Markets

Daily Markets: Investors Brace for Earnings Season

Close up of the Wall Street sign with the American flag in the background
Credit: Carlo Allegri - Reuters / stock.adobe.com

Today’s Big Picture

Equity indices in Asia ended the day higher, led by a 2.25% jump in Japan’s Nikkei and a 0.9% gain in South Korea’s Kospi. China’s Shanghai Composite rose 0.7% on the day, following Friday’s news that the People’s Bank of China will make a 50 basis point cut to its reserve requirement ratio later this week. By mid-day trading, equity indices in Europe were mostly lower as investors revisit growth expectations amid rising Delta variant infection levels and the reintroduction of travel and social restrictions. After closing at record highs last week, U.S. futures point to equities shedding some of those gains when those markets open later this morning as investors brace for the June quarter earnings season to kick into gear.

Data Download

International Economy

On Friday, the People’s Bank of China said it would cut the reserve requirement ratio (RRR) by 50 basis points for all banks, effective July 15. The move is expected to release around 1 trillion yuan (or $154 billion) in long-term liquidity into the economy.

June Machine Tool Orders in Japan came in better than expected rising 96.6% YoY vs. the +85% consensus, however, that growth rate slowed compared to the blistering +140.7% in May.

Some good news came from Pfizer (PFE) last week when the company announced it is working on a booster shot for the coronavirus Delta variant.

Over the weekend, financial leaders from the G20 shared that, "After many years of discussions and building on the progress made last year, we have achieved a historic agreement on a more stable and fairer international tax architecture. We endorse the key components of the two pillars on the reallocation of profits of multinational enterprises and an effective global minimum tax as set out in the ‘Statement on a two-pillar solution to address the tax challenges arising from the digitalization of the economy.’” Next steps include work on key details at the OECD and then a final decision at the G20 gathering of presidents and prime ministers scheduled for Oct. 30-31 in Rome.

European Central Bank President Christine Lagarde said new guidance on monetary stimulus will come within the next 10 days and signaled that fresh measures might be brought in next year to support the Euro-area economy after the current emergency bond program ends. Lagarde said the July 22 Governing Council session will have “some interesting variations and changes.”

Domestic Economy

Friday saw wholesale inventories increase 1.3% MoM for May, higher than the initial estimate of 1.1%, and an acceleration from the upwardly revised 1.1% increase in April.

Investors can take a breath today as there are no major domestic economic reports on the docket today.

Markets

Friday was an up day at the close of a week that saw a lot of back-and-forth, with the VIX rising well over 30% at one point to end the week up just 4.5%. The S&P gained 1.2%, (leaving it up 1.1% on the week) and all 11 sectors rose on the day. The Dow rose 1.4% and the Nasdaq Composite and the Russell 2000 both added about 1% and crude gained 2.2%. The Treasury market rally lost a bit of steam, with the 10-year yield back up to 1.36% after dropping nearly 1.25% Thursday.

Stocks to Watch

Tesla (TSLA), Brookfield Asset Management (BAM), and real estate developer Dacra unveiled a plan to work together toward creating the "most sustainable residential community" in the U.S. The initiative in Austin, Texas, will be the first Tesla Solar neighborhood, using Tesla V3 solar roof tiles and Powerwall 2 battery storage to be installed in phases at homes in the provisionally named SunHouse community, which will be developed on land in Brookfield Residential's Easton Park master-planned residential community.

China's antitrust regulator is set to order the music streaming arm of Tencent Holdings Ltd (0700.HK) to give up exclusive rights to music labels which it has used to compete with smaller rivals.

Azul (AZUL) reported its June passenger traffic rose 280.4% YoY to 1.78 billion revenue passenger kilometers and its 2Q 2021 passenger traffic hit 4.68 billion revenue passenger kilometers. In terms of the geographic split, Azul’s domestic traffic jumped 328.2% YoY while its international traffic rose +21.2% YoY for the month.

Virgin Galactic's (SPCE) VSS Unity completed its flight into space with billionaire and company founder Richard Branson on board.

Coty (COTY) will roll out a digitally-enabled touch-less fragrance testing device intended for use at beauty retailers globally within the next 12 months. The smart device offers retailers access to usage data to optimize product positioning and customer experience.

China's antitrust regulator officially blocked Huya's (HUYA) planned purchase of DouYu (DOYU) saying the planned deal would restrict competition in the video game-streaming market in China.

The board of L Brands (LB) approved the separation of Victoria's Secret business into an independent, publicly-traded company and will include Victoria's Secret Lingerie, PINK, and Victoria's Secret Beauty. The new company will trade under the symbol “VSCO” while L Brands will rename itself Bath & Body Works and change its stock symbol to "BBWI" effective August 2.

Reports indicate Microsoft (MSFT) agreed to buy security software maker RiskIQ for more than $500M, with a deal likely to be announced in the next few days. RiskIQ, which makes cloud software for detecting security threats, says its customers include Facebook (FB), American Express (AXP), and the U.S. Postal Service.

Sycamore Partners had the same instinct Friday, announcing a billion-dollar deal to acquire Ste. Michelle Wine Estates from Altria (MO).

Penn Virginia (PVAC) and Lonestar Resources (LONE) have entered into a merger agreement under which Penn Virginia will acquire Lonestar in an all-stock transaction in which Lonestar shareholders will receive 0.51 shares of common stock of Penn Virginia for each Lonestar share.

After today’s market close, there are no companies expected to report their quarterly results, but this week there will be a bevy of bank earnings, as well as earnings from other companies that will give insights into the economy, such as Pepsi and Alcoa. Those looking to get a jump on those reports should visit Nasdaq’s earnings calendar page.

On the Horizon

  • July 13: Inflation, Monthly Federal Budget statement, API Crude Oil stocks
  • July 14: Producer Price Index, EIA Crude Oil stocks
  • July 15: Weekly jobless claims, NY Empire State Manufacturing Index, Philly Fed Manufacturing Index, Industrial Production, Import & Export Prices
  • July 16: Retail Sales, Michigan Consumer Sentiment, Business Inventories, Net Capital Flows, Foreign Bond Investment
  • July 19: NAHB Housing Market Index
  • July 20: Building Permits, Housing Starts, API Crude Oil stocks
  • July 21: EIA Energy stocks
  • July 22: Weekly jobless claims, Chicago Fed National Activity Index, Existing Home Sales
  • July 23: Markit Manufacturing PMI (flash), Markit Services PMI (flash)

Thought for the Day

“He who is everywhere is nowhere.” ~ Seneca

Disclosures

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

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Lenore Elle Hawkins

Lenore Elle Hawkins serves as the Chief Macro Strategist for Tematica Research. With over 20 years of experience in finance, her focus is on macroeconomic influences that create investing headwinds or tailwinds. Lenore co-authored the book Cocktail Investing and in addition to her Tematica work, provides M&A consulting services for companies in Europe looking to expand globally. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

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Mark Abssy

Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.

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