Stocks Push Higher on Q2 Earnings Results and Easing UK Inflation Pressures

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.37%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.52%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.27%.

Stocks this morning are mildly higher, with the S&P 500 and Dow Jones Industrials climbing to 15-month highs and the Nasdaq 100 posting a 1-1/2 year high.  Positive Q2 corporate earnings results are supportive for stocks today.  Also, easing inflation pressures in the UK sparked a rally in European government bonds, as the 10-year UK gilt yield fell to a 6-week low, which sparked rallies in U.S. bonds and stocks.  The UK June CPI eased to +7.9% y/y from +8.7% y/y in May, better than expectations of +8.2% y/y.  Stock indexes kept modest gains, and bond yields remained lower, on this morning’s weaker-than-expected U.S. June housing starts report.

U.S. June housing starts fell -8.0% m/m to 1.434 million, weaker than expectations of 1.480 million.  June building permits, a proxy for future construction, unexpectedly fell -3.7% m/m to 1.440 million, weaker than expectations of an increase to 1.500 million.

The markets are discounting the odds at 96% 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 dropped to a 2-1/2 week low of 3.725% and is down -0.8 bp at 3.778%.  The 10-year German bund yield fell to a 3-week low of 2.317% but rebounded and is up +2.9 bp at 2.419%.  The 10-year UK gilt yield fell to a 6-week low of 4.145% and is down -12.3 bp at 4.208%. 

Overseas stock markets are mixed.  The Euro Stoxx 50 is down -0.11%.  China’s Shanghai Composite Index today closed up +0.03%.  Japan’s Nikkei Stock Index closed up +1.24%.

Today’s stock movers…

Northern Trust (NTRS) is up more than +11% to lead gainers in the S&P 500 after reporting a Q2 recovery of credit losses of $15.5 million, beating the estimated provision of $6.32 million. 

AT&T (T) is up more than +7% after it said less than 10% of its nationwide copper-wire telecom network had lead-clad cables. 

Elevance Health (ELV) is up more than +6% after reporting Q2 adjusted EPS of $9.04, better than the consensus of $8.78.  Other health insurers rallied on the news,  with Centene (CNC) up more than +5%, Molina Healthcare (MOH) up more than +4%, and Humana (HUM) and Cigna Group (CI) up more than +3%.

Citizens Financial Group (CFG) is up more than +4% after reporting Q2 provision for credit losses of $176 million, below the consensus of $187.5 million.

M&T Bank Corp (MTB) is up more than +3% after reporting bank deposits at the end of Q2 were $162.06 billion, higher than the consensus of $157.76 billion.

Constellation Brands (STZ) is up more than +4% after appointing two new independent directors as it reached a cooperation agreement with activist investor Elliot Investment Management.

Carvana (CVNA) is up more than +27% after reporting Q2 revenue of $2.97 billion, stronger than the consensus of $2.56 billion, and said it reached a deal with bondholders to reduce debt and announced plans to sell 35 million Class A shares.

Cisco Systems (CSCO) is up more than +% after JPMorgan Chase upgraded the stock to overweight from neutral.

Omnicom Group (OMC) is down more than -10% to lead losers in the S&P 500 after reporting Q1 revenue of $3.61 billion, weaker than the consensus of $3.66 billion.

Align Technology (ALGN) is down more than -5% to lead losers in the Nasdaq 100 after Stifel said they are “cautious” about the dental service company in the near term.

Interactive Brokers (IBKR) is down more than -2% after reporting Q2 adjusted EPS of $1.32, weaker than the consensus of $1.40. 

Halliburton (HAL) is down more than -1% after reporting Q2 revenue of $5.80 billion, weaker than the consensus of $5.85 billion.

Across the markets…

September 10-year T-notes (ZNU23) today are up +2 ticks, and the 10-year T-note yield is down -0.8 bp at 3.778%.  Sep T-notes today are slightly higher, just below Tuesday’s 2-1/2 week high, and the 10-year T-note yield fell to a 2-1/2 week low of 3.725%.  T-notes have carryover support today from a rally in 10-year UK gilts to a 6-week high after UK Jun CPI rose less than expected.  A decline in inflation expectations is also supportive for T-notes after the 10-year breakeven inflation rate dropped to a 2-1/2 week low today of 2.186%.  Supply pressures limit the upside in T-note prices as the Treasury will auction $12 billion of 20-year T-bonds later today.

The dollar index (DXY00) today is up by +0.50%.  Weakness in the British pound is underpinning the dollar today as GBP/USD is down -1.25% at a 1-week low on better-than-expected UK inflation news. Also, weakness in the yen today is positive for the dollar.  Today’s weaker-than-expected U.S. housing starts report limited the dollar’s upside, along with a decline in T-note yields. 

EUR/USD (^EURUSD) today is down by -0.08%.  Dollar strength today is weighing on the euro.  Also, a decline in the 10-year German bund yield today to a 3-week low has weakened the euro’s interest rate differentials.  Losses in EUR/USD are limited after the Eurozone June core CPI was revised higher, a hawkish factor for ECB policy.

Eurozone May construction output rose +0.2% m/m, the first increase in 3 months.

Eurozone Jun new car registrations rose +17.8% y/y to 1.045 million, the eleventh consecutive monthly increase.

Eurozone Jun core CPI was revised slightly higher to 5.5% from 5.4%.

USD/JPY (^USDJPY) is up by +0.67%.  The yen is under pressure today after BOJ Governor Ueda indicated there would be a continuation of the BOJ’s easy monetary policy until there is a shift in its assessment for achieving its inflation target.  Also, a rally in the Nikkei Stock Index today to a 1-1/2 week low curbed safe-haven demand for the yen.  On the positive side for the yen is today’s decline in T-note yields. 

August gold (GCQ3) today is down -4.3 (-0.22%), and Sep silver (SIU23) is down -0.006 (-0.02%).  Precious metals prices this morning gave up early gains and are slightly lower.  A stronger dollar today sparked long liquidation in precious metals.  Also, the ongoing fund liquidation of gold is weighing on gold prices as holdings in gold ETFs fell to a 4-month low on Tuesday.  Precious metals today initially opened higher from lower global bond yields. Also, comments from BOJ Governor Ueda gave precious metals a boost when he indicated it would take a shift in the BOJ’s assessment for achieving its inflation target to change its stance for persistent monetary easing. 

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