US banking sector hit by proposed credit cap
The United States (US) equity markets closed lower overnight, driven primarily by a sell-off in financial stocks. This downturn followed President Trump’s proposed 10% cap on credit card interest rates, a move that sent the US banking index down 1.26%.
JPMorgan shares led the decline, sliding 4.2% to $310.90, despite the bank reporting better-than-expected fourth quarter (Q4) 2025 earnings. Its earnings per share (EPS) of $5.23 beat expectations of $4.92, and revenue of $46.8 billion exceeded the $46 billion forecast.
However, its share price was weighed down by weaker investment banking fees and warnings that the proposed 10% cap could reduce credit availability, hurt consumer access, and pressure profitability across the sector. Payment processors also suffered, with Visa dropping 4.46% to $327.88 and Mastercard losing 3.76% to $544.99
Inflation data fails to curb market fears
This sell-off in US equity indices occurred despite the release of a softer-than-expected inflation report for December. Core consumer price index (CPI) rose 2.6% year-on-year (YoY), marking its lowest level since March 2021 and coming in slightly below market expectations of 2.7%.
While it is tempting to conclude that inflation in the US is now firmly under control, concerns persist that significant tariff pass-through remains in the pipeline, mainly via core goods as businesses look to shift costs to consumers amid depleting inventories and renegotiated contracts.
Furthermore, the CPI reports for January and February will be an important test, given the usual start-of-year price increases, particularly among services including insurance, healthcare, financial services, and utilities and energy-related services.
US earnings and economic data outlook
Looking ahead, tonight sees earnings reports from Bank of America, Citigroup, and Wells Fargo ahead of the market open. Additionally, key economic data, including the producer price index (PPI) and retail sales, will be released.
Turning to the US interest rate market. Following last week’s better-than-feared December non-farm payrolls report, the US interest rate market is pricing in a 98.3% chance that the Federal Reserve (Fed) keeps rates on hold at its January meeting in two weeks’ time. Nonetheless, hopes of Fed rate cuts in 2026 shine brightly, with a cumulative 52 basis points (bp) of Fed rate cuts for 2026, with the initial 25 bp cut anticipated in June and a second by December.