Global Stocks Rise, S&P Pushes Above 3,000 As Earnings Season Begins

A busy week for macro data and the official launch of Q2 earnings is starting off on the right foot, with global stocks higher around the globe...

... following the release of China's June/Q2 data dump, which saw GDP growth drop to 6.2%, the lowest on record, even as other key activity indicators such as retail sales, industrial output and fixed investment all miraculously rebounded, beating expectations.

S&P e-mini futures climbed alongside stocks in Europe and Asia at the start of a busy week for Federal Reserve speakers, corporate earnings and economic data, extending on last week’s gains to trade slightly higher on Monday and trading in record territory around 3,020  in the run up to the start of second-quarter earnings reports, beginning with Citigroup at 8am on Monday, whose shares are up 0.7% in premarket trade. It will be followed by other big banks such as JPMorgan, Goldman Sachsand Wells Fargo on Tuesday.

As companies start reporting quarterly results, investors will look for the impact of the long-drawn U.S.-China trade dispute on corporate profit. Other companies slated for this week include Bank of America, Netflix, Microsoft and Honeywell. Investors are bracing for the worst, with profits for the index expected to dip 2.0% year-over-year, the first quarterly decline in three years.

This week also sees a deluge of Fed speakers ahead of their blackout period from Saturday onwards. So, catch the last morsels of information while you can. Today we’ll hear from Williams in New York where he is due to make keynote remarks at a conference. Tomorrow Powell is due to speak at a Bank of France event in Paris while prior to that we’ll hear from Bostic, Kaplan and Bowman before Evans then speaks in the evening. On Thursday we’re then due to hear from Bostic and Williams again before Bullard and Rosengren speak on Friday.

Last week, gains in stocks were powered by comments from Federal Reserve Chairman Jerome Powell that reassured investors that an interest rate cut was highly likely at the central bank’s policy meeting later this month. This helped the S&P500 close above 3,000 points for the first time on Friday as investors rebuilt their bets of a sharp 50 basis-point rate cut in the July 30-31 meeting.

Also helping the mood was upbeat data out of China where June reports on industrial production, retail sales and urban investment were well above expectations despite the continued slump in backward looking GDP, and helped Shanghai and Hong Kong recoup losses. That followed stronger-than-expected economic data in Europe and the United States last week, prompting investors to dial back some of their more pessimistic views on global growth.

“The Fed has signalled what its next policy steps will be, but there’s also a question mark as to what happens if the data improves,” said Rabobank fixed income strategist Matthew Cairns.

At 7:30 a.m. ET, Dow e-minis were up 53 points, or 0.14%. S&P 500 e-minis were up 5.50 points, or 0.14% and Nasdaq 100 e-minis were up 13.75 points, or 0.2%.

Among US stocks on the move, Boeing fell 1.4% after a report that its 737 Max jet may stay grounded until early 2020 as the company seeks to fix its hazardous flight-control software. General Electric slipped marginally after brokerage UBS downgraded shares of the industrial conglomerate to “neutral” from “buy”, according to traders. Shares of paper packaging companies Westrock Co (WRK.N), Packaging Corp of America (PKG.N) and International Paper Co fell between  3.3% and 2.4% and were the top losers on the benchmark index before the bell. KeyBanc downgraded their shares, citing risks from a further fall in containerboard and pulp prices.

In rates, ten-year Treasuries were little changed while most euro zone government bond yields inched down from recent 3 1/2-week highs on Monday, with reassuring signs from the global economy preventing steeper falls for now. Greece was in focus after its mandated banks for its issue of a seven-year bond, according to IFR Markets. The German Bund has risen around 15 bps from record lows earlier this month and is back above its June 18 lows, when comments by ECB President Mario Draghi sparked expectations for monetary policy easing soon. The closely watched gap between 10-year Italian and German bond yields was 3 bps tighter at around 195 bps after DBRS on Friday maintained Italy’s sovereign credit rating at BBB.

“The whole movement in bonds lost steam last week,” said Norbert Wuthe, a rates strategist at Bayerische Landesbank. “What we saw was a taming of market expectations for European Central Bank easing, and also the ECB calmed expectations for new QE."

In FX, the Bloomberg Dollar Index fell to the lowest level in more than a week, triggered by the Federal Reserve’s hints at policy easing, while the New Zealand and Australian dollars led gains on strong Chinese data. The pound slipped versus both the dollar and euro ahead of labor-market and inflation data this week. Moves across Group-of-10 currencies were subdued as Japanese markets were closed for a holiday, while European government bonds rallied and European shares drifted lower.

