Market Wraps
Watch For:
Chicago Fed National Activity Index; Flash Manufacturing, Services PMI; earnings from Domino’s Pizza, Logitech, Whirlpool
Today’s Headlines/Must Reads
– Why the Fed Isn’t Ready to Declare Victory on Inflation
– The Inflation Giant Has Awakened. Why Price Growth Will Persist
– The Tech Rally’s Next Big Test Is Earnings
– Why GE Shares Are Hotter Than Apple, Meta or Tesla
Opening Call:
Stock futures nudged higher on Monday as traders eyed a flurry of central bank and earnings action over coming days.
Dow futures showed the benchmark inching higher and in line for an 11th consecutive day of gains, extending its best run since 2017.
The blue-chip index sits at its loftiest level since March 2022, reflecting a broadening of the rally that in recent months had been mainly powered by big technology stocks.
The surge reflects hopes that cooling inflation will allow central banks to soon stop their rate rise campaigns and that any economic downturn caused by the monetary tightening will not impact corporate profits too badly.
To that end, the coming week will have plenty for traders to chew on, with the top three central banks delivering rate decisions and a slew of U.S. companies presenting their results.
The Federal Reserve is expected on Wednesday to raise borrowing costs by 25 basis points to a range of 5.25% to 5.50%, and investors will be keen to hear whether that may be the last for the cycle. The Bank of Japan on Friday should leave rates unchanged but may say something about removing elements of its ultra-loose policy, such as buying bonds to suppress yields.
On Thursday, the European Central Bank will deliver its decision. Another increase in borrowing costs is expected, but the ECB’s hawkishness may be tempered by reports released Monday that showed economic activity in the eurozone slumped to an eight-month low in July.
“The debate around how much the economy needs to be zapped with higher rates to quash inflation properly is still raging on. While the expectation is that interest rates will need to go higher still, that’s led to some stagnation in the U.S. markets as we kick off the week, following strong gains last week,” Hargreaves Lansdown said.
Overseas stocks were mixed. The Stoxx Europe 600 was close to flat, while in Asia, Hong Kong’s Hang Seng Index fell 2.1% but Japan’s Nikkei 225 added 1.2%.
Premarket Movers
Shares of AMC Entertainment rose 56% after it filed a revised stock conversion proposal following a judgment blocking the company’s plan to convert its so-called APE shares into common stock.
Chevron released a second-quarter performance update on Sunday that was better than analysts’ expectations. It is scheduled to report quarterly earnings on Friday. Chevron also announced that it was waiving its mandatory retirement age of 65 for CEO Mike Wirth, who will turn 63 later this year. The stock was up 0.2%.
Tesla was down 1.7% to $255.74 after its shares were downgraded to Neutral from Buy at UBS. The bank, however, raised the price target on the stock to $270 from $220. UBS said for the next 12 months it thinks “upside risk to consensus earnings is very limited with significant volumes from new product [first Cybertruck, then the affordable model] not kicking in before H2/24, and with some initial margin-dilutive impact.”
Forex:
The dollar could get a boost from Wednesday’s Fed decision, where it looks “too early” for policymakers to switch to a data-dependent approach, ING said.
The market’s high number of short dollar positions could also lift the currency this week as investors take profit on these, ING said.
“The latest data from the FX futures markets in Chicago suggests that asset managers are running their largest short dollar position on record.”
The euro fell to a 12-day low against the dollar after provisional July eurozone purchasing managers’ data showed activity contracted more than expected, with manufacturing particularly weak.
“The eurozone economy will likely move further into contraction territory in the months ahead,” Hamburg Commercial Bank. It said that Germany saw a “jaw-dropping fall in both new orders and backlogs of work.”
Morgan Stanley said the euro has little scope to rise further versus the dollar, advising that investors hold back from buying the currency ahead of Thursday’s ECB decision.
“The moderate path for ECB rate cuts, following the peak terminal rate, also suggests that upside risks for the EUR are limited from here,” Morgan Stanley said.
Energy:
Oil prices remained lower in Europe in a possible technical retreat following last week’s rally, with investors looking ahead to this week’s Fed and ECB meetings.
Despite the declines, Brent remains close to an 11-week high as optimism about the possibility the Fed can bring inflation down without forcing a recession has grown.
“With inflation readings continuing to ease across key markets, the prospect of peak interest rates has further buoyed bullish sentiment [in oil] countering the negative narrative of slower economic growth in the quarters ahead,” BMI said.
