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Beyond the Number

Positive Reaction To Earnings News May Generate Early Buying Interest
7/29/2020 8:49 AM

The major U.S. index futures are pointing to a higher open on Wednesday, with stocks likely to move back to the upside after coming under pressure late in the previous session.

A positive reaction to the latest batch of corporate earnings news may contribute to an early upward move on Wall Street.

Chipmaker Advanced Micro Devices (AMD) is moving sharply higher in pre-market trading after reporting second quarter results that exceeded analyst estimates and raising its full-year guidance.

Shares of General Motors (GM) are also likely to see initial strength after the automaker reported a narrower than expected second quarter loss.

General Electric (GE) may also move to the upside after the conglomerate reported a wider than expected second quarter loss but said sequential improvement in earnings and cash in the second half of the year is achievable.

Nonetheless, overall trading activity may be somewhat subdued as traders look ahead to the Federal Reserve’s monetary policy announcement this afternoon.

The Fed is widely expected to leave interest rates unchanged at near-zero levels, although traders will pay close attention to the accompanying statement for clues about further stimulus.

Stocks moved mostly lower over the course of the trading day on Tuesday, largely offsetting Monday’s upward move. The tech-heavy Nasdaq posted a particularly steep loss after outperforming its counterparts on Monday.

The major averages saw further downside going into the close, ending the session near their worst levels of the day. The Dow slid 205.49 points or 0.8 percent to 26,379.28, the Nasdaq tumbled 134.18 points or 1.3 percent to 10,402.09 and the S&P 500 fell 20.97 points or 0.7 percent to 3,218.44.

The pullback by stocks came as traders kept an eye on developments in Washington after Republicans unveiled their version of a new coronavirus relief bill.

The GOP bill includes popular provisions like another $1,200 stimulus payment to American as well as more funding for the Paycheck Protection Program.

However, the legislation also slashes unemployment benefits and provides liability protections for businesses and doctors, which could lead to an impasse in negotiations with Democrats.

Senate Majority Leader Mitch McConnell told CNBC he will not bring up a bill in the Senate that does not include liability protections.

A negative reaction to earnings news from Dow components 3M (MMM) and McDonald's (MCD) also contributed to the weakness on Wall Street.

Shares of 3M tumbled by 4.8 percent after the diversified manufacturer reported second quarter results that missed analyst estimates on both the top and bottom lines.

McDonald's also slumped by 2.5 percent after the fast food giant reported weaker than expected second quarter earnings on a slightly bigger than expected drop in comparable-restaurant sales.

On the other hand, shares of Pfizer (PFE) jumped by 4 percent after the drug giant and Dow component reported better than expected second quarter results and raised its full-year guidance.

Negative sentiment was also generated by a report from the Conference Board showing consumer confidence deteriorated by more than expected in the month of July.

The Conference Board said its consumer confidence index slumped to 92.6 in July after jumping to an upwardly revised 98.3 in June.

Economists had expected the consumer confidence index to pull back to 95.7 from the 98.1 originally reported for the previous month.

The bigger than expected drop by the index came as consumers grew less optimistic about the short-term outlook for the economy.

"Large declines were experienced in Michigan, Florida, Texas and California, no doubt a result of the resurgence of COVID-19," said Lynn Franco, Senior Director of Economic Indicators at The Conference Board.

She added, "Such uncertainty about the short-term future does not bode well for the recovery, nor for consumer spending."

Oil service stocks moved sharply lower over the course of the session, dragging the Philadelphia Oil Service Index down by 3.9 percent. The index ended Monday’s trading at its best closing level in well over a month.

The pullback by oil service stocks came amid a decrease by the price of crude oil, with crude for September delivery falling $0.56 to $41.04 a barrel.

Substantial weakness also emerged among housing stocks, as reflected by the 2.6 percent nosedive by the Philadelphia Housing Sector Index.

Computer hardware, networking and semiconductor stocks also saw considerable weakness, contributing to the steep drop by the tech-heavy Nasdaq.

Chemical, steel and biotechnology stocks also came under pressure on the day, while airline, commercial real estate and utilities stocks showed strong moves to the upside.

Commodity, Currency Markets

Crude oil futures are rising $0.30 to $41.34 a barrel after falling $0.56 to $41.04 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,953.30, up $8.70 compared to the previous session’s recording closing high of $1,944.60. On Tuesday, gold jumped $13.60.

On the currency front, the U.S. dollar is trading at 105.06 yen compared to the 105.09 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1731 compared to yesterday’s $1.1716.

Asia

Asian stocks ended mixed on Wednesday as investors awaited updates on a U.S. coronavirus relief bill and looked ahead to a Federal Reserve meeting for clues on the outlook for monetary policy.

China's Shanghai Composite Index jumped 66.59 points, or 2.1 percent, to 3,294.55 on hopes for a quick economic recovery from the coronavirus pandemic. Hong Kong's Hang Seng Index ended up 110.38 points, or 0.5 percent, at 24,883.14.

Meanwhile, Japanese shares fell sharply to extend losses for the fourth straight session, with a rising yen and weak corporate earnings reports weighing on sentiment.

The Nikkei 225 Index ended down 260.27 points, or 1.2 percent, at 22,397.11, a three-week low. The broader Topix closed 1.3 percent lower at 1,549.04, dragged down by steel and iron, transportation equipment and consumer credit companies.

Canon slumped 13.5 percent after the digital camera maker reported its first ever quarterly loss. Similarly, automaker Nissan Motor plunged 10.4 percent after reporting a loss for the first quarter and projecting a loss for fiscal 2020.

