S&P Futures Muted as Investors Weigh Big Bank Earnings, U.S. Inflation Data and Warsh’s Testimony in Focus

September S&P 500 E-Mini futures (ESU26) are down -0.06% this morning as investors digest earnings reports from big U.S. banks, with the focus now turning to key U.S. inflation data and Federal Reserve Chairman Kevin Warsh’s congressional testimony.

JPMorgan Chase (JPM), Bank of America (BAC), and Wells Fargo (WFC) all reported stronger-than-expected Q2 results. However, their shares wavered in pre-market trading, with investors likely waiting for their earnings calls. Peers Citigroup (C) and Goldman Sachs (GS) are also scheduled to report before the U.S. market opens.

Investors also kept a close eye on developments in the Middle East. The price of WTI crude climbed over +3% on Tuesday following a third consecutive night of U.S. strikes on Iran and the renewed blockade on Iranian trade. U.S. President Donald Trump said on Monday that the U.S. would reinstate a naval blockade on Iran and impose a 20% fee on all cargo passing through the Strait of Hormuz in exchange for protecting the waterway. U.S. Central Command said American forces would resume the blockade of maritime traffic entering and leaving Iranian ports at 4 p.m. ET on Tuesday.

Meanwhile, ING strategists estimated that the proposed 20% fee on a crude carrier transporting 2 million barrels at $80 a barrel “would be equivalent to around $32 million or an additional cost of $16 a barrel.” The fee is “significantly higher” than the $1.00-a-barrel toll that Iran has been seeking, they added.

In yesterday’s trading session, Wall Street’s main stock indexes closed lower. Chip and AI infrastructure stocks sank, with Sandisk (SNDK) tumbling over -12% andMarvel Technology (MRVL) slumping more than -7%. Also, airline stocks slid as oil prices jumped, with Alaska Air Group (ALK) falling over -5% and American Airlines Group (AAL) dropping more than -3%. In addition, AppLovin (APP) plunged over -12% and was the top percentage loser on the S&P 500 and Nasdaq 100 after industry data indicated that the company’s e-commerce advertising growth was slowing. On the bullish side, software stocks advanced, with Atlassian Corp. (TEAM) rising over +8% and Intuit (INTU) climbing more than +5% to lead gainers in the Nasdaq 100.

“The ongoing swings in semiconductors have made it difficult for tech to mount a sustained push to the upside, and while the market has so far taken the breakdown of the U.S.-Iran ceasefire in stride, escalating hostilities and rising oil prices won’t help the bullish cause,” said Chris Larkin at E*Trade from Morgan Stanley.

Fed Governor Christopher Waller said on Monday that policymakers might need to raise interest rates in the near term if underlying inflation continues to point to firm price pressures. “If we get another hot reading on core inflation this week, then the FOMC will need to consider tightening monetary policy in the near term,” Waller said. Even if core CPI came in softer in June, Waller said that after its acceleration in recent months, he would need to see several months of lower readings before concluding that inflation is moving in the right direction.

U.S. rate futures have priced in a 61.0% chance of no rate change and a 39.0% chance of a 25 basis point rate hike at the Fed’s monetary policy committee meeting later this month.

Today, all eyes are focused on the U.S. consumer inflation report, which is set to be released in a couple of hours. Economists expect the consumer price index to fall by -0.1% m/m in June amid the recent drop in gasoline prices, marking its first monthly decline since the onset of the pandemic in 2020. On an annual basis, headline inflation is projected to ease to +3.8% in June from +4.2% in May. Also, the core CPI, which strips out the more volatile food and energy prices, is expected to rise +0.2% m/m and +2.8% y/y in June, compared to +0.2% m/m and +2.9% y/y in May.

Market participants will also focus on Fed Chairman Kevin Warsh’s semi-annual monetary policy testimony before the House Financial Services Committee. They will be listening for clues to Warsh’s views on inflation, the labor market, and growth—and how those factors influence interest rates. Fed Vice Chair for Supervision Michelle Bowman, Fed Governor Michael Barr, Fed Governor Lisa Cook, and Chicago Fed President Austan Goolsbee will also speak today.

Second-quarter corporate earnings season kicks off today, with reports from big banks. According to Bloomberg Intelligence, companies in the S&P 500 are expected to post an average +24% jump in quarterly earnings for Q2 compared to the previous year.

In the bond market, the yield on the benchmark 10-year U.S. Treasury note is at 4.62%, up +0.09%.

The Euro Stoxx 50 Index is down -0.68% this morning as escalating U.S.-Iran tensions dampened risk appetite. Oil prices continued to rise as the U.S. and Iran grew increasingly hostile over the status of the Strait of Hormuz. Travel stocks led the declines on Tuesday as higher oil prices weighed on the sector. Media and consumer-related stocks also slumped. At the same time, energy stocks outperformed. Meanwhile, European government bond yields climbed on Tuesday as a surge in oil prices reignited inflation concerns. Money markets are pricing in at least one interest rate hike from the Bank of England and the European Central Bank this year, with around an 80% chance of a second by December. Investor focus now shifts to big U.S. bank earnings, U.S. inflation data, and Fed Chairman Kevin Warsh’s congressional testimony. In corporate news, Ericsson AB (ERICB.S.DX) slid over -8% after the Swedish telecom equipment maker posted weaker-than-expected quarterly sales and warned that margins in its core networks business would come under pressure. Also, Evotec (EVT.D.DX) tanked more than -27% after the drug-discovery company cut its full-year guidance.

