A look at the day ahead in U.S. and global markets from Mike Dolan

Flush with hope that impressive disinflation will allow the Federal Reserve to end its rate-hike campaign this month, world markets now navigate a second-quarter corporate earnings season which the big U.S. banks kick off in earnest on Friday.

JPMorgan, Citigroup, Wells Fargo, BlackRock and State Street all report second-quarter results that will reflect the immediate aftermath of the March regional banking scare, higher interest rates and downbeat investment banking activity.

But there’s likely to be a scattering of the herd in terms of performance during that three months.

For universal banks such as JPMorgan and Wells Fargo that serve retail consumers and firms, earnings per share are expected to have jumped more than 40% over the previous year. Bank of America’s EPS will likely climb more than 7%.

Citigroup is expected to lag with a 43% drop, while investment bank behemoths Goldman Sachs and Morgan Stanley – reporting next week – are anticipated to be down sharply too.

Overall, the U.S. earnings season is expected to show S&P500 profits down 6.4% from the same period a year earlier – with revenue down a more modest 0.8%, according to Refinitiv research. Financials overall are expected to have advanced 5.4%.

A significant beat of expectations in the first quarter actually saw aggregate profits tick just 0.1% positive – kiboshing assumptions a technical recession was underway.

While the full picture will all unfold over the coming weeks, the dominant market mood is still clearly one cheering Wednesday’s drop in U.S. headline inflation below 3% for the first time in more than two years.

And the resulting rally in stocks and bonds received further tailwinds on Thursday as the June producer price report even showed a dalliance with outright deflation at factory gates and there were further signs the jobs market remains robust. Export and import price readings are the latest sounding on Friday.

The Fed, meeting on July 26, has tried to rein in the enthusiasm.

Although futures now bet it will deliver a final quarter point rate hike to the 5.25-5.50% range this month, Fed governor Christopher Waller overnight continued to hold out the chance that two more are still in the pipeline.

And that’s been enough to cool the bond market a bit at least – with two- and 10-year Treasury yields ticking back higher today after a two-day swoon.

Stock markets around the world and S&P500 futures held most of their outsize weekly gains, however, and were mostly flat into the open. The VIX volatility index nudged back higher from July lows.

The major U.S. equity indexes all hit new 2023 highs on Thursday, with the S&P500 now up more than 17% for the year so far, the Nasdaq 100 up more than 40% and the NYFANG index of digital and tech mega caps up a whopping 80%.

The biggest casualty of the week has been the dollar and that continued to slide to new 15-month lows on Friday.

Intensified speculation the Bank of Japan may be set to tweak its super-easy monetary policy as soon as this month saw the yen lead the way to its best levels since mid-May.

China, meantime, tried to cool fears among foreign investors about its regulatory and geopolitical stance – fears that have seen foreign direct investment in the world’s second biggest economy drop sharply over the past year.

Events to watch for later on Friday:

* U.S. June import/export prices, University of Michigan July consumer survey

* U.S. corporate earnings: JPMorgan, Citigroup, Wells Fargo, BlackRock, State Street, UnitedHealth

* ECOFIN meeting of European Union finance ministers in Brussels

(By Mike Dolan; Editing by Toby Chopra mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)

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