A look at the day ahead in U.S. and global markets from Mike Dolan
Wall St has suddenly become a tough crowd to please.
Much like last week’s cool market reception for decent earnings beats from streamer Netflix (NASDAQ:NFLX) or chipmaker TSMC, Alphabet (NASDAQ:GOOGL)’s surprisingly muscular second quarter left its stock down 2% overnight – and even the artificial intelligence theme didn’t wow the gallery.
Tesla (NASDAQ:TSLA) was a little easier to figure. Its stock diving 8% out of hours after the automaker reported its lowest profit margin in more than five years – missing earnings targets in the second quarter as it cut prices to revive demand while it increased spending on AI projects.
In the thick of the earnings season on both sides of the Atlantic, there was a mixed company-to-company picture as always. Shares in UPS dived 12% on Tuesday while Spotify (NYSE:SPOT) surged 12%. Deutsche Bank and BNP Paribas (OTC:BNPQY) topped the list in Europe — with both stocks were in the red and the former down heavily.
But with China’s economic woes a factor in many areas, one of the biggest decliners on Wednesday was Europe’s luxury sector. LVMH fell nearly 5% after it missed sales estimates on flagging Chinese demand.
An additional drag on European markets and the euro was a surprise contraction in overall euro zone business activity indicated by early July surveys. The U.S. equivalent is due later on Wednesday.
In the blizzard, S&P500 futures are down 0.6% ahead of Wednesday’s bell – as the megacaps retreat dominates and broader macro growth jitters start to resurface, not least after another dour home sales report on Tuesday. VIX volatility nudged back higher to 15.5.
ELECTION AND UNCERTAINTY
And election developments add to the uncertainty as Vice President Kamala Harris’ likely nomination to replace Joe Biden in November’s White House race has seen her national opinion poll ratings surpass challenger Donald Trump and dragged betting market probabilities on the latter’s win back as low as 55%.
This appears to have flattened many of the so-called Trump trades for now as markets see the contest unfold and Harris is widely seen as a status quo option in relation to the current administration’s economic policy stance.
The bond markets are happier, however, and have lapped up the equity wobble, nagging growth doubts and a sharp retreat in crude oil prices this week to their lowest in over a month.
Oil prices are now down almost 7% over the past week and the year-over-year change important for inflation calculations has turned negative again for the first time since March.
Good investor demand at Tuesday’s 2-year Treasury note auction has seen two-year yields slide back to 4.43%, with $70 billion of 5-year paper under the hammer later today.
Canada’s dollar, meantime, hit its weakest level since April as the Bank of Canada is expected to cut its main policy rate again on Wednesday – two before the Federal Reserve has even moved.
Earlier, Asia stocks markets were generally lower, with China’s CSI300 and Hong Kong down again.
A slightly higher dollar index overall was offset by another sizeable drop in dollar/yen to its lowest since May.
The risk of another interest rate hike in Japan and recent rounds of currency intervention have seen speculators closing what had been profitable “carry” trades funded in yen. The Bank of Japan reviews policy next Tuesday and Wednesday.
Key developments that should provide more direction to U.S. markets later on Wednesday:
* US flash business surveys for July from S&P Global. US June new home sales, June trade balance, June wholesale and retail inventories. Canada June house prices
* Bank of Canada policy decision
* US corporate earnings: AT&T (NYSE:T), IBM (NYSE:IBM), Ford (NYSE:F), General Dynamics (NYSE:GD), Ameriprise Financial (NYSE:AMP), CME, Fiserv (NYSE:FI), Boston Scientific (NYSE:BSX), Allegion (NYSE:ALLE), Align (NASDAQ:ALGN) Technology, Newmont, Nextera, Otis, Chipotle (NYSE:CMG), Teradyne (NASDAQ:TER), International Paper, United Rentals (NYSE:URI), Westinghouse, Molina Healthcare (NYSE:MOH), Thermo Fisher Scientific (NYSE:TMO), Edwards Lifesciences (NYSE:EW), Universal Health (NYSE:UHS) etc
* Dallas Federal Reserve President Lorie Logan speaks; European Central Bank chief economist Philip Lane speaks
* US Treasury sells $70 billion 5-year notes, auctions 2-year floating rates notes
This post is originally published on INVESTING.
