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Beyond the Numbers

Upbeat Earnings News May Lead To Continued Strength On Wall Street
7/29/2022 8:53 AM

The major U.S. index futures are currently pointing to a higher open on Friday, with stocks likely to extend the strong upward move seen over the two previous sessions.

A positive reaction to the latest batch of earnings news from big-name companies is likely to contribute to continued strength on Wall Street.

Shares of Amazon (AMZN) are moving sharply higher in pre-market trading after the online retail giant reported better than expected second quarter revenues and provided upbeat guidance.

Tech giant Apple (AAPL) is also likely to see initial strength after reporting fiscal third quarter results that exceeded analyst estimates on both the top and bottom lines.

On the other hand, shares of Intel (INTC) are likely to come under pressure after the semiconductor giant reported weaker than expected second quarter results and provided disappointing guidance for the current quarter.

Early buying interest may also be offset by a report from the Commerce Department showing an acceleration in the pace of consumer price growth.

The report showed the annual rate of growth by the personal consumption expenditures price index accelerated to 6.8 percent in June from 6.3 percent in May, showing the fastest growth since January 1982.

The annual rate of growth by core consumer prices, which exclude food and energy prices, also accelerated to 4.8 percent in June from 4.7 percent in May.

The inflation data, which is said to be preferred by the Federal Reserve, was included in a report showing personal income increased by slightly more than expected in the month of June.

The faster rate of price growth may offset recent optimism about the Fed slowing the pace of interest rate hikes at upcoming meetings.

Stocks showed a substantial turnaround over the course of the trading session on Thursday, recovering from an early move to the downside to end the day sharply higher. The major averages added to the strong gains posted on Wednesday to reach their best closing levels in well over a month.

The major averages pulled back off their highs of the session going into the close but remained firmly positive. The Dow jumped 332.04 points or 1 percent to 32,529.63, the Nasdaq shot up 130.17 points or 1.1 percent to 12,162.59 and the S&P 500 surged 48.82 points or 1.2 percent to 4,072.43.

The early weakness on Wall Street came following the release of a Commerce Department report showing a continued contraction in U.S. economic activity in the second quarter of 2022.

The Commerce Department said real gross domestic product decreased by 0.9 percent in the second quarter after slumping by 1.6 percent in the first quarter. Economists had expected GDP to increase by 0.5 percent.

With GDP unexpectedly declining for the second consecutive quarter, the data signals the U.S. economy is in a technical recession.

However, economists cast doubt on whether the economy is actually in a recession, citing other indicators indicating continued growth and persistent strength in the labor market.

The data may have still added to optimism that the Federal Reserve will slow the pace of its interest rate hikes at future meetings, contributing to the turnaround on Wall Street.

"Stagflation is obviously here now and will ultimately force the Fed into a difficult decision as to when they may need to pause tightening," said Edward Moya, senior market analyst at OANDA.

Despite the rebound by the broader markets, Meta Platforms (META) posted a steep loss after the parent of Facebook and Instagram reported weaker than expected second quarter results, including its first ever year-over-year drop in revenues.

Networking stocks extended the strong upward move seen in the previous session, driving the NYSE Arca Networking Index up by 5 percent to its best closing level in almost three months.

Netgear (NTGR) helped lead the sector higher, spiking by 22.6 percent after reporting a narrower than expected second quarter loss on revenues that exceeded analyst estimates.

Interest rate-sensitive commercial real estate and utilities stocks also moved sharply higher, with the Dow Jones U.S. Real Estate Index and the Dow Jones Utilities Average surging by 3.3 percent and 3.1 percent, respectively.

Substantial strength was also visible among transportation stocks, as reflected by the 3.1 percent jump by the Dow Jones Transportation Average. The average reached its best closing level in well over a month.

Gold, brokerage, and chemical stocks also saw notable strength on the day, moving higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are jumping $1.74 to $98.16 a barrel after falling $0.84 to $96.42 a barrel on Thursday. Meanwhile, after surging $31.20 to $1,750.30 an ounce in the previous session, gold futures are climbing $8.80 to $1,759.10 an ounce.

On the currency front, the U.S. dollar is trading at 134.08 yen versus the 134.27 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.0181 compared to yesterday’s $1.0197.

Asia

Asian stocks finished mixed on Friday, as fresh concerns over economic growth in China eclipsed positive sentiment triggered by earnings news as well as potential pause or slowdown by the Fed. Hong Kong's Hang Seng declined more than 2 percent as tech stocks and real estate stocks were under pressure.

China's Shanghai Composite Index dropped 29.34 points or 0.9 percent to finish at 3,253.24. The day's trading ranged between 3,246.37 and 3,294.80. The Shenzhen Component Index lost 1.3 percent to close at 12,269.27.

The Japanese benchmark Nikkei 225 Index shed 13.84 points or 0.1 percent to end trading at 27,801.64. The day's trading range was between 27,725.24 and 28,001.80.

Advantest Corp. was the biggest gainer with a 4.11 percent rally. Fuji Electric, Z Holdings Corp., Omron Corp. and Cyber Agent Inc. also gained more than 3 percent.

