Monday July 22nd

22-07-2019

US stock futures are slightly higher on hopes for better-than-expected earnings

U.S. stock index futures rose on Monday ahead of a big week for earnings. The gains came even as expectations of aggressive policy easing from the Federal Reserve dampen. At around 9:05 a.m. ET, Dow Jones Industrial Average futures were 60 points higher and pointed to a gain of 49 points at the open. Futures on the S&P 500and Nasdaq 100 were also marginally higher. More than a quarter of the S&P 500 reports earnings this week including so-called FANG names Facebook, Alphabet and Amazon, along with blue chips like McDonald’s and Boeing. So far, more than 15% of the S&P 500 has posted quarterly results. Of those companies, 78.5% have topped analyst expectations for earnings while 67% have reported better-than-expected quarterly revenues, according to FactSet data. “Given that companies tend to outperform expectations, we said that Q2 would actually show positive earnings growth of 1.0%. Nothing to write home about, but enough to end the earnings recession chatter,” said Nicholas Colas, co-founder of DataTrek Research, in a note. “A strong dollar is the biggest headwind to earnings and profit margins – not the effect of the US-China trade war – and this problem only gets worse in Q3 2019.” Stocks struggled last week, posting their biggest weekly decline since May as investors digested the first batch of corporate earnings reports and signals on potential Fed policy moves. Comments from New York Fed President John Williams initially led investors to price in a greater possibility of the central bank cutting rates by 50 basis points. In a speech on Thursday, Williams said it is better for central banks to take preventative measures than to wait for disaster to unfold.” However, the New York Fed later tried to walk back Williams’ remarks, stating: “This was an academic speech on 20 years of research. It was not about potential policy actions at the upcoming FOMC meeting.” According to the CME Group’s FedWatch tool, market expectations for a 25 basis-point rate cut later this month are at 75.5%. Meanwhile, traders are also pricing in a 24.5% chance of a 50 basis-point cut. Investors will also have one eye on geopolitical developments, as Britain weighs its options after the Iranian military seized a British oil tanker. Outgoing Prime Minister Theresa May will chair an emergency response committee meeting on Monday to discuss the crisis. Stocks in Asia were lower on Monday, as shares on a new Nasdaq-style technology board on the Shanghai Stock Exchange skyrocketed on their debut day. In mainland China, the Shanghai composite slipped 1.27% on the day to 2,886.97, while the Shenzhen composite shed 1.785% to close at 1,532.43. The STAR market started trading in Shanghai on Monday, as shares of the first batch of 25 companies surged following a massive oversubscription prior to their public debut. Over in Hong Kong, the Hang Seng index slipped 1.2%, as of its final hour of trading. The Nikkei 225 in Japan declined 0.23% to close at 21,416.79. The Topix index also fell 0.49% to end its trading day at 1,556.37. South Korea’s Kospi finished its trading day fractionally lower at 2,093.34. Oil prices rose on Monday on concerns that Iran’s seizure of a British tanker last week may lead to supply disruptions in the energy-rich Gulf. Brent crude futures climbed 93 cents, or 1.5%, to $63.40 a barrel. West Texas Intermediate (WTI) crude futures were up 74 cents, or 1.3%, at $56.37 a barrel. Last week, WTI fell over 7% and Brent lost more than 6%. Gold steadied on Monday, having slid 1% in the previous session on lowered expectations of a big interest rate cut by the U.S. Federal Reserve, but the metal’s overall momentum remained supported by global geopolitical uncertainties. Spot gold was up 0.1% at $1,426.36 an ounce, having touched $1,448 on Friday for its highest since May 2013. Though prices then dropped by more than 1% gold was still up 0.7% over the the week. U.S. gold futures remained unchanged on Monday at $1,427.20.