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Stocks See Support from Global Economic Optimism

Barchart - Mon Jul 31, 10:21AM CDT

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.12%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.13%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.08%.

Stocks are slightly higher, with the Nasdaq 100 climbing to a 1-1/2 week high.  Stocks are slightly higher amid another busy week of earnings results, with Apple and among those reporting this week.  A rally in WTI crude to a 3-1/2 month high today is lifting energy stocks in pre-market trading and is boosting the overall market.

U.S. stocks have some positive carryover from strength in global bourses.  China’s Shanghai Composite rallied to a 2-1/2 month high today after economic news showed China’s manufacturing activity unexpectedly rose this month.  Also, the Euro Stoxx 50 climbed to a 15-year high today as recession concerns receded after Eurozone Q2 GDP expanded more than expected. 

Today’s minor U.S. economic reports were mixed for stocks. On the positive side, the Jul Dallas Fed manufacturing outlook level of general business activity rose +3.2 to -20.0, stronger than expectations of -22.5.  Conversely, the Jul MNI Chicago PMI rose +1.3 to 42.8, weaker than expectations of 43.5.

Upbeat Fed comments were supportive of stocks.  On Sunday, Minneapolis Fed President Kashkari said the inflation outlook in the U.S. is "quite positive" and that "the base case scenario seems to be that we'll have a slowing economy, but that we would avoid a recession." Also, Chicago Fed President Goolsbee said today that monthly inflation readings are coming in "quite good," but he hasn't yet decided on whether to support pausing interest-rate increases at the next FOMC meeting.

The markets are discounting the odds at 20% for a +25 bp rate hike at the September 20 FOMC meeting. 

Global bond yields are lower.  The 10-year T-note yield is down -0.2 bp at 3.949%.  The 10-year German bund yield is down -0.8 bp at 2.485%. The 10-year UK Gilt yield is down -1.8 at 4.308%. 

Overseas stock markets are higher.  The Euro Stoxx 50 is up +0.20%.  China’s Shanghai Composite Index today closed up +0.46%.  Japan’s Nikkei Stock Index closed up +1.26%.

Today’s stock movers…

ON Semiconductor (ON) is up more than +3% after reporting Q2 revenue of $2.09 billion, above the consensus of $2.02 billion. 

Adobe (ADBE) is up more than +3% after Morgan Stanley upgraded the stock to overweight from equal weight.

Hasbro (HAS) is up more than +2% after Bank of America upgraded the stock to buy from neutral with a price target of $85.

Energy stocks are climbing today, with the price of WTI crude up more than +1% at a 3-1/2 month high.  As a result, Chevron (CVX) and Exxon Mobil (XOM) are up more than +2%.  Also, ConocoPhillips (COP), Devon Energy (DVN), Haliburton (HAL), Occidental Petroleum (OXY), Marathon Petroleum (MPC), Schlumberger (SLB), Marathon Oil (MRO), and Valero Energy (VLO) are up more than +1%.

Newell Brands (NWL) is up more than +2%, adding to last Friday’s 8% gain after it reported a Q2 normalized operating profit of $201 million, stronger than the consensus of $144.8 million.

Warner Bros Discovery (WBD) is up more than +2% after the company’s “Barbie” movie grossed more than $500 million in global sales in its first week.

Johnson & Johnson (JNJ) is down more than -4% to lead losers in the S&P 500 and Dow Jones Industrials after a judge dismissed the company’s second attempt at using its bankruptcy case to press thousands of cancer victims to drop their lawsuits and accept a $8.9 billion settlement.

Baxter International (BAX) is down more than -2% after it issued an Urgent Medical Device Correction for its Spectrum V8 and Spectrum IQ infusion pumps in the U.S. and Puerto Rico, due to an increase in reported false upstream occlusion alarms following software upgrades.

Agilent Technologies (A) is down more than -2% after Barclays downgraded the stock to underweight from equal weight.