WTI crude oil nudged higher, as WTI and Brent futures remained choppy within a relatively narrow intraday band thus far. The former currently hovers just above the 60/bbl mark whilst the latter remains afloat closer to the 67/bbl, as the benchmarks largely reflect market sentiment in the absence of fresh catalysts. Elsewhere, Hurricane Barry has abated to a tropical depression, with eyes now on any refineries coming back online after the Gulf’s crude output was cut by 70% on Friday amid storm preparations. ING notes that output in the Gulf is likely to return to normal levels over the coming days. Meanwhile, gold prices are little changed amid a steady USD and base metals were bolstered by the mostly upbeat Chinese data overnight. As such copper has reclaimed 2.7/lb to the upside while nickel surged in excess of 3.0% deriving additional strength from supply woes.

Expected data includes Empire State Manufacturing Survey. Citigroup and JB Hunt are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures up 0.1% to 3,018.00
  • Stoxx Europe 600 down 0.1% to 386.39
  • MXAP up 0.2% to 160.69
  • MXAPJ up 0.3% to 526.95
  • Nikkei up 0.2% to 21,685.90
  • Topix down 0.2% to 1,576.31
  • Hang Seng Index up 0.3% to 28,554.88
  • Shanghai Composite up 0.4% to 2,942.19
  • Sensex up 0.2% to 38,816.02
  • Australia S&P/ASX 200 down 0.7% to 6,652.99
  • Kospi down 0.2% to 2,082.48
  • German 10Y yield fell 1.9 bps to -0.229%
  • Euro up 0.04% to $1.1274
  • Italian 10Y yield rose 3.9 bps to 1.384%
  • Spanish 10Y yield fell 3.6 bps to 0.532%
  • Brent futures up 0.5% to $67.05/bbl
  • Gold spot little changed at $1,416.17
  • U.S. Dollar Index little changed at 96.79

Top Overnight News

  • Chinese industrial production and retail sales for June beat all estimates. The monthly indicators offered some optimism and suggested the economy was stabilizing after data showed GDP growth moderated to 6.2% last quarter, the weakest since the data series began in 1992
  • U.S. President Donald Trump told aides he’s considering removing Commerce Secretary Wilbur Ross after Supreme Court defeat on adding a citizenship question to the census, NBC reports, citing multiple people familiar with the conversations
  • Anti-Brexit campaigner Gina Miller is ready to take the U.K. government to court again if Boris Johnson tries to suspend Parliament to force through a no-deal Brexit. Miller, who already used the courts to force the government to get parliamentary approval before beginning Brexit talks, said she’s assembling the same team to counter Johnson
  • Hong Kong police arrested more than 40 people after attempts to clear the remnants of a mass anti-government march resulted in dramatic clashes with demonstrators inside a suburban shopping mall, piling more pressure on embattled leader Carrie Lam
  • Ursula von der Leyen’s two-week dash to secure the most powerful policy- making job in the European Union may end with a photo finish. Unexpectedly tapped to head the European Commission after weeks of grueling negotiations by national leaders, the German defense minister and ally of Chancellor Angela Merkel is chasing support among left-leaning factions to put her over the top in a secret ballot Tuesday in the EU Parliament

Asian equity markets traded mixed as the region digested a slew of tier-1 Chinese data and with the absence of Japanese participants adding to the initial lull. ASX 200 (-0.6%) was negative with the downside led by underperformance in tech and telecoms, while financials also weighed on the index with AMP Capital shares down around 15% after it noted the unlikelihood it will proceed with its life insurance unit sale due to opposition by the RBNZ. Conversely, Hang Seng (+0.3%) and Shanghai Comp. (+0.4%) were pressured at the open after the recent mixed lending and trade data from China, while participants were also cautious as they awaited more tier-1 releases from the world’s 2nd largest economy including Chinese GDP, Industrial Production and Retail Sales. The data then proved to be better than expected as most of the figures topped estimates which inspired a recovery in stocks, although still showed China’s economic growth slipped to 6.2% Y/Y as expected which was the slowest pace since 1992.

Top Asian News

  • DBS Downgrades Singapore’s Growth Forecasts Amid Recession Risk
  • Singapore June Home Sales Slip as Developers Slow Launches
  • AMP Reboot in Tatters as $2.3 Billion Life Sale Collapses

European indices have drifted lower in recent trade, but are largely unchanged [Eurostoxx 50 U/C] following on from a mixed Asia-Pac trade as volumes were mired amid the absence of Japan. Sectors are also little inspired, albeit material names benefiting marginally from the boost in base metal prices post-Chinese data. Meanwhile, movers include the likes of Antofagasta (+4.0%) after the Co’s JV with Barrick Gold was awarded USD 5.84bln in damages from a legal dispute with the Pakistani government. Elsewhere, AB InBev (-2.0%) shares declined after the Co. back-tracked on its Hong Kong IPO plans due to little demand from long-term investors, the IPO was meant aid the Co. with its USD 100bln debt pile. Airbus (+0.6%) shares rose in early trade amid a weekend WSJ article which highlighted Boeing’s 737 Max is likely to be grounded until January next year as the jet is yet to satisfy all safety requirements, according to union leaders and officials. Finally, analysts at JPM have raised their 12-month S&P 500 price target to 3200 (Prev. 3000) citing factors including synchronised easing of global central banks, attractive relative valuation, intracycle profit recovering by year-end and a record share buyback to buoy equity demand; for reference, the S&P closed at a record 3013 on Friday. The analysts also expect a partial US-Sino trade deal heading into the US election year, although this has been caveated as their largest single downside risk to the view.

