR to $1.0734. USD fell 0.4% against JPY to Y108.46. USD fell 2.2% against GBP to $1.2843 after earlier hitting $1.29. Oil prices slid slightly lower again. WTI fell 0.1% to $52.60. Brent fell 0.6% to $55.05.

Theresa May surprised markets by calling for a snap election that will take place in June. Theresa May previously had said defiantly that the next general election would be in 2020. Theresa May became prime minister of the UK after David Cameron resigned, and if there had been no election until 2020 like she said it would have been the longest time since WW2 that a prime minister served without an election. She was reluctant to do so and was pushed into the action by opposing political parties weakening her negotiation stance with the EU. If she wins the election that will give her a direct mandate to guide the EU exit process. It is an opportunity now for conservatives to win a larger majority. The conservative party now has a commanding lead compared to the Labour and Lib Dem parties in voting intention according to survey data. The pound rose 1.6% against USD immediately following the announcement, and the FTSE was down 2.2%. Investors are taking the view that this procedure will lead to a softer Brexit because the most hardline conservatives right now are pushing for a hard Brexit compared to what Theresa May might do on her own.

Goldman Sachs and Bank of America reported earnings today, following earnings results from Citi, JPM, and WF last week. Bank of America reported EPS of $0.41 compared to estimates of $0.35. Revenue and trading revenue also topped analyst expectations. Bank of America is poised to benefit from rising interest rates given its big consumer lending and consumer deposits business. Net interest income was up 7.4% for BoA in the first quarter. Bank of America posted an increase in trading revenue by 22.5% which was strong. Profits were also higher in consumer banking, wealth and investment management and global commercial banking. Brian Moynihan did note that loan growth has been lower which is a trend across all big banks, which makes sense that the economy is growing at a slower pace. At Goldman Sachs EPS in the first quarter was $5.15 which missed analyst estimates of $5.31. Overall revenue beat expectations and trading revenue was just in line with expectations and flat on the quarter from 4Q 2016. JP Morgan and Citi last week both had 20% increases in fixed income trading revenue and Bank of America had a 29% increase in fixed income trading revenue. That could have led some analysts to expect big things out of Goldman however that didn’t happen. Trading revenue was down 2.4% overall. It could be a function of the types of trades and clients Goldman specializes in. Goldman focuses heavily on complex trades for hedge fund clients however those have been decreasing as hedge funds are struggling. Investment management revenue was strong with a 12% increase and banking revenue was mixed.

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Tuesday April 18

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