Markets celebrate cool CPI, and bank earnings

This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

Core CPI below estimates
The U.S. consumer price index increased a seasonally adjusted 0.4% on the month in December, putting the 12-month inflation rate at 2.9%, the U.S. Bureau of Labor Statistics reported Wednesday. Core inflation, which excludes food and energy prices, rose 0.2% on a monthly basis and 3.2% for the year. The annual reading was down 0.1 percentage points from November. Both core readings were also 0.1 percentage point below expectations.

Ceasefire deal between Israel and Hamas
Israel and Hamas on Wednesday reached a ceasefire and hostage release deal to end a 15-month war in the Gaza Strip. The Israeli security cabinet must still vote on the agreement before its implementation. If approved, the first phase of the deal will include a full ceasefire and the withdrawal of Israeli forces from the populated areas of the Gaza enclave, U.S. President Joe Biden said.

Markets enjoy best day in months
U.S. stocks popped on Wednesday for their best day since November, on the back of the cooler-than-expected inflation reading and Treasury yields easing. The Pan-European Stoxx 600 index added 1.33%, snapping a three-day losing streak and clocking its best performance since August. U.K. government bond yields dropped sharply after official data showed U.K. inflation fell to 2.5% in December.

JPMorgan Chase shoots past earnings estimates
JPMorgan Chase posted a massive earnings beat for its fourth quarter. The bank’s profit rose 50% to $14 billion during that period and revenue climbed 10% to $43.74 billion. That’s thanks to net interest income of $23.47 billion, which beat the StreetAccount estimate by almost $400 million. JPMorgan executives said the bank will be boosting share buybacks even as CEO Jamie Dimon in May called the stock expensive.

Goldman Sachs roughly doubles profits
Goldman Sach’s fourth-quarter earnings beat estimates on stronger-than-expected trading revenue. The bank said profit roughly doubled from a year earlier to $4.11 billion and revenue jumped 23% to $13.87 billion. “There has been a meaningful shift in CEO confidence, particularly following the results of the U.S. election,” CEO David Solomon said at a conference call on Wednesday.

[PRO] Earnings to be cautious about next week
Roughly 7% of the companies in the S&P 500 index are set to report earnings next week. CNBC Pro screened the companies reporting earnings next week, looking for those on which analysts are increasingly bearish, and found six firms which had earnings estimates revised down over the past three months.

Finally, a string of good news for bulls, after a dismal start of the year during which markets posted weekly losses because of dogged inflation worries.

Top of the page: U.S. inflation in December was lower than expected. To be sure, headline inflation, for the month, was 0.1 percentage point higher than the Dow Jones consensus estimate.

But the U.S. Federal Reserve pays more attention to core inflation because it strips out the volatile swings in energy and food prices, giving a more accurate reflection of price changes in the economy. And core inflation, on a monthly and annual basis, was cooler than expected.

Indeed, as CNBC’s Jeff Cox noted, “Much of the move higher in the CPI came from a 2.6% gain in energy prices for the month, pushed higher by a 4.4% surge in gasoline. That was responsible for about 40% of the index’s gain, according to the BLS.”

“Today’s CPI number takes additional rate hikes off the table, which some market participants were beginning to prematurely price in,” said John Kerschner, head of U.S. securitized products and portfolio manager at Janus Henderson Investors.

The U.S. 10-year Treasury yield fell sharply, and is now 4.655%, compared with last Friday’s close of 4.774%, as traders moderated their interest rate expectations. 

That gave stocks room to breathe. The S&P 500 jumped 1.83%, the Dow Jones Industrial Average climbed 1.65% and the Nasdaq Composite popped 2.45%. It was the best day for all three major averages since Nov. 6.

Upbeat earnings reports by banks also added to the cheer. Their financial results often serve as a forecast for the general direction of the economy: Banks’ toplines grow when businesses and consumers undertake more financial activity, which, in turn, help to grow the economy.

For investors, the stars were aligned on Wednesday. But just as the skies constantly shift, volatility, in the form of a new incoming U.S. administration and policies, remain.

— CNBC’s Jeff Cox, Hakyung Kim and Lisa Kailai Han contributed to this report.