Markets brace for earnings Round 2 and investors are holding fire (for now)
After yesterday’s drop in all three big U.S. market indexes ended a five-day rally that had taken them to record highs—the Nasdaq had its worst day since early May—even bumper after-market earnings reports from Apple, Microsoft and Alphabet couldn’t excite investors.
Today, investors in U.S. stocks are preparing for a flat to mildly positive open ahead of another monster day of earnings reports, along with the much-anticipated afternoon release of the Federal Open Market Committee’s interest rate decision and statement after the Fed’s meeting on monetary policy.
European markets too were crêpe-flat to slightly up in early trading, as investors there also digested and prepared for the continuing flood of earnings reports, along with the Fed decision and the subsequent press conference with Fed Chair Jerome Powell.
At Deutsche Bank, economists expect Powell will “stop short of sending a clear signal” that a slowdown in the Fed’s bond buying program is imminent; an official announcement, they believe, will happen in November. At LPL Financial, fixed income strategist Lawrence Gillum suggests a reason for putting this off—that the worrisome rise of COVID-19 cases, spurred by the Delta variant, may be reinserted as a recovery risk in the FOMC statement.
Even in China, investors took a breather, pausing after days of brutally punishing companies that are or could be in the sights of government regulators—education, food delivery, and so on. One possible explanation for the pause (beyond general exhaustion)? China’s state-owned Securities Times tried to prop up investor sentiment with a front page commentary Wednesday, saying that systemic risks “do not exist in the A-share market overall.” It went on:
“The recent market decline to some extent reflects misinterpretation of policies and a venting of emotion. Economic fundamentals have not changed and the market will stabilize at any moment.”
In other words, these are not the droids you are looking for.
Now let’s see what’s moving markets.
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Asian markets stabilized after an 8% decline in Hong Kong’s Hang Seng over the previous two days, with the Hang Seng up 1.5% today. However, regulatory fears still lurk, and the Shanghai Composite fell 0.6%.
The Chinese yuan also bounced back from a three-month low after logging its worst day since October on Tuesday.
The Nikkei fell to a six-month low as a retreat in Wall Street and concerns over rising COVID-19 cases pushed the Japanese bourse down 1.4%.
Meanwhile, Down Under isn’t inspiring much confidence. Australia’s S&P/ASX 200 fell 0.7% as its capital Sydney extended COVID-19 lockdown rules. Inflation has also taken hold, with the country’s consumer price index rising 0.8% in June according to its Bureau of Statistics.
The European bourses recovered slightly from yesterday with the Stoxx Europe 600 up 0.4% in early trading ahead of a big day of earnings results in European markets
Deutsche Bank and Barclays both beat second-quarter expectations, helping both banks use the profits to cover COVID-19 related loans and recuperate from losses.
Other European earnings results to watch today include British American Tobacco, GlaxoSmithKline, Rio Tinto, BASF and Santander.
Despite COVID-19 still looming over the market outlook in Europe, Delta variant cases in the U.K. aren’t going up as expected and England is set to open up its borders to vaccinated U.S. and European visitors. Tuesday’s U.K. infection number—23,511—was almost 50% lower than a week before, a drop that’s confusing some scientists considering the country’s recent ending of nearly all COVID-19 restrictions.
Investors are anticipating the result of the Federal Open Market Committee’s meeting, which according to UBS shouldn’t hold no surprises, though a timeline for future monetary policy tightening would be welcome.
Despite strong earnings results, U.S. futures were dead calm as the market cools off from its five-day record rise. Dow Futures were trading flat while Nasdaq and S&P 500 Futures were both trading slightly up, about 0.2%.
The shining star of yesterday was Big Tech, which surged to unexpected heights as Apple, Alphabet, and Microsoft raked in $57 billion in quarterly profits as the demand for digital assets continue to soar even after lockdown rules begin to ease. The profits were 30% more than Wall Street expected.
Other earnings coming out today include Facebook, Ford, Pfizer, McDonald’s, and Boeing.
Gold is up a hair, trading just above $1,800/ounce.
The dollar is flat.
Crude is up with Brent a few cents below $75/barrel.
Bitcoin bounced back from its Tuesday retreat and is once again eyeing the $40,000 barrier.
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