As we approach the open... - 7/29/21

 As we approach the open... - 7/29/21 

Apologize for any typos.

As we approach the open of US equity trade in NY, most stocks trade with a positive bias again this morning, with small caps leading again but large growth continuing to struggle after some disappointing guidance from Facebook and Paypal (following yesterday's sell the news reaction to great earnings from Apple, Microsoft, and Alphabet).  We get Amazon tonight.  RUT indicated up around nine tenths, SPX up around two tenths, NDX down one tenth.

Remember our summer caveat: One thing to keep in mind is after July 4th until around Labor Day, there is significantly less liquidity in the markets due to vacations, etc., so we can get more whippy action and "overshoots" in all markets.

In U.S. corporate news:

Facebook (FB 359.89, -13.39): -3.6% after saying it expects 2H21 yr/yr revenue growth rate to decelerate modestly on a two-year basis. The company beat top and bottom-line estimates. PayPal (PYPL 285.10, -16.88): -5.6% after guiding EPS for Q3/FY21 below consensus and guiding Q3 revenue below consensus.  Merck (MRK 76.90, -1.43): -1.8% after missing EPS estimates and guiding FY21 EPS below consensus. Comcast (CMCSA 58.86, +0.88): +1.5% after beating top and bottom-line estimates. Qualcomm (QCOM 147.00, +4.56): +3.2% after beating top and bottom-line estimates and guiding fiscal Q4 EPS above consensus. 

MA, NOC, VLO, MO also out this morning with a beat as was 

And despite great earnings, tech earnings yield lowest since 2004.

Asia

Major equity indices in the Asia-Pacific region ended Thursday on a higher note. Japan's Nikkei: +0.7% Hong Kong's Hang Seng: +3.2% China's Shanghai Composite: +1.5% India's Sensex: +0.4% South Korea's Kospi: +0.2% Australia's ASX All Ordinaries: +0.6%.

So after the media blitz we noted in yesterday's opener (“Investors shouldn’t be overly pessimistic about the stock market,” the China Securities Journal said. “There’s no systemic risk,” the same piece insisted, adding that easy monetary policy should support stocks. Recent turmoil was described as a “technical adjustment.”), China summoned the banks as noted in last night's closer.  According to Bloomberg’s second-hand account of the CSRC call, “some bankers left with the message that the education policies were targeted and not intended to hurt companies in other industries.”  

 And of course we know that Beijing is not afraid to step in to stabilize markets (which they did dramatically in 2015, less so since then).  And Nomura’s Charlie McElligott weighed in Wednesday on what he sees as likely Chinese liquidity being used to stabilize the situation following the stock market rout.  “Speculative, but I’d be willing to bet that with this current market tremor out of China, it’s reasonable to expect by end-August / early September that we’ll see Chinese +++ liquidity actions taken (either monetary or fiscal easing) to offset [the] slowdown risks of their recent actions to tighten in the property sector,” he said.

And we might have seen a bit of that liquidity this morning with a PBoC injection that pushed down overnight rates the most in a month (and Chinese bond yields in the process).  Also CNBC is reporting that “China will continue to allow Chinese companies to go public in the US as long as they meet listing requirements." The person also said cross-border listings via variable interest entity structures are still allowed. “The regulator recognized the structure is a vital way for companies to attract foreign capital, but said it would have to be adjusted if there were national security concerns.” (HR).

All of this is seeing a big bounce in Chinese and Hong Kong shares.

But caution clearly remained.  As JonesTrading’s Mike O’Rourke noted, “before the market goes into full V-bottom mania, investors should recall that Ant Group, Tencent, Didi, etc. were all ‘targeted actions’.”  And Gavekal Research noted “the campaign to comprehensively regulate internet platforms [won’t] be abandoned as it remains a high-level political priority [but] the regulatory storm can shrink to a more manageable size which, given the beaten-down valuations of Chinese tech firms, should create plenty of buying opportunities."

In other news China Securities Daily reported that the Chinese government will strengthen housing loan policies and that mortgage rates are expected to continue rising. China replaced its ambassador to the U.S. South Korea and North Korea are reportedly discussing a reopening of the joint liaison office.

Economic data was light.

Australia's Q2 Import Price Index 1.9% qtr/qtr (last 0.2%) and Export Price Index 13.2% qtr/qtr (last 11.2%)

New Zealand's July ANZ Business Confidence -3.8 (last -0.6)

Europe

Major European indices trade in the green. STOXX Europe 600: +0.4% Germany's DAX: +0.4% U.K.'s FTSE 100: +0.9% France's CAC 40: +0.8% Italy's FTSE MIB: +1.0% Spain's IBEX 35: +1.1%.

