Stocks may see some jitters after Friday’s hotter-than-expected jobs report and ahead of Wednesday’s inflation report.
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Equity index futures rise, dollar retreats as investors cautiously await this week’s inflation reports
Last Friday’s jobs report prompted investors to change their outlook on the Fed’s September rate hike
Germany could grow despite negative economic news
Shawn Cruz, Chief Trading Strategist, TD Ameritrade
(Monday Market Open) Equity index futures pointed to a higher open as the US dollar pulled back from Friday’s rally.
Despite the movement in the futures and currency markets. it’s a relatively light news day on the economic calendar. However, there is plenty of inflation news to move the markets this week as investors continue to try to guess where the Federal Reserve will go with interest rates. The consumer price index (CPI) is due on Wednesday and the producer price index (PPI) on Thursday.
The Cboe Market Volatility Index ( VIX ) rose ahead of the market open which was up 1.8% and returned above the 21 level, suggesting some nervousness among investors. Markets could bounce ahead of the inflation reports due to the lack of immediate catalysts and with the S&P 500® Index (SPX) is still testing its May highs.
There are a number of earnings reports this morning, but not many household names. Here’s a look at some and what they were up to in today’s pre-market session.
Some other companies move due to off-earnings news. CVS Health (CVS) plans to acquire It means health (SGFY), according to The Wall Street Journal. CVS rose 0.64% in premarket action, while SGFY rose 15.75%.
Tesla ( TSLA ) rose 2.7% in extended hours on weekend news that the climate bill passed the Senate.
Bed, bath and beyond ( BBBY ) surged 33% before the opening bell, adding to last week’s gains of more than 20%. Seconds S&P Global Market Intelligencethe moves may be related to a “short squeeze” that causes short sellers to cover because the company’s outlook has not changed.
Stocks were mostly negative on Friday as a better-than-expected July jobs report fueled investor fears that the Federal Reserve should be more aggressive with future rate hikes. Analysts had expected nonfarm payrolls to rise by 250,000 jobs; instead, they reached 528,000. The unemployment rate fell to 3.5%, lower than the expected 3.6%. It should be noted that the participation rate decreased, which contributed to the increase in the unemployment rate.
The bond market reacted to the news with the 2-year Treasury yield increasing 19 basis points to 3.23% and the 10-year Treasury yield (TNX) up 16 basis points to 2.84%. In a shift on Friday, the CME FedWatch tool now calculates a 66.5% probability of a 75 basis point hike in September. On Thursday, FedWatch offered a 66% chance of a 50-point increase. Wednesday’s Consumer Price Index (CPI) report is set to change those odds once again.
The US Dollar Index ($DXY) rose 0.84% as yields rose.
After all is said and done, the S&P 500® Index ( SPX ) was able to recoup much of its intraday losses to close 0.16% lower on the day. The Nasdaq ($COMP) was down 0.50% though Dow Jones Industrial Average ($DJI) ended the week up 0.23%.
Mega-cap stocks were among the biggest losers Tesla (TSLA) down 6.6%, Metaplatforms (META) falling 2%, i Amazon (AMZN) sliding 1.24%. The CRSP US Mega-cap Index was down 0.29%.
The energy sector rebounded somewhat due in part to earnings EOG resources (EOG) which increased this value by 7.2%. Besides, WTI crude oil futures gained 0.3% to end Friday at $88.73 a barrel.
EFFICIENT FRONTIER: Much of the economic news coming out of Germany in recent months has been negative, but the nation may be applying its well-known efficiency to a rapid economic recovery. Last week it beat forecasts for June manufacturing and services PMIs. In addition, the country posted much better-than-expected gains in exports in June, which should boost the country’s GDP.
According to the World Bank, German exports account for almost 47% of its GDP, and according to the US State Department, almost a quarter of Germany’s jobs are export-related, so the earnings from exports are not a small thing.
The United States is Germany’s largest trading partner, exporting $5 billion more in goods than to France or China. That means Germany is likely to benefit from a stronger dollar because it makes German goods less expensive for American customers.
LOSS OF PRODUCTIVITY: Friday’s job gains in the face of two consecutive quarters of US GDP declines may be worrying for economists. Productivity is one of the main measures of a country’s ability to grow wealth. It is not uncommon to see a decline in productivity during economic downturns because the cost of labor often offsets gains in production.
The US non-farm productivity report fell 7.3% in the first quarter. The first impression of the second quarter comes out on Tuesday and is expected to be -4.6%.
WIDER MARGINS: Last week was packed with second quarter earnings announcements with 87% of S&P 500 companies having reported so far. According to FactSet, 75% of companies had positive earnings surprises above the previous week’s 73%, but still below the five-year average of 77%. The margin for surprises also widened from 3.1% last week to 3.4% this week, but that five-year average is 8.8%.
The energy sector continues to show the strongest growth in profits and revenues, but healthcare remains a positive surprise among earnings surprises.
Average earnings growth for all S&P 500 companies in the second quarter remains on track for 6.7%, according to FactSet. For the third quarter, analysts forecast earnings growth of 5.8% and 6.1% for the fourth quarter.
August 9: Earnings from Emerson (EMR), Sysco (SYY), Roblox (RBLX), Coinbase (COIN), and Hyatt (H)
August 10: Consumer Price Index (CPI) and Walt Disney (DIS) and Honda Motors (HMC) Earnings
August 11: Producer Price Index (PPI) and earnings of Brookfield (BAM), Illumina (ILMN), Rivian (RIVN) and Cardinal Health (CAH)
August 12: Michigan Consumer Sentiment
August 15: James Hardie Industries (JHX) and ZipRecruiter (ZIP) Earnings
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