Summary and Price Action Rundown
Global risk assets have turned lower this morning amid a slew of major corporate earnings reports, while investors monitor wrangling on Capitol Hill over the latest pandemic stimulus bill. S&P 500 futures point to a 0.3% lower open after yesterday’s rally took the index back into positive territory for the year but fell short of last Wednesday’s peak for the pandemic. The tech-heavy Nasdaq erased last week’s rare underperformance with a 1.7% rally yesterday but is wavering this morning. Equities in the EU and Asia were mixed overnight. The dollar continues to sink lower versus its peers, while longer-dated Treasury yields are steady, with the 10-year yield at 0.61%. Brent crude prices are holding above $43 per barrel.
This Week’s Corporate Earnings Barrage Begins
US equities have been broadly supported but struggling to make upside headway during the first two weeks of second quarter (Q2) earnings reporting, as analysts await this week’s set of results featuring major tech giants and other US corporate bellwethers. With last week marking the first third of S&P 500 companies to report Q2 earnings, analysts are still groping for consistent themes heading into this week’s major lineup of results. With 155 of S&P 500 companies having reported, 84.8% of results have featured a positive earnings-per-share (EPS) surprise and 67.8% have topped revenue estimates. Both percentages place higher than their respective five-year averages. However, aggregate growth of sales and earnings are down 7.8% and 15.1%, respectively, thus far year-on-year. Today, Visa, Pfizer, McDonald’s, 3M, Starbucks, AMD, Chubb, eBay, Aflac, and DR Horton report. Pre-market releases have been mixed, with 3M undershooting earnings estimates and McDonald’s posting a steeper-than-expected decline in sales, while Pfizer and Raytheon both topped consensus forecasts. Among the later reports, Visa’s payments volume will be in focus, and DR Horton will provide insights on the US housing market, which has displayed great resiliency thus far during the pandemic. The rest of this week’s calendar features reports from major industry bellwethers, including GE, Boeing, GM, Qualcomm, PayPal, Facebook, UPS, Yum! Brands, Comcast, Proctor & Gamble, Mastercard, Ford, Apple, Shake Shack, Google, US Steel, Amazon, Expedia, Caterpillar, and Exxon Mobil.
Negotiations Begin in Earnest Over the Senate Republican’s Stimulus Bill Draft
Yesterday’s late afternoon release of the draft bill was the starting gun for what analysts expect will be a fraught negotiation, with trillions of dollars separating the two parties. The area of greatest urgency is enhanced unemployment benefits, with millions of American still out of work due to the pandemic and the current $600 per week boost expiring at month-end. The Republican proposal begins by cutting this to an extra $200 per week, then transitioning to a sliding scale based on 70% of previous wages earned but with a cap of $500 per week for the federal enhancement. Analysts suggest that this more complex scheme could take anywhere from two to five months to roll out as states will face significant difficulties in implementation compared to the flat amount previously used. Speaker Pelosi has made clear her intention of defending the $600 payments through the end of the year. Other provisions include liability protections for hospitals, schools, and nonprofits, $105 billion allocated towards school reopening, $16 billion for enhanced testing measures, a $60 billion top-up of the Payroll Protection Program (PPP) targeted at SMEs that have seen 50% or greater falls in revenue, and another set of $1200 direct payments to individuals earning less than $75K per year, plus some modest tax breaks related to business operations during the pandemic. Congressional Democrats have lambasted the provisions as inadequate, failing to effectively cover issues including rental assistance and state and local government funding support, both of which featured prominently in the Democrat’s $3.5 trillion HEROES Act proposal that passed in May.
Two-Day Fed Meeting Kicks off Today – No major policy maneuvers are expected, though analysts will parse the accompanying communications for clues as to a potential policy pivot at the September meeting to some form of enhanced forward rate guidance. At the June meeting, the FOMC retained its current policy settings, as expected, and Chair Powell discussed the potential for yield caps and augmented guidance down the road, as the focus remained firmly on downside risks to the recovery.
Gold Prices Tag All-Time High – With the dollar in a downtrend, global interest rates at historic lows, deficits soaring, and geostrategic tensions simmering, factors have been aligned for gold price upside. The yellow metal registered an all-time high overnight near $2000 per ounce after an 8.3% month-to-date gain, and analysts are generally calling for more upside give the persistence of the upside drivers. Silver prices have also skyrocketed, soaring nearly 30% in July. –