[MORNING CALL:] The Banks Are Coming...

...It's just a matter of when. 7/11 didn't turn out to be lucky for the high grade primary market yesterday as the CPI data release kept would-be high grade issuers on the sidelines, making it the eleventh ex-SSA zero issuance day of the year. However, after the softer than expected results, today could be a different story.

While it s rare, but not unheard of, for deals to price on Friday, especially during the summer months, JPMorgan Chase, Wells Fargo and Citigroup are all reporting Q1 earnings, have never shied away from tapping the market post-earnings on a Friday, especially after the bond market s reaction to yesterday s CPI data.

JPMorgan ($15.75bln) and Morgan Stanley ($21.285bln) have tapped the US public debt market in July four of the last five years, while we have seen Wells Fargo ($18.975bln) and Bank of America ($22.5bln) come to market in July three times over that same time period. Goldman Sachs, on the other hand, appears to prefer to wait until August before tapping the market post Q1 earnings results, while Citigroup has been nowhere to be seen in July.

Should those reporting this morning choose to refrain from tapping the market today, as it stands right now, 11 high grade issuers have raised $18.25bln this week, a week that, on average, was only expected to produce $15bln in new ex-SSA debt. While it was enough to top the average weekly estimate for the twentieth time this year, it was not quite enough to reach the highest estimate for the week of $20bln.

However, the same cannot be said for overall (SSA-inclusive) issuance which not only topped the average overall estimate of $22.5bln, but the highest estimate of $27.5bln as well, thanks to the addition of $17.5bln in SSA issuance, the bulk of which came from Saudi Aramco who raised $6bln via a 3-pt deal and IADB who raised $4bln through a 10yr global sustainability offering.

As a whole, this week s limited number of deals have been relatively well-received by investors. On average, this week s deals have contracted 26.7bp from IPT/PX; have been 2.85x covered; and have priced with an average NIC of 3.46bp. In comparison, the average compression from IPT/PX, year-to-date, stands at 27bp, while book coverage stands at 3.5x, and the average NIC is 3.4bp. Ex-SSA issuance this year is running at a 22.5% faster pace than last year ($907.059bln vs $737.735bln), while overall issuance is outpacing 2023 by 21.5% ($1.166.909bln vs $955.735bln). While this week was devoid of any domestic FIG issuance, watch out for next week, after today s bank earnings results and those that are slated for Monday and Tuesday.

But, back to yesterday s data releases and the markets reaction. The consumer price index declined 0.1% in June - economists were looking for an increase of 0.1% -and 0.3% year-over-year versus expectations of a 0.2% increase putting the yearly rate at 3%, nearing its lowest level in more than three years.

The benchmark 10yr note, which closed at 4.28% on Wednesday, saw its yield tumble 8bp to close at 4.20%, its lowest yield in four months. In the meantime, the long bond yield fell 6bp to 4.41%, its lowest level in two weeks, while the 2yr note yield, the most susceptible to the vagaries of underlying interest rates, plunged 12bp to 4.50%, a level not seen since early March.

There was a different reaction to the data in the equity markets, where investors seemed to be more concerned with earnings. While the Dow closed 32 points higher, the S&P500 (-0.88%) and the Nasdaq (-1.95%) both retreated hard from their all-time highs, in one of their worst sessions in recent memory. Weaker than expected quarterly earnings results from Delta (-5%) and PepsiCo (+0.03%) kept a lid on the Dow, which was unable to take advantage of the rotation out of high technology growth stocks into cyclicals after interest rates dropped like a stone. Tech giants like Nvidia (-5.4%), Microsoft (-3.84%), Tesla (-8%) and Meta (-6.9%) all dragged down the S&P500 and the Nasdaq.

As for market conditions, futures appear to be headed for a mixed open this morning, with the Dow slightly above the flatline, while the S&P500 and Nasdaq seem to be headed in the same direction as yesterday. Treasury yields backed off a bit overnight, with the benchmark 10yr note yield edging 2bp higher to 4.22%, still 14bp lower on the month. The long bond and the 2yr note also saw their yields pop 2bp to 4.43% and 4.52%, respectively, while corporate spreads widened for the first time this week due to the rally in Treasuries, with the average high grade bond trading 93bp over comparable Treasuries.

As for those bank earnings. JPMorgan led off by topping analyst estimates on both the top and bottom lines on the back of strong investment banking. The company reported earnings per share of $4.40 versus 4.19% estimates, while revenues for the quarter came in at $50.99bln versus estimates of $49.87bln.

However, the stock was trading 1.2% lower in pre-market trading after CEO Jamie Dimon noted that the firm was wary of potential future risks, including higher-than-expected inflation and interest rates, even while stock and bond valuations reflect a rather benign economic outlook.

Next up, Wells Fargo and the results were not nearly as good. While the bank also beat on both the top ($1.33 vs $1.29) and bottom ($20.69bln versus $20.29bln) lines, the bank reported a 9% decline in net interest income citing the impact of higher interest rates on funding costs, sending its stock price tumbling 5% in early trading.

Citigroup report earnings per share of $1.52 versus $1.39 and quarterly revenues of $20.14bln versus $20.11bln. However, FICC sales and trading revenue missed the mark, sending the share price lower by 1.4% in pre-market trading.

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