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Weak Earnings From Deutsche Bank Weigh on Dow Industrials, Investment Banks


Today's financial recap and tomorrow's financial outlook.

The PBoC injected about $42 billion in short-term liquidity overnight into the financial system to help keep money market rates tame as the Chinese lunar new year holiday approaches. Short-term repurchase rates had spiked as the seasonal surge in cash demand caused liquidity to dry up at banks. Emerging market equities were under pressure as a result, which spread into developed market equities.

The IMF raised its global growth forecast for 2014 to 3.7% from its prior forecast of 3.6% in October of last year. This move had been discussed by IMF Managing Director Christine Lagarde over the past two weeks. The fund's 2014 US growth forecast was raised to 2.8% from 2.6%, China was raised to 7.5% from 7.3%, and the eurozone was forecast at 1%. The IMF sees the risk of very low inflation in advanced economies and doesn't expect the Fed to raise its main interest rate until 2015. Most importantly, it warned that emerging markets will need to manage capital-flow reversal risk if growth waned any further.

US equities were mixed today; the Dow Jones Industrial Average (INDEXDJX:.DJI) lagged due to underperformance from its financial members and a less-than-stellar earnings report from Johnson & Johnson (NYSE:JNJ). The benchmark S&P 500 (INDEXSP:.INX) rose as well as the tech-based Nasdaq-100 (INDEXNASDAQ:.IXIC). The gains in the S&P were led by utilities and materials stocks. Telecom-sector stocks were the worst off, declining more than 1%.

Deutsche Bank (NYSE:DB) released its fourth-quarter earnings 10 days ahead of schedule due to its results falling well short of investor expectations. The company suffered a net loss after one-time charges from litigation, reorganization, and a drop in fixed income trading revenue hurt its bottom line. Deutsche Bank announced a pre-tax net loss of 1.2 billion euros vs. an estimated net profit of 628.5 million. Investment banks such as Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), and Barclays (NYSE:BCS) were notable underperformers.

Tomorrow's Financial Outlook

There will be no major economic data releases tomorrow in the US. The Mortgage Bankers Association will release its weekly mortgage application index for the week ending January 17. Earnings reports should dominate tomorrow's trading. Notable companies that are scheduled to report include US Bancorp (NYSE:USB), Netflix (NASDAQ:NFLX), SanDisk (NASDAQ:SNDK), eBay (NASDAQ:EBAY), Coach (NYSE:COH), Freeport-McMoRan (NYSE:FCX), and Abbott Labs (NYSE:ABT).

In the UK, December 2013's jobless claims change will be reported in addition to the minutes from the Bank of England's monetary policy meeting two weeks ago. Most importantly, the Bank of Japan will release its monetary statement for 2014 and target for its expansion of the monetary base. Strategists are expecting no change from the BoJ.

Twitter: @Minyanville

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