MARKET WRAPS
Watch For:
EU-CELAC Summit concludes; trading updates from Novartis, Vinci, Ocado Group, SEB, Swedbank, Tele2
Opening Call:
Shares may tread water early Tuesday; Asian stock benchmarks were mixed; the dollar weakened slightly; Treasury yields fell; oil and gold futures gained.
Equities:
European stocks may be little changed early Tuesday, as investors await cues from earnings and U.S. economic data after shaking off Monday's disappointing China data.
"I would describe this market as having a very 'Goldilocks' domestic view on where things are going," said Michael Reynolds, vice president of investment strategy at Glenmede.
"Investors are getting excited about whether we could get immaculate disinflation, or inflation coming back to the Fed's 2% target while avoiding a recession. Whether that happens is something else."
Even after China's disappointing data on Monday, "there's a pretty big focus on the domestic economy right now and investors are of the view that China's government is going to step in with stimulus to get the country's economy going," Reynolds said.
Treasury Secretary Janet Yellen on Monday sounded an optimistic note on the prospect of avoiding a recession, citing the strength of the U.S. labor market and 'encouraging' inflation data.
"I don't expect a recession," the treasury chief said in a Bloomberg Television interview, speaking from India on the sidelines of a G-20 finance officials' meeting.
"I think that we're on a good path to bringing inflation down," said Yellen.
"The most recent inflation data were quite encouraging," she said.
Michael Antonelli, market strategist at Baird, said he would be closely watching earnings results in the coming weeks to see how individual stocks respond to results that are better than expected.
If the stock of a company rises sharply in response to an earnings beat, he said, that would be a sign that "the market still has not priced in enough optimism about earnings."
More earnings reports will come at a brisk pace this week, with updates from the likes of Tesla, Morgan Stanley, Goldman Sachs, Netflix and Bank of America.
On the economic calendar, Tuesday's U.S. retail sales will provide more color about the behavior of the vitally important consumer.
Forex:
The dollar weakened early Tuesday ahead of U.S. economic data due out later today.
The June retail sales and industrial production figures will be a key focus, the APAC Strategy Team at Saxo Markets said.
In-line data could keep the U.S. economic soft-landing scenario "alive" but strong upside surprises might reinforce the Fed's message of higher-for-longer rates and disrupt USD's recent downtrend, the team said.
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Market expectations of further interest-rate rises from the Bank of England combined with a resilient U.K. economy continue to boost sterling, Rabobank said.
However, concerns over the risk of a recession in the U.K. due to high interest rates could cause sterling to weaken over the medium term, "as investors take fright on the overall U.K. economic backdrop and cut back their long GBP positions", it said.
As BOE rates rise, economic conditions were likely to deteriorate and cause the sterling to weaken over the medium term, it added.
Bonds:
U.S. treasury yields were broadly lower early Tuesday, weighed by weak growth data from China raising concerns about a slowing global economy.
"The market is debating whether the U.S. economy will slow -- we provide evidence that U.S. activity has already slowed," said Standard Chartered Bank.
"Data from the income side are much weaker than standard GDP calculations based on demand ... as was the case in the runups to the 1990 and 2008 recessions."
"We also look at daily data on withholding taxes and [unemployment-insurance] benefits that point to a weaker labor market than [nonfarm payrolls]. Not a big 'R' recession to set your hair on fire, but looks like there is sluggishness in the air. This will drive [the U.S. dollar] and yields further lower," the bank said.
Markets were pricing in a 97.3% probability that the Fed will raise interest rates by 25 basis points to a range of 5.25%-5.5% on July 26, according to the CME FedWatch Tool. The chance of a similar or bigger move by November was seen at 28.3%.
The central bank is expected to take its fed-funds rate target back down to around 5% or lower next year.
Energy:
Oil futures were higher early Tuesday in a likely technical rebound after global benchmark prices settled at their lowest in a week yesterday.
WTI crude oil has major support at the $70/bbl level, and should consolidate above that level until market participants hear from Chinese officials at the end of the month, Oanda said.
China is expected to hold a Politburo meeting this month.
The Chinese GDP data "dented the markets' view on future oil demand," said Ricardo Evangelist, senior analyst at ActivTrades.
