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Daily Markets Update, 26 July

 

  • US Upbeat Earnings Boost stocks
  • Fed : Investors will look for clues
  • US Corporate Debt Demand near Post Crisis High
  • All eyes on Federal Reserve decision.
  • Gold declines second day

 

U.S. stocks extended all-time highs as corporate earnings bolstered optimism about the strength of the global economy, lifting commodities.

Bonds bounced as investors waited for clues on the fate of the Federal Reserve balance sheet.

Asian and European shares were also higher, prompted by momentum from the latest US record high.

Risk appetite improved yesterday as oil prices kept climbing following Saudi Arabia’s commitment to export cuts. Safe-haven assets sold off, the VIX reached a new historic low, equities were up across the board, and the USD outperformed after a consumer confidence measure was higher than expected.

CB&STKS

Roughly a quarter of S&P 500 companies have reported results so far, with 74% of them beating earnings estimates as of Wednesday morning, according to FactSet.

Many analysts expect trading to be muted ahead of the conclusion of the Fed’s two-day meeting later Wednesday. While almost no investors expect a change in interest rates at this juncture, many will be watching the U.S. central bank’s policy statement closely for hints at whether there will be a rate rise by the end of the year and when the bank might start shrinking its portfolio of Treasury and mortgage bonds, the WSJ reports.

The Stoxx Europe 600 added 0.5%, echoing gains in Australia and Japan as strengthening commodity prices and weaker local currencies supported wider stock markets.

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Investor enthusiasm for U.S. corporate debt has neared levels not seen since before the start of the credit crisis, in a deepening endorsement of a global economic recovery that has already propelled US stock markets to record heights.

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The so-called spread on US dollar corporate bonds — the extra yield investors demand versus Treasury debt — has fallen to within two basis points of its post-crisis low for investment-grade securities. The 108 basis point spread recorded on Tuesday compares with 130 basis points at the start of the year, according to Bank of America Merrill Lynch.

There is a voracious appetite for higher-yielding debt from pension funds, insurers and other bond buyers at a time of continued low interest rates, while the robustness of the economic outlook has given investors comfort to accept a lower risk premium.

Fed´s Action Today

Top concern is whether there will be more clarity on efforts to unwind the US$4.5 trillion portfolio of Treasuries and mortgage-backed securities. That can define sentiment.
September is currently seen as the earliest time the Federal Reserve will start allowing the bonds it owns to run off as they mature, instead of reinvesting the proceeds in more bonds.

 

Here are the main moves in markets, from Bloomberg
Stocks

  • The S&P 500 gained 0.1 percent to 2,480.40 as of 9:31 a.m. in New York, after closing at a record on Tuesday.
  • The Dow Jones Industrial Average rose above 21,700 for the first time.
  • The Stoxx Europe 600 Index advanced 0.5 percent, the biggest gain in a week.
  • The U.K.’s FTSE 100 Index increased 0.4 percent.
  • Germany’s DAX Index climbed 0.2 percent.

Currencies

  • The Bloomberg Dollar Spot Index dipped less than 0.1 percent.
  • The euro slipped less than 0.1 percent to $1.1642.
  • The British pound gained 0.1 percent to $1.3043, the strongest in more than a week.
  • The yen was little changed at 111.88 per dollar after declining 0.7 percent on Tuesday.

Commodities

  • Gold dipped 0.3 percent to $1,246.28 an ounce.
  • West Texas Intermediate crude advanced 1 percent to $48.37 a barrel, the highest in seven weeks. Crude inventories declined by 10.2 million barrels last week in an American Petroleum Institute report released Tuesday, people familiar with the data said.
  • Copper gained 0.2 percent. Read more about copper’s rally here.
  • The Bloomberg Commodity Index climbed less than 0.1 percent.

Bonds

  • The yield on 10-year Treasuries dipped one basis points to 2.32 percent, after surging eight basis points in the previous session.
  • Germany’s 10-year yield decreased one basis point to 0.56 percent.
  • Britain’s 10-year yield declined three basis points to 1.228 percent after data showed the U.K. economy expanded 0.3 percent in the second quarter, matching estimates.

Asia

  • Japan’s Topix index rose 0.2 percent and Australia’s S&P/ASX 200 Index added 0.9 percent. South Korea’s Kospi index fell 0.2 percent, while the Hang Seng Index in Hong Kong gained 0.3 percent. The Shanghai Composite Index added 0.1 percent.
  • The Aussie fell 0.3 percent to 79.10 U.S. cents after Australia’s second-quarter headline inflation rose less than expected from a year earlier.
  • 10-year Australian government notes saw yields climb four basis points to 2.73 percent.

 

Stock News

It’s being dubbed “Amazon Jobs Day.” The retailer is aiming to fill 50K new positions in the U.S. by hosting a giant job fair next month, making good on its promise to hire another 130K full- and part-time workers. Once it completes its pledge, with a target date of mid-2018, Amazon’s (NASDAQ:AMZN) U.S. workforce would swell to around 300K, compared with 30K in 2011.

Uber hopes to name a new leader by early September, according to Bloomberg, and HP Enterprise (NYSE:HPE) CEO Meg Whitman is on the short list. She was an early investor and has been quietly counseling UBER, especially former CEO Travis Kalanick. “As Meg has said several times before, she is fully committed to HPE and plans to stay with the company until her work is done,” said an HP representative.

Targeting millennials isn’t an easy task for traditional news networks, and many are turning to partnerships to bridge their divide. ABC News (NYSE:DIS) is the latest to launch a tie-up with ATTN:, a video news site focused on younger audiences, to co-produce videos for social media. Financial terms of the deal, which will produce short-length stories, were not disclosed.

Viacom has informed Scripps Networks Interactive (NYSE:SNI) that it’s willing to pay all cash to acquire the $10.6B U.S. TV network operator, Reuters reports. The move by Viacom (VIAVIAB), which had $12.2B in debt as of March 31, could potentially mean the company would lose its investment-grade status. Scripps owns channels such as HGTV, Food Network and Travel Channel.

“I spoke to [Tim Cook], he’s promised me three big plants – big, big, big,” President Trump told the WSJ. “I said you know, Tim, unless you start building your plants in this country, I won’t consider my administration an economic success. Apple (NASDAQ:AAPL) has already announced it would start a $1B fund to promote advanced manufacturing jobs in the U.S.

U.S. regulators have taken their first shot at deflating the bubble in so-called Initial Coin Offerings, declaring that many of the digital tokens behind the recent mania should fall under securities rules. “The SEC’s Report of Investigation found that tokens offered and sold by a ‘virtual’ organization known as ‘The DAO’ were securities and therefore subject to federal laws.”

Plug it in. Britain is set to ban all new gasoline and diesel vehicles from 2040 amid fears that rising levels of nitrogen oxide pose a major risk to public health. The commitment, which follows a similar pledge in France, is part of the government’s clean air plan, which has been at the heart of a protracted high court legal battle.

Once the biggest offshore rig firm by market cap, Seadrill (NYSE:SDRL) is again delaying restructuring its $14B in debt and liabilities, reiterating that Chapter 11 bankruptcy was likely. The company’s business has struggled as energy firms have slashed investment due to a more than 50% fall in the price of crude oil since 2014. SDRL -12.6% premarket.

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