The European economic data slate is largely empty on Tuesday.

Asian stock markets today settled in the green. China’s Shanghai Composite Index (SHCOMP) closed up +1.36%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +0.74%. 

China’s Shanghai Composite Index closed higher today as strong trade data boosted sentiment. 5G Communications and AI-related stocks were among the biggest gainers on Tuesday, buoyed by a rebound in South Korea’s memory chip giants. Energy stocks also advanced as oil prices continued to rise amid escalating Middle East tensions. At the same time, big data and computer stocks slumped as investors freed up cash to subscribe to the ChangXin Memory Technologies IPO. China’s top memory chipmaker will begin book-building on Wednesday to raise 29.5 billion yuan ($4.35 billion). Data released on Tuesday showed that China’s exports jumped in June, defying expectations of a slowdown and providing a key boost to an economy still weighed down by sluggish domestic demand. China’s imports also surged last month, reaching a five-year high. The stronger-than-expected trade performance keeps China on course to post a trade surplus exceeding $1 trillion for a second consecutive year. However, Capital Economics’ Julian Evans-Pritchard said the strong import figure should not be viewed as evidence that domestic demand is booming, noting that surging semiconductor prices are playing a major role in boosting import values, as with exports. Domestic demand remains weighed down by a prolonged property downturn. Investor attention now turns to China’s second-quarter GDP as well as June activity data, scheduled for release on Wednesday. China’s economic growth is estimated to have slowed to 4.5% in the second quarter from 5.0% in the first quarter, bringing the year-to-date rate down to 4.8%. ANZ Research economists said part of the slowdown reflected an extended spring holiday in April and May that reduced the number of working days, along with slower fiscal spending.

The Chinese June Trade Balance came in at $125.62 billion, stronger than expectations of $119.5 billion.

The Chinese June Exports surged +27.0% y/y, stronger than expectations of +18.2% y/y.

The Chinese June Imports jumped +36.0% y/y, stronger than expectations of +24.0% y/y.

Japan’s Nikkei 225 Stock Index erased earlier losses and closed higher today, buoyed by bargain buying. The Nikkei initially dropped as much as -1.45%, tracking overnight losses on Wall Street, but the benchmark index turned higher in the afternoon session alongside a recovery in South Korea’s Kospi. Energy, metal, and financial stocks were among the biggest gainers on Tuesday. Technology stocks also advanced. However, the benchmark index’s gains were limited as oil prices continued to climb amid escalating U.S.-Iran tensions over the Strait of Hormuz. Meanwhile, the yen strengthened against the dollar and Japanese government bonds rose across the curve on Tuesday after Finance Minister Satsuki Katayama’s remarks fueled expectations that the government is intensifying efforts to channel capital into domestic markets. Katayama suggested adding government bonds to a tax-free investment program for individuals and said the nation’s massive pension fund could review its portfolio allocation if investment conditions were to shift significantly. “If the investing environment changes materially, we naturally need to ensure that reviews are conducted in a timely and appropriate manner, taking all those factors into account,” she said. Potential catalysts for such a review include government initiatives aimed at boosting the nation’s growth, which are in turn increasing the appeal of Japanese assets, Katayama added. On the economic front, data showed that Japan’s monthly industrial production rose far less than initially estimated in May. The Nikkei Volatility Index, which takes into account the implied volatility of Nikkei 225 options, closed down -4.94% to 35.39.

The Japanese May Industrial Production was revised lower to +0.1% m/m from the preliminary estimate of +0.5% m/m.

Pre-Market U.S. Stock Movers

Chip and AI infrastructure stocks advanced in pre-market trading, partially rebounding from yesterday’s rout. Sandisk (SNDK) was up over +5%, Micron Technology (MU) was up more than +3%, and Marvell Technology (MRVL) was up over +2%.

Apple (AAPL) fell more than -1% in pre-market trading after KeyBanc downgraded the stock to Underweight from Sector Weight with a price target of $250.

Progressive (PGR) slipped over -1% in pre-market trading after JPMorgan downgraded the stock to Neutral from Overweight.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Tuesday - July 14th

JPMorgan Chase & Co. (JPM), Bank of America (BAC), The Goldman Sachs Group (GS), Wells Fargo & Company (WFC), Citigroup (C), Fastenal Company (FAST), Aehr Test Systems (AEHR), Kestra Medical Technologies (KMTS), Phoenix Education Partners (PXED), Equity Bancshares (EQBK), AngioDynamics (ANGO).