Markets Today: Stocks Push Higher as Positive Q2 Bank Earnings Roll In

Morning Markets

September E-Mini S&P 500 futures (ESU23) this morning are up +0.17% at a 15-month high, and Sep Nasdaq 100 E-Mini futures (NQU23) are up +0.06%.

U.S. stock index futures this morning are moving higher as Q2 corporate earnings results begin to roll in. Strength in bank earnings is supporting the overall market as JPMorgan Chase, Wells Fargo, and Citigroup are moving higher in pre-market trading on better-than-expected Q2 earnings.  However, gains are muted as bond yields move higher on hawkish comments late Thursday from Fed Governor Waller, who said he sees two more +25 bp rate hikes this year.

Late Thursday, Fed Governor Waller said, "I see two more 25 bp interest rate hikes in the target range over the four remaining FOMC meetings this year as necessary to keep inflation moving toward our target."

Positive inflation news is also bullish for stocks after the U.S. Jun import price index ex-petroleum fell -0.3% m/m, a slightly larger decline than expectations of -0.2% m/m.

While this week’s better-than-expected inflation and price reports are unlikely to dissuade the Fed from raising interest rates by 25 bp later this month, it increases the chances that this month’s rate hike could be the last rate hike in this cycle. 

The markets are discounting the odds at 91% for a +25 bp rate hike at the next FOMC meeting on July 25-26.  The markets are anticipating a peak funds rate of 5.42% by November, which is +34 bp higher than the current effective federal funds rate of 5.08%.

Global bond yields are mixed.  The 10-year T-note yield is up +1.6 bp at 3.779%.  The 10-year German bund yield is up +0.2 bp at 2.487%.  The 10-year UK Gilt yield fell to a 1-1/2 week low of 4.371% and is down -2.7 bp at 4.394%.  

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +0.36%.  China’s Shanghai Composite Index today closed up +0.04%.  Japan’s Nikkei Stock Index today closed down -0.09%.

The Euro Stoxx 50 today is moderately higher.  European stocks have support today from favorable inflation news after the German Jun wholesale price index posted its largest decline in 3 years. However, stock gains were limited by weakness in telecom companies, as Nokia Oyj and Ericsson AB both fell more than -8% after issuing disappointing guidance because of weaker demand.  Also, retailer stocks were weaker after Burberry Group Plc reported Q1 retail comparable sales rose +18%, slightly below expectations of +18.3%, as Q1 China comparable store sales rose less than expected. 

The German Jun wholesale price index fell -2.9% y/y, the largest decline in 3 years.

China’s Shanghai Composite today climbed to a 3-1/2 week high and closed slightly higher.  Strength in Chinese stocks related to artificial intelligence led the overall market higher after the government loosened some of the regulations it proposed for ChatGPT-style services, signaling the need for companies to compete for global leadership in artificial intelligence.  The new 24 guidelines will be overseen by seven state agencies led by the Cyberspace Administration of China.  Stocks also found support after China’s central bank signaled more policy support for the economy. 

Top officials of the People's Bank of China (PBOC) said they have enough room to ease monetary policy if needed.  PBOC Deputy Governor Liu Guoqiang said, "We still have ample policy room to deal with unexpected challenges and changes."  Also, Zou Lan, head of the monetary policy department, said the PBOC will take policy steps on "the needs of the economy and the price situation."

Japan’s Nikkei Stock Index today fell back from a 1-week high and closed slightly lower.  Stocks came under pressure from economic concerns after Japan's May industrial production was revised lower.  Also, strength in the yen weighed on exporter stocks after the yen rallied to a 1-3/4 month high against the dollar.  Speculation that the BOJ may signal a policy change or tweak its yield curve control framework at its July 27-28 meeting has pushed government bond yields higher and boosted the yen.  The 10-year JGB bond yield climbed to a 2-1/2 month high today at 0.485%.  The Nikkei Stock Index today initially moved higher on strength in Japanese chip equipment and material suppliers after Nvidia rallied to a new record high Thursday on optimism about AI-related growth.

Japan's May industrial production was revised lower to -2.2% m/m from the initially reported -1.6% m/m, the largest decline in 4 months.

Pre-Market U.S. Stock Movers

JPMorgan Chase (JPM) climbed more than +2% in pre-market trading after reporting Q2 adjusted revenue of $42.40 billion, well above the consensus of $39.34 billion, and raised its full-year net interest income excluding CIB markets estimate to $87 billion from a prior estimate of $84 billion. 

Wells Fargo (WFC) jumped more than +4% in pre-market trading after reporting Q2 net interest income of $13.16 billion, better than the consensus of $12.89 billion, and raised its 2023 net interest income estimate to up +14% from a previous estimate of +10%. 

UnitedHealth Group (UNH) rose more than +3% in pre-market trading after reporting Q2 revenue of $92.90 billion, above the consensus of $90.93 billion.

Microsoft (MSFT) gained nearly +2% in pre-market trading after UBS upgraded the stock to buy from neutral, saying cloud infrastructure spending is starting to stabilize after significant deceleration over the past year.

Las Vegas Sands (LVS) rose more than +1% in pre-market trading after Morgan Stanley designated the stock as a Top Pick in their gaming coverage. 

Citigroup (C) rose more than +1% in pre-market trading after reporting Q2 FICC sales and trading revenue of $4.45 billion, better than the consensus of $3.51 billion. 

Hologic (HOLX) climbed more than +2% in pre-market trading after Needham upgraded the stock to buy from hold with a price target of $95. 

State Street (STT) dropped more than -2% in pre-market trading after reporting Q2 revenue of $3.11 billion, weaker than the consensus of $3.13 billion.

BlackRock (BLK) fell more than -1% in pre-market trading after reporting Q2 net inflows of $80.16 billion, below the consensus of $86.85 billion.

AT&T (T) slipped more than -2% in pre-market trading after JPMorgan Chase downgraded the stock to neutral from overweight. 

Corning (GLW) dropped more than -2% in pre-market trading after UBS downgraded the stock to neutral from buy. 

Alcoa (AA) fell more than -2% in pre-market trading after JPMorgan Chase downgraded the stock to neutral from overweight.

Today’s U.S. Earnings Reports (7/14/2023)

BlackRock Inc (BLK), Citigroup Inc (C), JPMorgan Chase & Co (JPM), State Street Corp (STT), UnitedHealth Group Inc (UNH), Wells Fargo & Co (WFC).

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