Australian markets gave up early gains to end modestly lower. The benchmark S&P/ASX 200 Index slipped 14.10 points, or 0.2 percent, to 6,006.40, while the broader All Ordinaries Index ended down 18.80 points, or 0.3 percent, at 6,128.

The big four banks rose 1-2 percent after the financial watchdog withdrew a request for banks and insurers to freeze dividends. Engineering contractor CIMIC Group edged up slightly on news it is in advanced talks to sell 50 percent of its mining services business.

Mining heavyweight BHP lost 2 percent and Rio Tinto shed 0.7 percent. Gold miners fell despite safe-haven gold prices rising to another record high overnight. Northern Star Resources and Regis Resources lost about 3 percent.

Tech stocks followed their U.S. peers lower, with buy-now-pay-later firm Afterpay falling 1.2 percent. Energy stocks Woodside Petroleum, Santos, Origin Energy and Oil Search declined 1-2 percent.

Consumer prices in Australia were down 0.3 percent year-on-year in the second quarter of 2020, a government report showed. That exceeded expectations for a drop of 0.4 percent following the 2.2 percent increase in the previous three months.

On a quarterly basis, consumer prices sank 1.9 percent - again exceeding expectations for a fall of 2.0 percent after adding 0.3 percent in the three months prior.

Seoul stocks rose for a third straight session as foreign investors extended their buying streak. The benchmark Kospi rose 6.17 points, or 0.3 percent, to 2,263.16.

Market behemoth Samsung Electronics gained 0.7 percent to extend its winning streak to a fourth day. Internet giant Naver advanced 1.4 percent and top automaker Hyundai Motor added 1.6 percent.

Consumer sentiment in South Korea strengthened in July, the latest survey from the Bank of Korea showed today with a consumer survey score of 84.2 - up from 81.8 in June.

Europe

European stocks are mostly higher in cautious trading on Wednesday despite uncertainty around the coronavirus outbreak and a possible second wave of lockdowns.

A half-dozen U.S. states in the South and West reported their biggest one-day increase in coronavirus deaths Tuesday, fueling a bitter debate over the reopening of schools in the coming weeks.

Mainland China has reported 101 new cases of the novel coronavirus, the highest number in more than three and a half months.

Hong Kong leader Carrie Lam warned that the city was on the brink of a large-scale outbreak and tightened lockdown measures. Japan topped 1,000 Covid-19 cases for first time as Osaka and Aichi set daily records.

The focus turns to the U.S. Federal Reserve policy stance, though economists expect no change in interest rates.

While the French CAC 40 Index has advanced by 0.8 percent, the U.K.’s FTSE 100 Index is up by 0.3 percent and the German DAX Index is just above the unchanged line.

Puma has moved sharply higher. The sportswear brand said there was a relative improvement in sales by the end of June and that the industry is benefiting from more people having taken up exercising.

Lighting manufacturer Osram Licht has also surged. The company said it is on track to achieve its current forecast for the full year despite adversities.

Schneider Electric has also jumped. The French electrical equipment group confirmed its medium-term goals, which include raising its adjusted EBITA margin to 17 percent by 2022.

Luxury group Kering has also soared. Chief Financial Officer Jean-Marc Duplaix told media that sales momentum had picked up in June in all regions as lockdowns eased.

Retailer Next has also shown a significant move to the upside after reporting a smaller than expected decline in quarterly sales.

Wizz Air Holdings has also advanced. The budget airline conserved cash in the quarter to June 30 and ended the period with a €1.5 billion cash pile.

Meanwhile, UniCredit has moved to the downside. The Italian bank said it will not pay dividends nor do share buybacks in 2020, following the ECB's recommendation.

Telefonica Deutschland has also come under pressure on the day after posting a loss in the second quarter.

Similarly, Spain's Banco Santander has also declined after reporting a second quarter loss of $12.25 billion.

British lender Barclays has also tumbled. The bank's pre-tax profits plunged 75 percent in the second quarter as it set aside more funds to protect for potential loan losses.

Medical equipment manufacturing company Smith & Nephew has also fallen after it swung to a pretax loss for the first half of the year.

In economic news, French consumer confidence unexpectedly weakened in July after improving in the previous month month, survey data from the statistical office Insee showed.

The consumer sentiment index fell to 94 in July from 96 in June. The score was forecast to rise to 99.

U.K. shop prices declined at a slower pace in July, data from the British Retail Consortium showed. The shop price index dropped 1.3 percent year-on-year in July, following a 1.6 percent decrease in June.

U.S. Economic Reports

The National Association of Realtors is scheduled to release its report on pending home sales in the month of June at 10 am ET. Pending home sales are expected to jump by 15.0 percent in June after skyrocketing by 44.3 percent in May.

A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.

At 10:30 am ET, the Energy Information Administration is due to release its report on oil inventories in the week ended July 24th.

Crude oil inventories are expected to inch up by about 0.4 million barrels after climbing by 4.9 million barrels in the previous week.

The Federal Reserve is scheduled to announce its latest monetary policy decision at 2 pm ET, followed by Fed Chairman Jerome Powell’s post-meeting press conference at 2:30 pm ET.

Stocks In Focus

Shares of L Brands (LB) are moving sharply higher in pre-market trading after the Victoria’s Secret parent announced plans to deliver approximately $400 million in annualized cost reductions, including cutting its home office headcount by approximately 15 percent, or about 850 associates.

Car rental company Avis Budget (CAR) may also show a strong move to the upside after reporting a narrower than expected second quarter loss on revenues that beat analyst estimates.

On the other hand, shares of Seagate Technology (STX) may come under pressure after the hard drive maker reported weaker than expected fiscal fourth quarter results and provided disappointing guidance.
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