Metals:
Metals prices fell on a stronger dollar and on concerns about demand, particularly from China.
“Softening manufacturing activity suggests industrial metals demand will remain subdued over coming months,” ANZ said.
Today’s Top Headlines
Chevron Waives Retirement Age for CEO Mike Wirth
Chevron’s board of directors is waiving the company’s fixed retirement age for Chief Executive Mike Wirth, allowing him to remain CEO for a longer period as it weighs its C-suite strategy.
The Wall Street Journal had reported in February that Chevron’s board was considering the move. Some directors have said the company doesn’t have an internal candidate ready to succeed Wirth, who would reach the company’s fixed retirement age of 65 in late 2025, and that additional time would allow him to prepare a successor, according to people familiar with the matter.
Elon Musk Teases New X Logo After Saying Twitter Will Rebrand
Elon Musk has teased a new X logo for Twitter after saying its signature blue bird will fly away.
“X.com now points to twitter.com” Musk tweeted Sunday. “Interim X logo goes live later today.”
AT&T, Verizon Investors Have More Than Lead Cables to Worry About
Big telecom companies are working to reassure investors about two burdens: toxic lead and heavy debt.
Questions about the latter will linger in the background this week as AT&T and Verizon use their quarterly earnings reports to address more immediate questions about lead-lined cables. Both companies inherited a web of aging telephone lines from their predecessor companies but reap almost all of their profits from more modern fiber optics and cellphone connections.
Big Pharma Bets Big on China
SINGAPORE-Global pharmaceutical companies are bucking one of the biggest trends in business right now: they are still betting on China at a time when many multinationals are shifting their focus elsewhere.
Western drug companies including Pfizer and AstraZeneca have recently said they are committed to helping China solve the challenges posed by its aging population and have struck multimillion-dollar licensing deals with local companies.
Binance.US Crypto Trading Was a Mirage, the SEC Alleges
When crypto company Binance launched its U.S. exchange in 2019, almost $70,000 of bitcoin changed hands in the first hour.
But the demand didn’t come from external traders. “That was ourself, I think,” Binance Chief Executive Changpeng Zhao said in an internal message viewed by The Wall Street Journal.
Beijing Launches New Measures to Boost Private Investment
China’s top economic planner released a set of new policy guidelines on Monday to support private investment, as part of a drive to rekindle entrepreneurial spirit amid faltering growth.
Beijing will look to revitalize private investment and encourage private capital to participate in major national projects, the National Development and Reform Commission said in an official notice on its website.
Ron DeSantis Faces Flak Over Florida Black History Curriculum
WASHINGTON-Florida Gov. Ron DeSantis received criticism from members of both parties over his state’s new African-American history curriculum that directs middle-school teachers to highlight useful skills that slaves may have developed while in bondage.
The revised curriculum, which was approved last week by Florida’s board of education, features a section that examines the tasks performed by slaves-such as trades like carpentry and blacksmithing in addition to agricultural work. It prescribes teaching middle schoolers “how slaves developed skills which, in some instances, could be applied for their personal benefit.”
GOP Splits Over Jan. 6 Deepen as Trump Indictment Looms
The likelihood Donald Trump will be indicted over efforts to undo his loss in the 2020 election is deepening divisions within the GOP over the Jan. 6, 2021, Capitol riot, forcing the issue back to the forefront in Congress and on the campaign trail.
The former president and many of his allies have played down the riot and boosted support for those who stormed the Capitol. A smaller wing of the party has strongly criticized Trump and the rioters. In between those Republican poles is a wavering middle, including many of Trump’s 2024 nomination rivals and Speaker Kevin McCarthy (R., Calif.), who is facing calls for the House to vote on expunging Trump’s two impeachments.
U.S., Allies Hold Record-Setting Military Exercise in Australia in Message Aimed at China
SHOALWATER BAY TRAINING AREA, Australia-At this military firing range in Australia’s north, American jet fighters dropped 500-pound bombs on a hillside. Korean, Australian and American artillery units opened fire soon after. A Japanese surface-to-air missile system stood nearby.
The demonstration over the weekend, which involved more than a dozen artillery pieces and aircraft firing for about an hour, helped to kick off a major two-week biennial training exercise involving the U.S. and its allies that officials say is the most expansive in the exercise’s history.