Top European News

  • Merkel’s Ally Pushes for Last-Minute Votes to Take Top EU Job
  • Italy Can’t Stop Talking About Salvini’s Russia Tape Scandal
  • Negative-Yield Credit Mountain May Double as Euro Spreads Narrow
  • Ardagh to Combine With Exal to Create Metal Packaging Giant

In FX, the AUD and NZD continue to outperform, and the latest advances have been made with the aid of better than expected Chinese data in the form of ip and retail sales. However, with GDP in line with consensus and slowing to a 27 year low, it is the Kiwi rather than Aussie that has really extended gains from last week to a 0.6725 high vs its US counterpart and towards 1.0450 in cross terms as Aud/Usd stalls at 0.7035. Note also, Westpac sees more upside for Nzd/Usd in the short term based on the Fed’s dovish tilt, but then a reversal through 0.6600 next month assuming the RBNZ eases again. More immediately, NZ inflation for Q2 looms and the forecast is for firmer CPI prints.

  • CHF/EUR/JPY/CAD - All narrowly mixed vs the Greenback, but with the Franc also getting a bullish nod via a bank trade recommendation as MS favours going short of Usd/Chf at current levels circa 0.9835 for 0.9730 with a 0.9980 stop, while Eur/Chf hovers closer to the base of a 1.1100-1.1085 range and shrugs off weak Swiss producer/import prices. Meanwhile, the single currency remains trapped in a tight range inside 1.1250-1.1300 vs the Buck and flanked by key chart support and resistance, like the 100 DMA at 1.1255, a 50% Fib at 1.1303 and the 200 DMA at 1.1323. Elsewhere, the Yen is pivoting 108.00 in an equally tight range and with trade/interest hampered by Japan’s Marine Day market holiday, but the Loonie is consolidating recent gains between 1.3042-22 after last Wednesday’s relatively hawkish or neutral BoC hold.
  • GBP - In stark contrast to yesterday’s Lords result, the Pound is lagging behind G10 peers, and especially the Kiwi. Cable is only just holding 1.2550 after another fade ahead of 1.2600 even though the Dollar is generally soft and the DXY is depressed below 97.000, with the ongoing UK political void weighing on sentiment and Brexit still up in the air as a result.
  • EM - The Lira is holding up quite well in the face of another Turkish ratings downgrade (1 peg by Fitch to BB-, outlook negative) with Usd/Try meandering between 5.7070-7325 vs a peak of 5.7800 late last Friday when a White House statement about Turkey’s S-400 missile system purchase from Russia was unexpectedly shelved amidst speculation that US President Trump may err on the side of lenience when it comes to any sanctions. Conversely, the Real may come under pressure and Usd/Brl rally from 3.7400 on the back of reports Brazil’s lower house could delay a vote on pension reforms until August (ie after this Friday’s recess) due to proposed amendments that could diminish the financial savings from the new package.

Little to report on the energy front, although WTI and Brent futures remain choppy within a relatively narrow intraday band thus far. The former currently hovers just above the 60/bbl mark whilst the latter remains afloat closer to the 67/bbl, as the benchmarks largely reflect market sentiment in the absence of fresh catalysts. Elsewhere, Hurricane Barry has abated to a tropical depression, with eyes now on any refineries coming back online after the Gulf’s crude output was cut by 70% on Friday amid storm preparations. ING notes that output in the Gulf is likely to return to normal levels over the coming days. Meanwhile, gold prices are little changed amid a steady USD and base metals were bolstered by the mostly upbeat Chinese data overnight. As such copper has reclaimed 2.7/lb to the upside while nickel surged in excess of  3.0% deriving additional strength from supply woes. BSEE said Gulf of Mexico crude output was cut by 70% on Friday and natural gas output was reduced by 56% due to storm preparations, while the NHC stated on Sunday that Barry weakened to a tropical depression over north-western Louisiana and that life-threatening flooding rains will continue into Monday.

US Event Calendar

  • 8:30am: Empire Manufacturing, est. 2, prior -8.6
  • 8:50am: Fed’s Williams Speaks at Libor briefing

DB's Jim Reid concludes the overnight wrap

If you’re reading this then there was no Wi-Fi on my flight to Asia overnight and I’ve still no idea who has won the Cricket World Cup around 12 hours after it finished. England were struggling as I had to turn my phone off and I felt sick as a dog with anxiety over it. Hopefully there has been a fairy-tale ending. I’ve written most of today’s EMR watching it very stressed but I’m passing over the Asia session to Henry and Craig.

