US open: Stocks gain on better-than-expected bank earnings

US stocks gained on Friday as investors cheered better-than-expected results from banking heavyweights JPMorgan Chase, Citigroup and Wells Fargo, with solid US retail sales figures and encouraging Chinese data also lending support.

At 1540 BST, the Dow Jones Industrial Average was up 0.8%, while the S&P 500 and the Nasdaq were both 0.7% firmer.

Meanwhile, oil prices were steady to slightly lower, with West Texas Intermediate flat at $50.42 a barrel and Brent crude down 0.4% to $51.84.

Bank shares boosted sentiment, with Citigroup up 2%. Third-quarter net income came in at $3.8bn, or $1.24 per diluted share, down from $4.3bn, or $1.35 in the third quarter of 2015, on revenue of $17.8bn, down from $18.7bn. However, the figures were still ahead of analysts’ expectations for adjusted EPS of $1.16 and revenue of $17.3bn.

JP Morgan Chase and Wells Fargo also racked up healthy gains as their third-quarter numbers beat forecasts.

JPM posted third-quarter profits of $6.29bn, or $1.58 per share, down from $6.8bn or $1.68 in the same period a year ago, on revenue of $25.5bn. Analysts had been expecting earnings of $1.39 and revenue of $24bn.

Wells Fargo’s earnings came in at $1.03 compared to expectations of $1.01, with revenue of $22.3bn versus forecasts of $22.2bn.

Encouraging retail sales data also underpinned the mood, with sales in September up 0.6% compared to a 0.2% decline the month before, in line with expectations. Core sales, which exclude building materials, autos, petrol stations and food services, rose 0.1%.

Paul Sirani, chief market analyst at Xtrade, said the rise in retail sales could bring the Federal Reserve a step closer to raising rates.

“With the Fed wanting to see as much positive data as possible, retail sales had to make a recovery from the dip seen in August. An increase in jobs, wages and the strength of the dollar have seen spending power surge and consumers are beginning to fuel the economy again.

“The big question is whether a rate rise comes pre or post-election. Both are possible, but bearing in mind the potential political consequences, the latter is surely more likely.”

However, Chris Williamson, chief business economist at IHS Markit, said the rebound in retail sales masks “worrying signs of a slacking-off" in the underlying trend in consumer spending to the worst for over three years, suggesting the economy is struggling to pull out of the malaise seen in the first half of the year.

“While the September upturn is good news, take a step backwards and it’s clear that the picture is not so bright. The September upturn leaves total sales 0.7% higher in the third quarter, less than half of the 1.5% expansion seen in the second quarter."

Elsewhere, a survey from the University of Michigan found consumer sentiment in the US unexpectedly deteriorated in October, dropping to its lowest level since last September and the second-lowest in the past two years.

The preliminary reading of the consumer sentiment index fell to 87.9 from 91.2 in September and 90.0 in October last year. Economists had been expecting a reading of 91.9.

Figures out of China earlier helped to soothe fears over the world’s second-largest economy, as they showed producer prices unexpectedly rose for the first time in nearly five years in September, while consumer inflation also beat expectations.

Next up, investors will turn their attention to a speech by Fed chair Janet Yellen in Boston at 1730 BST.

Earlier on Friday, the Fed’s Eric Rosengren said: "The market seems to think that there's a very high probability of December. We'll see how the economic data actually comes in, but I think that is priced appropriately."