NEC Corp. was the biggest loser with a decline of more than 7 percent. Shares of Hino Motors dropped 6.53 percent. Mitsubishi Motors and Denso Corp. both lost more than 5 percent in the trading session.

The Hang Seng Index of the Hong Kong Stock Exchange plunged 466.17 points or 2.3 percent from the previous close to finish trading at 20,156.51. The day's trading range was between 20,647.45 and 20,050.05.

The Korean Stock Exchange's Kospi Index added 16.23 points or 0.7 percent to close trading at 2,451.50. The day's trading range was between 2,442.01 and 2,463.05.

Australia's S&P/ASX200 Index closed trading at 6,945.20 after gaining 55.50 points or 0.8 percent. The day's trading was between 6,889.70 and 6,973.60.

Mining business St Barbara topped the gainers charts with a 9.8 percent rally. Healthcare equipment business Polynovo and information technology business EML Payments both gained more than 8 percent.

Buy now pay later provider Zip dropped more than 25 percent apparently on profit booking after recent gains. Sports betting company PointsBet Holdings declined more than 10 percent despite strong quarterly results.

Europe

European stocks have moved mostly higher on Friday, extending recent gains, with investors focusing on earnings updates and the latest batch of economic data. Easing worries about aggressive rate hikes by the Federal Reserve have also contributed to the positive mood in the markets.

While the French CAC 40 Index has surged by 1.5 percent, the German DAX Index is up by 1.2 percent and the U.K.’s FTSE 100 Index is up by 0.6 percent.

In the U.K. market, Natwest Group shares are surging on strong quarterly earnings. Standard Chartered also reported impressive results, but the stock is up just marginally.

Ocado Group, Fresnillo, Aveva Group, Scottish Mortgage, B&M European Value Retail, Rolls-Royce Holdings, Antofagasta, Barclays and Futter Entertainment are posting notable gains.

Meanwhile, Avast, Intertek Group, RightMove, Centrica, British American Tobacco, Compass Group and Imperial Brands have moved to the downside.

AstraZeneca is down sharply despite the company raising its revenue outlook, saying it expects prescriptions of its Covid therapy to drive sales growth of more than 20 percent this year.

In Paris, Atos, Capgemini, Hermes International, Faurecia, Air France-KLM, Renault, Unibail Rodamco, BNP Paribas, Societe Generale and Valeo are posting strong gains.

Zalando has also moved sharply higher in Germany, while HelloFresh, Infineon Technologies, HeidelbergCement, Brenntag, E.ON, Covestro, Deutsche Bank and BASF have also moved to the upside.

In economic news, data from Destatis showed German economic growth stalled in the second quarter of the year. That compared to expectations of a 0.1 percent uptick. The previous quarter's growth was revised as 0.8 percent versus the preliminary estimate of 0.2 percent growth.

Data from Eurostat showed the Eurozone economy grew 0.7 percent in the June quarter, versus market expectations 0.2 percent. The first quarter's growth was downwardly revised to 0.5 percent.

Annual inflation rate in the Euro Area increased to a new record high of 8.9 percent in July versus 8.6 percent in June, which the markets were expecting.

The seasonally adjusted unemployment rate in Germany also increased to a nine-month high of 5.4 percent in July.

Data released by Insee earlier in the day showed France's second quarter GDP grew 0.5 percent, versus expectations of 0.2 percent growth and the 0.2 percent contraction in the previous period.

Meanwhile, another report from Insee showed annual inflation rate in France increased to 6.1 percent in July from 5.8 percent in June. The reading is the highest since July of 1985 and above the market forecast of 6.0 percent.

U.S. Economic Reports

A report released by the Commerce Department on Friday showed personal income in the U.S. increased by slightly more than expected in the month of June.

The Commerce Department said personal income climbed by 0.6 percent in June following an upwardly revised 0.6 percent advance in May.

Economists had expected personal income to rise by 0.5 percent, matching the increase originally reported for the previous month.

The report also showed personal spending jumped by 1.1 percent in June after rising by an upwardly revised 0.3 percent in May.

Personal spending was expected to advance by 0.9 percent compared to the 0.2 percent uptick originally reported for the previous month.

Meanwhile, a reading on inflation said to be preferred by the Federal Reserve showed the annual rate of core consumer price growth accelerated to 4.8 percent in June from 4.7 percent in May.

At 9:45 am ET, MNI Indicators is scheduled to release its report on Chicago-area business activity in the month of July. The Chicago business barometer is expected to edge down to 55.0 in July from 56.0 in June, although a reading above 50 would still indicate growth.

The University of Michigan is due to release its revised reading on consumer sentiment in the month of July at 10 am ET. The consumer sentiment index for July is expected to be unrevised from the preliminary reading of 51.1, which was up from a record low 50.0 in June.

Stocks In Focus

Shares of Roku (ROKU) are moving sharply lower in pre-market trading after the streaming device maker reported a wider than expected second quarter loss and provided disappointing guidance.

Consumer products giant Procter & Gamble (PG) may also move to the downside after reporting fiscal fourth quarter earnings that missed analyst estimates and forecast results for fiscal 2023 below expectations.

On the other hand, energy giants Exxon Mobil (XOM) and Chevron (CVX) are likely to see initial strength after reporting better than expected quarterly earnings.
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