So with Jim fast asleep at 40,000 feet it’s straight to China this morning after the monthly data dump was released a few hours ago. The headline reading is that the economy slowed to yoy growth of 6.2% in Q2 (from 6.4% in Q1), in line with expectations but still the slowest pace of growth for the Chinese economy since 1992 when quarterly data began. A number of other figures for June surprised on the upside however including industrial production (+6.3% yoy vs. +5.2% expected), retail sales (+9.8% vs. +8.5% expected), and fixed assets investment (+5.8% yoy vs. +5.5% expected). All three of these are also up from the previous month, so policymakers and investors will be analysing the figures carefully to see if they represent signs of stabilisation amidst the ongoing trade war with the US.

Asian equity markets have pared back losses following the release, with the Hang Seng (+0.21%) and the Shanghai Comp (+0.76%) both trading higher, while the KOSPI (-0.03%) is up from its earlier lows. Markets in Japan are closed however so volumes are fairly light across the board. S&P 500 futures also rose +0.10%, following the index’s record close on Friday.

In terms of the week ahead and with just over two weeks to the FOMC meeting, this week sees a deluge of Fed speakers ahead of their blackout period from Saturday onwards. So, catch the last morsels of information while you can. Today we’ll hear from Williams in New York where he is due to make keynote remarks at a conference. Tomorrow Powell is due to speak at a Bank of France event in Paris while prior to that we’ll hear from Bostic, Kaplan and Bowman before Evans then speaks in the evening. On Thursday we’re then due to hear from Bostic and Williams again before Bullard and Rosengren speak on Friday.

In data terms the highlights in the US include retail sales and industrial production (both tomorrow) while earnings season starts to come into view with 58 S&P 500 companies reporting including the big banks. Can US earnings escape a technical earnings recession and avoid a second negative quarter YoY? S&P 500 expectations are for -3.0% YoY after -0.3% in Q1. According to Factset, over the last 5 years actual earnings have exceeded expected earnings by +4.8% so we may yet get a positive number. In terms of headliners, Citigroup report today, JP Morgan, Goldman Sachs and Wells Fargo tomorrow, Bank of America on Wednesday and Morgan Stanley on Thursday. We’ll also get results from some of the tech sector with Netflix, IBM and eBay all reporting on Wednesday and Microsoft on Thursday.

Staying with the US, on Wednesday former Special Counsel Robert Mueller is due to testify before Congress on his investigation into Russian interference in the 2016 presidential election. The suggestion is that the testimony won’t go beyond what Mueller issued in his report in April.

Over in Europe we see the July ZEW survey in Germany tomorrow and final CPI revisions for the Euro Area on Wednesday. In the UK it’s a busy week ahead for data with May and June employment data tomorrow, June inflation on Wednesday, June retail sales on Thursday and June public finances on Friday. The rest of the day by day week ahead is at the end.

In markets last week, the highlight was undoubtedly the further rally in US equities. The S&P 500, NASDAQ, and DOW all advanced to fresh all-time highs by Friday’s close, ending the week +0.78%, +1.01%, and +1.52% (+0.46%, +0.59%, +0.90% on Friday) respectively and included the S&P 500 finally closing above 3000 for the first time on Friday. The moves had a pro-cyclical tilt, with semiconductors up +2.91% (+1.90% Friday) and utilities lagging, down -0.11% (-0.64%). US Stocks were partially boosted by a softer dollar, which dipped -0.49% (-0.25%), while the stronger euro weighed on European bourses with the single currency edging +0.40% (+0.14% Friday) on the week. The STOXX 600 index fell -0.84% (+0.04% Friday). HY bonds in both regions weakened a touch though, with cash spreads up +2bps and +6ps in the US and Europe.

In fixed income, the 2y10y Treasuries curve steepened +10.4bps (flat Friday) to 27.3bps, the biggest steepening week since early October. That move was driven by a -1.2bps (-1.5bps Friday) slide in two-year yields, as expectations continued to firm for Fed rate cuts. At the same time, 10-year yields rose +8.9bps (-1.6bps Friday). Most of the move was driven by higher inflation breakevens, which rose after the strong CPI report on Thursday but were generally pressured upward by rising oil prices. WTI crude rose +4.69% (+0.02% Friday), as US inventory data showed a large drawdown in stockpiles. Yields also rose in Europe, helped by strong industrial production data, with bunds weaker, however BTPs outperformed, trading flat on the week (+3.9bps Friday). That took the BTP-bund spread to 195bps, its lowest level since the current government was formed just over a year ago.