Investors Take Solace in Bank Earnings, Fed Comments

What’s happening: US stocks closed higher on Tuesday with investor sentiment being lifted by earnings reported by major banks.

What happened: With a rise in covid-19 cases in the US, some states have started to roll back their lockdown restrictions to contain infections.

Rising US-China tensions also added to investor concerns, but comments from Federal Reserve members and upbeat earnings from some major banks helped soothe market sentiment yesterday.

Why it matters: California reported 8,358 new coronavirus cases on Monday, with infections spiking by 48% over the past two weeks.

California Governor Gavin Newsom announced the rolling back of various restrictions, including closing indoor operations of restaurants, bars, wineries and movie theatres, which refuelled worries around the economic recovery taking longer than was previously anticipated.

Tensions between the US and China escalated again after China announced plans to impose sanctions on Lockheed Martin, while the Trump administration rejected Beijing’s claims in the South China Sea.

Investors focused on the financial results of companies, as banks kicked off the earnings season yesterday with JPMorgan Chase and Citigroup reporting better-than-expected earnings for the second quarter.

There was some good news on the economic data front too. The NFIB (National Federation of Independent Business) small business optimism index climbed to 100.6 last month, which is a 6.2 point improvement over May’s reading. Also, the country’s consumer-price index rose 0.6% in June.

Investors also took solace in comments by member of the Federal Reserve's Board of Governors Lael Brainard stating that the Fed would help the US economy recover from the impact of the pandemic through largescale asset purchases. St. Louis Federal Reserve President James Bullard also made some upbeat comments, saying that the country’s jobless rate is likely to drop considerably over the next six months, with employees who were temporarily laid off being recalled.

The Dow Jones index climbed 556.79 points to settle at 26,642.59 on Tuesday, while the S&P 500 gained 42.30 points to 3,197.52, following a rise in energy and materials shares. The Nasdaq 100 surged 0.9% to finish at 10,488.58, after trading down earlier in the session.

What to watch: Investors await another round of earnings from some major companies, including Goldman Sachs, Bank of New York Mellon Corporation and UnitedHealth Group.

Markets also look forward to economic reports from the US, including import prices, export prices, New York Empire State manufacturing index, industrial production, manufacturing production, capacity utilization, and Fed’s Beige Book. Import prices are expected to rise by 1% in June and export prices by 0.8%. The New York Empire State Manufacturing Index is expected to improve to 10 in July, from a reading of -0.2 in June. Total industrial production is projected to rise 4.3% in June.

Investors continue to keep an eye of covid-19 figures, with total cases in the US climbing past 3.4 million.

Crude oil will be in focus today, ahead of the EIA’s (Energy Information Administration) report on crude stockpiles and minutes from the Joint Ministerial Monitoring Committee meeting.

Context: Oil futures closed higher on Tuesday, after erasing losses earlier in the session. Oil prices were supported by weakness in the US dollar.

Details: Crude prices remained volatile yesterday due to rising tensions between the US and China, and persistent rise in covid-19 cases around the world.

Saudi Arabia and its allies have been pushing the OPEC+ to consider revising production cuts following some improvement in energy demand. The agreed production cuts may be eased from the current 9.7 million barrels a day to 7.7 million barrels starting August.

In a monthly report published on Tuesday, the OPEC said it now projects oil demand to decline by about 8.9 million barrels a day in 2020, versus its June’s outlook of a decline of 9 million barrels.

The API (American Petroleum Institute) late Tuesday said that the US crude supplies had declined 8.3 million barrels in the week ending July 10.

After falling as low as $39.07 per barrel earlier in the session, WTI (West Texas Intermediate) crude for August delivery gained 0.5% to end at $40.29 per barrel on the NYMEX (New York Mercantile Exchange). September Brent crude gained 0.4% to $42.90 per barrel on ICE Futures Europe.

August natural gas gained 0.4% to settle at $1.746 per million British thermal units yesterday.

What to watch: Investors await the EIA’s weekly report on petroleum supply. Analysts expect US crude supplies to drop 2.1 million barrels for the week ending July 10, following a rise of 5.7 million barrels in the prior week. The Joint Ministerial Monitoring Committee, which comprises of 3 OPEC nations - Algeria, Kuwait and Venezuela, and two non-OPEC countries - Russia and Oman, is scheduled to meet today. Investors look forward to the committee’s supply projections.

Other Markets: European indices were trading higher at 8:30am GMT, with the FTSE 100, French 40 and Dax 30 index up by 0.7%, 0.8% and 1%, respectively.

Canada’s new motor vehicle sales, manufacturing sales and the Bank of Canada’s interest rate decision, China’s foreign direct investment as well as the US MBA mortgage applications.

 

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