"China is the world's top oil importer, and its GDP figures missed the consensus by a full percentage point, posing a big question on the pace of the recovery in the world's second-largest economy and hitting oil prices as expectations for future demand were downgraded," he said.
Metals:
Gold futures edged higher in Asia with the market in a wait-and-see mood ahead of coming U.S. economic data.
Traders were eyeing the data for guidance on the Fed's next move on rates, ANZ Research analysts said.
USD strength and higher Treasury yields had earlier weighed on investor demand for the precious metal, but gold recouped the losses amid expectations of more weak data that could provide the Fed with room to pause rate increases, the analysts said.
"Gold is continuing to hold above $1,950 an ounce with investors and traders still wary of committing fully to equities with the latest Chinese data adding to concerns about the health of the global economy," said Rupert Rowling, market analyst at Kinesis Money.
"When it comes to the price of gold, traders continue to remain very attached to the [Federal Reserve's] monetary policy stance," said Naeem Aslam, chief investment officer at Zaye Capital Markets, in market commentary.
Many do believe that there is a possibility of one more rate hike from the Fed, which "could bring one final threat to the gold price," but looking at the price action of the precious metal, "we think that it is safe to say that there are more bulls than bears in the market," said Aslam.
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Copper was steady in the morning Asian session, but any gains in the base metal's price could be curbed by concerns over China's economy, analysts said.
The latest slew of weak data out of China has highlighted the loss of momentum in the country's economy, TD Securities said.
The recent short-covering-driven rally in copper seems to have run out of steam, suggesting deteriorating demand signals are still the most important factor for industrial metals in the short term, it added.
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Iron-ore futures were lower in early China trade, with investor sentiment weighed by weaker-than-expected China data on Monday, adding to evidence of its fading post-Covid recovery momentum.
There were signs that downstream demand was weakening, Donghai Futures analysts said.
Downward pressure on the hot metal's production was also mounting, they added.
TODAY'S TOP HEADLINES
Big Banks' Earnings Have Some Bad News for Smaller Banks
A surge of profits at some of the nation's largest banks might make people forget that there was a banking crisis earlier this year. But just offstage, reminders are lurking-and they might grab the spotlight as regional banks begin to report this week.
JPMorgan Chase and Wells Fargo on Friday reported year-over-year net income growth of 67% and 57%, respectively. That is hardly what anyone would call troubling. Yet the KBW Nasdaq Bank Index dropped more than 2% on the day, and shares of trust bank State Street, which also reported Friday, fell 12%.
The Man Charged With Steering the Yuan Through China's Economic Turmoil
A veteran economist and banker had been getting ready to retire in the weeks before Chinese leader Xi Jinping picked him to lead China's central bank, according to officials familiar with the matter.
Now, Pan Gongsheng is set to take the reins at the People's Bank of China as it confronts an urgent challenge: whether and how to defend the Chinese yuan.
Restricting Chip Sales to China Could Backfire on U.S., Industry Group Says
The Biden administration's potential curbs on sales of advanced semiconductors to China could undermine huge new government investments in domestic chip-making, the U.S. chip-industry trade group said Monday.
The Biden administration is considering a raft of new curbs on the sale of chips to China, aiming to disrupt Beijing's use of artificial intelligence for hacking and weapons development. At the same time, the administration is rolling out $39 billion in grants for new U.S. chip-making plants after the passage of the Chips Act last year.
IEA Looks to Extend Purview to Natural Gas, Officials Say
TOKYO-The International Energy Agency, an organization that historically has worked to keep global oil supplies steady, is looking at ways in which it could extend its purview to cover natural gas, officials said.
Natural gas is playing a bigger role in the global energy mix thanks in part to tougher environmental standards that give it an advantage over other fossil fuels. At the same time, global gas markets were shown to be vulnerable to disruption following Russia's invasion of Ukraine, which caused a major supply crunch.
'I don't expect a recession': Yellen says U.S. economy on 'good path'
Treasury Secretary Janet Yellen on Monday sounded an optimistic note on the prospect of avoiding a recession, citing the strength of the U.S. labor market and "encouraging" inflation data.
Tesla Outlines Plan to Create Largest Auto Factory in Germany
(MORE TO FOLLOW) Dow Jones Newswires
07-18-23 0015ET
