After another record close on Wall Street, the focus will turn to US earnings as big Wall Street banks are set to report their earnings, starting with JPMorgan, Wells Fargo and Goldman Sachs today. Investors will also be keeping a close eye on Bitcoin and other digital currencies as the largest US cryptocurrency exchange, Coinbase, goes public.
Risk ON despite list of growing concerns
With the stock markets hitting record highs and other risk assets like bitcoin and Ethereum rallying into unchartered territories, sentiment towards risk remains very positive for now, with investors ignoring a growing list of concerns.
Among other things, one source of concern is the prospects of inflation overshooting in the months ahead. Tuesday’s release of the latest CPI data from the US suggested price pressures were not as hot as some had feared, even if the 2.6% annual rise was a touch higher than anticipated and the highest in nearly nine years.
Concerns about links to cases of blood clotting with Johnson & Johnson’s Covid-19 vaccine have also been shrugged off as the US government assured the public that it has plenty of supplies of other Covid vaccines.
Investors are also ignoring valuation concerns as benchmark indices repeatedly hit new all-time highs, just as the earnings season is about to kick into a higher gear.
Bank Earnings kick off
JPMorgan, Goldman Sachs and Wells Fargo will report their quarterly earnings before the bell today. The first quarter has seen the strongest bank stock outperformance since at least 2010, amid speculation over a strong economic recovery and rising borrowing costs as a result of an expected jump in inflation. So, heading into the reporting season, expectations are running high and investors will be anticipating strong set of results from the major players such as Goldman and JPMorgan. Earning from other banking giants will be released later on in the week (see below).
But with so much optimism having already been priced in with the major indices in the US hitting repeated all-time highs, the market will now want to see if the optimism is justified. The key question going into the earnings season is this: Will company CEOs mirror investors’ optimism on economic outlook, or will they provide more subdued forecasts? Until now, investors have been quite happy to be buying any dips in equity markets amid growth optimism and despite rising inflationary pressures and valuation concerns.
The largest US cryptocurrency exchange is set to go public today.
Its shares will be listed on the Nasdaq Exchange and the company will trade under COIN stock ticker. Nasdaq set a reference price of $250 per share for the company, although it remains to be seen if any transactions will take place at that particular price, given that every major direct listing has opened significantly above its respective reference price. As mentioned, the company is planning a direct listing of its stock, meaning there won’t be a middleman (usually an investment bank such as Goldman Sachs involved). In effect, the direct listing means the current stakeholders will be able to sell their shares to new investors.
Now Coinbase generates its revenue, among other things, from charging fees when investors and speculators buy and sell Bitcoin and other cryptocurrencies. With demand for cryptos soaring, Coinbase revenues and profit could increase further in the future – especially during times of heightened volatility in the crypto space. The IPO will allow investors to gain indirect exposure to cryptos without actually owning any digital currencies and worrying about the day-to-day volatility of cryptos.
Ahead of the IPO, the major cryptos are continuing to climb to fresh highs. Bitcoin climbed above $64,000 and Ethereum $2400 for the first time ever today.
Source: ThinkMarkets and TradingView.com
A few Fed officials are going to be speaking ahead of the realise of more macro data later on in the week. So, keep an eye on any subtle hints that about policy tightening. Watch out for a potential rebound in US bond yields after they eased back from their recent highs, which could potentially support the US dollar in the coming days.