Waters (WAT) is down more than -2% after Barclays downgraded the stock to equal weight from overweight.

CSX Corp (CSX) is down more than -1% after RBC Capital Markets downgraded the stock to sector perform from outperform. 

Ford Motor (F) is down more than -1% after Jeffries downgraded the stock to hold from buy.

Across the markets…

September 10-year T-notes (ZNU23) today are up +3 ticks, and the 10-year T-note yield is down -0.2 bp at 3.949%.  Sep T-notes today are slightly higher on some positive Fed comments on inflation.   Minneapolis Fed President Kashkari said the inflation outlook in the U.S. is "quite positive," and Chicago Fed President Goolsbee said monthly inflation readings are coming in "quite good."  Also, a weaker-than-expected Jul MNI Chicago PMI report was bullish for T-notes.  Gains are limited by supply pressures as the Treasury is expected to boost its quarterly refunding of longer-term Treasuries to $102 billion from $96 billion at Wednesday’s quarterly refunding announcement.

The dollar index (DXY00) today is down by -0.06%.  The dollar today is slightly lower on strength in the euro after today’s news that the Eurozone Q2 GDP and core CPI rose more than expected. Losses in the dollar were contained by weakness in the yen, which fell to a 3-week low against the dollar after the BOJ  announced unscheduled bond purchases.

EUR/USD (^EURUSD) today is up by +0.22%.  The euro today garnered support from stronger-than-expected Eurozone GDP and core CPI reports.  Also, comments from  ECB President Lagarde gave the euro a boost when she said the ECB could raise interest rates again, even if it pauses at its next meeting in September.  A weaker-than-expected German Jun retail sales report today limited the upside in EUR/USD.

The Eurozone Jul CPI eased to +5.3% y/y from +5.5% y/y in June, right on expectations and the smallest increase in 1-1/2 years.  However, Jul core CPI rose +5.5% y/y, unchanged from Jun and stronger than expectations of +5.4% y/y.

Eurozone Q2 GDP rose +0.3% q/q and +0.6% y/y, stronger than expectations of +0.2% q/q and +0.5% y/y.

German Jun retail sales fell -0.8% m/m, weaker than expectations of -0.3% m/m.

USD/JPY (^USDJPY) is up by +0.68%.  The yen today dropped to a 3-week high low against the dollar after the BOJ announced an unscheduled bond-purchase operation in an attempt to keep 10-year JGB bond yields from climbing. The BOJ announced that it would buy the equivalent of more than $2 billion of bonds at market rates after the 10-year JGB bond yield climbed to a 9-year high of 0.614%.  Bond yields have surged since last Friday when the BOJ tweaked its yield curve control program and effectively raised the upper limit of its 10-year JGB yield target to 1.0% from 0.5%.

Today’s Japanese economic news was mixed for the yen.  On the negative side, Jun industrial production rose +2.0% m/m, the most in 4 months but weaker than expectations of +2.4% m/m.  Conversely, the Jul consumer confidence index rose +0.9 to a 19-month high of 37.2, stronger than expectations of 36.2.

Also, Jun retail sales fell -0.4% m/m, stronger than expectations of -0.7% m/m.

August gold (GCQ3) today is up +6.5 (+0.33%), and Sep silver (SIU23) is up +0.440 (+1.80%). Precious metals prices this morning are moderately higher.  A weaker dollar today is bullish for metals prices.  Precious metals also rose on favorable inflation comments from Minneapolis Fed President Kashkari and Chicago Fed President Goolsbee, suggesting they may favor a pause in Fed rate hikes.  Gains in gold are limited as fund liquidation of long gold holdings weighs on gold prices after long gold holdings in ETFs fell to a new 3-year low last Friday.  Also, hawkish comments from ECB President Lagarde were bearish for precious metals when she said the ECB could raise interest rates again, even if it pauses at its next meeting in September.

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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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