Tonight, the world will hear what Dimon has to say

According to Shanghai Securities Journal, on Wednesday, U.S. President Trump announced a 90-day suspension of tariffs on certain countries, a 180-degree turnaround that provided immediate relief to major U.S. banks, with stock prices of all six major U.S. banks soaring.

However, some analysts suggest that this optimism may be premature, as ongoing economic turmoil and inflation could still limit the Federal Reserve's policy space.

As the first quarter earnings season for the banking industry is set to kick off tonight, investors will closely monitor bank executives' forecasts for the future economic outlook. Barometer JPMorgan Chase will be the first to release its earnings report, and CEO Jamie Dimon's economic and business commentary will be more closely watched than ever.

In the annual letter to shareholders released on Monday, Dimon stated that tariffs could drive up inflation and slow growth, but it remains uncertain whether they will trigger a recession. In an interview with FOX Business on Wednesday morning (just before Trump's announcement of the 90-day suspension), Dimon expressed that a recession is likely, and last week JPMorgan economists raised the global recession probability to 60%.

Rising Recession Risks: Credit Risks Persist

Although the risk of a U.S. recession has decreased somewhat following Trump's withdrawal of some tariff plans, it is far from eliminated.

This means that the credit risk for banks (the likelihood that borrowers will be unable to repay loans and bonds in full) still exists, and the unknown market risks have not diminished either. History shows that sudden shocks often lead to severe market crashes in unpredictable ways, such as the collapse of Long-Term Capital Management (LTCM) following Russia's sudden default in 1998.

Market volatility may lead to a surge in income for the trading departments of large banks in the short term, provided that liquidity does not dry up.

Currently, issues regarding borrower behavior are emerging. Whether for businesses or consumers, if they start to feel anxious and draw on revolving credit lines, it will exacerbate banks' credit risks. If more people repay loans early or reduce large capital expenditures, it will drag down bank revenues.

Interest Rate Risks Resurface: Increased Uncertainty in Financial Markets

New dangers emerge almost daily. Two years ago, the biggest issue for the banking industry was interest rate risk. Now this issue has returned, as U.S. Treasury yields have surged sharply, the reasons for which are not entirely clear.

During the strong market rebound on Wednesday, the yield on the 10-year Treasury hovered around 4.35%, having briefly dipped below 4% over the weekend.

In 2022, the value of fixed-rate assets held by banks (including U.S. Treasuries and mortgage-backed securities) plummeted, leading to a rapid spike in yields. The following year, some large regional banks collapsed as a result, with many depositors moving their funds to banks like JPMorgan Chase, which are viewed as "too big to fail."

Key Moment of Earnings Season: How Will Banks Respond to Potential Losses?

In addition to the statements from bank executives, investors will closely monitor how they actually respond to potential future losses.

The mathematical models used by banks to calculate credit losses in their earnings reports will include economic forecasting factors. Whether and how banks proactively address the potential impacts of tariffs will reflect their genuine assessment of the pressures faced by their clients.

Some losses currently anticipated by banks will actually be reflected in the second quarter earnings reports. This is because, according to U.S. accounting rules, events occurring after March 31 are considered "subsequent events." More specifically, the rules stipulate that companies should not adjust credit loss estimates based on new circumstances after the balance sheet date and before the financial statements are issued. However, if these subsequent events are significant, they still need to be disclosed.

This means that the first quarter earnings reports of banks will not fully reflect the economic forecast changes brought about by tariffs. This part will appear in management's commentary, including calls with analysts. However, given the rapid changes in the current situation, there is likely to be little certainty in the commentary.

Looking ahead, if banks choose to estimate future losses more conservatively, even if it impacts profits, investors are unlikely to disagree with JPMorgan Chase or other banks. After all, in today's highly uncertain environment, assessing expected losses is very challenging