In news: European Central Bank policymaker Panetta reiterated that the ECB will not raise rates until policymakers are convinced that inflation will stabilize at the 2.0% target, adding that risks of high inflation are limited. Volkswagen reported strong earnings and raised its profit margin guidance. 

In economic data Eurozone's Business and Consumer Survey hit a record high, eclipsing its previous peak from mid-2000. German employment missed, UK mortgage lending well above expectations but overall consumer credit below expectations, and French PPI well above expecations.

Eurozone Industrial Confidence Jul: 14.6 (est 13.0; prevR 12.8; prev 12.7); Eurozone Services Confidence Jul: 19.3 (est 19.3; prev 17.9); Eurozone Consumer Confidence Jul F: -4.4 (prev -4.4); Eurozone Economic Confidence Jul: 119.0 (est 118.2; prev 117.9)

Germany's July Unemployment Change -91,000 (expected -28,000; last -38,000) and Unemployment Rate 5.7% (expected 5.8%; last 5.9%)

U.K.'s June Mortgage Lending GBP17.87 bln (expected GBP7.90 bln; last GBP6.79 bln) and Net Lending to Individuals GBP18.20 bln (last GBP7.20 bln)

France's June PPI 1.1% m/m (last 0.4%) o Italy's June PPI 1.4% m/m (last 1.1%); 9.1% yr/yr (last 8.1%)

Spain's July CPI -0.7% m/m (expected 0.4%; last 0.5%); 2.9% yr/yr (expected 2.6%; last 2.7%). Q2 Unemployment Rate 15.26% (expected 15.10%; last 15.98%); July Business Confidence 1.4 (last -1.1)

Commodities/Currencies/Bonds

Bonds - 10-yr yields trade up a couple basis points this morning again testing the bottom of the 200-DMA and top of the recent downtrending channel at 1.276%.  With 2-year up unchanged at 0.21%, curve steepening a touch.  

Dollar (DXY) - We've been bearish on the dollar, and it continues down this morning now testing the $92 level.  Technicals remain very bearish to me.

VIX - Trading slightly lower at 17.55.  

Crude (/CL) -  Has finally edged over 20-DMA up eight tenths of a percent to $73 WTI.  

And Shell out with solid earnings and big return of capital to shareholders which I think will be echoed by other oil and gas companies.

Natural Gas (/NG) - Consolidating around $4 which we said was the most likely path for now, up around nine tenths to right at $4.  

Gold (/GC) - Getting a lift from weak dollar and finally getting some life, pushing through the 200-DMA to the bottom of the 50-DMA.  If it can get through that, has room to run.  Technicals improved a bunch this morning with RSI breakout and MACD back to cover shorts.

Copper (/HG) -  After last two days of consolidation has looked to start moving back up, also up nine tenths but remaining below this week's highs.  Technicals remain favorable.

US Data

Jobless claims and first look at 2Q GDP are out.  I'll have short deeper summaries on both after the open.

Claims came in right at 400k above estimates but down from last week's 419k (revised down from 424k). 

US Initial Jobless Claims Jul 24: 400K (est 385K; prevR 424K; prev 419K)

US Continuing Claims Jul 17: 3269K (est 3189K; prevR3262K; prev 3236K)

In terms of GDP, it came in well below expectations on the top line with prices higher than expected particularly non-core.  

Q2 GDP (initial estimate): +6.5% vs. +8.0% consensus and +6.4% in Q1.

Core PCE prices: +6.1% vs. +5.9% consensus and 2.5% prior.

PCE price index: +6.4% vs. 3.8% prior (revised).

And some follow up from the Fed meeting yesterday.  One thing that was sort of lost in the shuffle is the Fed did make the repo facility permanent as was widely expected at some point.  BBG. 

Also a few people noted that they used the plural when talking about discussing tapering (see below) leading many to think that we're talking about after September at the earliest for any clarity on that.  Per JPM - “Regarding tapering, the statement’s reference to “meetings” (plural) would seem to further reduce the chances of a September taper announcement.” 

Misc.

Random stuff:

As bipartisan infrastructure proposal gets a favorable response from Senators, with two-thirds in favor of moving forward on procedural vote last night, a good indication of likely success. BBG.

To see more content, including summaries of major economic reports and my nightly summary go to https://sethiassociates.blogspot.com