T-yields decline to May low post PPI reading, bank earnings

A drop in producer prices caused Treasury two-year yields to drop to their lowest level since May, suggesting that the Fed may cut rates this year. This comes after a higher-than-expected figure on consumer prices, which highlights how difficult it is to meet inflation targets.

Wall Street analyzed bank results and geopolitical risks during Corporate America’s earnings season. US yields fell nine basis points to 4.15%, while the S&P 500 fluctuated. Bitcoin also fell as traders analyzed results from the first day of trading of exchange-traded funds holding the cryptocurrency.

Two-year US yields fell nine basis points to 4.15%. The S&P 500 fluctuated, while still poised for a weekly advance. Bitcoin slid as traders parsed results from the much ballyhooed first day of trading of exchange-traded funds holding the cryptocurrency.

The decline in inflation over the past year was largely due to a drop in energy costs and supply chains that had largely alleviated pandemic strains.

However, the Red Sea turmoil is reversing these disinflationary forces, which central bankers were hoping could help them finish the job. Friday’s cooler-than-expected numbers could be seen as a surprise, as producer prices have already retreated faster than consumer inflation for quite a while.

Despite the increased likelihood of hawkish surprises from central banks in the euro zone and other regions, investors have lowered their expectations for hawkish surprises from the Fed this year. Trillions of dollars of idle investors’ wealth could soon be shifted to bonds.

Investor attention is now focused on companies’ earnings performance following the robust surge in US stocks during the fourth quarter. S&P 500 members’ average fourth-quarter profit growth from a year ago is expected to be 1.1%, according to analysts, the lowest positive number since before the pandemic.

The latest quarter saw an 11% increase in the equity benchmark, the highest level since 2020. Wells Fargo & Co. predicted a 9% drop in net interest income for 2024, while Citigroup Inc. forecasted a modest drop this year.

JPMorgan Chase & Co. reported record net interest income for the seventh straight quarter, capping the most successful year in US banking history, and unexpectedly predicted that the windfall may continue this year.