Stocks Push Higher on Q2 Earnings Results and Easing UK Inflation Pressures
What you need to know…
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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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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