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Beyond the Numbers

Disappointing Amazon Results May Weigh On Tech Stocks
7/30/2021 8:52 AM

The major U.S. index futures are currently pointing to a lower open on Friday, with the tech-heavy Nasdaq 100 futures showing a significant move to the downside.

A steep drop from Amazon (AMZN) is likely to weigh on the tech sector, with the online retail giant plunging by 7 percent in pre-market trading.

The downward momentum for Amazon comes after the company reported second quarter earnings that beat expectations, but its revenues missed estimates for the first time since the third quarter of 2018.

On the other hand, Procter & Gamble (PG) may move to the upside after reporting better than expected fiscal fourth quarter results, although the consumer products giant also warned about the impact of higher input costs.

Shares of Exxon Mobil (XOM) and Chevron (CVX) could also see initial strength after the energy giants reported quarterly results that exceeded analyst estimates on both the top and bottom lines.

Following the mixed performance seen on Wednesday, stocks moved mostly higher during trading on Thursday. With the upward move on the day, the Dow and the S&P 500 set new record intraday highs.

The major averages pulled back off their best levels in afternoon trading but managed to remain positive. The Dow climbed 153.60 points or 0.4 percent to 35,084.53, the Nasdaq inched up 15.68 points or 0.1 percent to 14,778.26 and the S&P 500 rose 18.51 points or 0.4 percent to 4,419.15.

The strength on Wall Street came despite the release of some disappointing U.S. economic data, including a report from the Commerce Department showing economic growth fell well short of estimates in the second quarter.

The weaker than expected data may have added to optimism the Federal Reserve will not be in a hurry to begin scaling back its asset purchases.

On Wednesday, the Fed noted progress has been made towards the central bank's maximum employment and price stability goals, although Fed Chair Jerome Powell noted there is still "some ground to cover on the labor market side."

The Commerce Department said real GDP surged up by 6.5 percent in the second quarter following a 6.3 percent jump in the first quarter. Economists had expected GDP to spike by 8.5 percent.

The GDP growth in the second quarter reflected increases in consumer spending, non-residential fixed investment, exports, and state and local government spending.

However, decreases in private inventory investment, residential fixed investment, and federal government spending limited the upside along with an increase in imports, which are a subtraction in the calculation of GDP.

"The good news is that the economy has now surpassed its pre-pandemic level," said Paul Ashworth,
Chief U.S. Economist at Capital Economics.

He added, "But with the impact from the fiscal stimulus waning, surging prices weakening purchasing power, the delta variant running amok in the south and the saving rate lower than we thought, we expect GDP growth to slow to 3.5% annualized in the second half of this year."

Meanwhile, the Labor Department released a report showing a modest pullback in initial jobless claims in the week ended July 24th.

The report said initial jobless claims dipped to 400,000, a decrease of 24,000 from the previous week's revised level of 424,000.

Economists had expected jobless claims to drop to 380,000 from the 419,000 originally reported for the previous week.

The National Association of Realtors also released a report showing an unexpected pullback in pending home sales in the month of June.

NAR said its pending home sales index tumbled by 1.9 percent to 112.8 in June after soaring by 8.3 percent to a revised 115.0 in May.

The pullback surprised economists, who had expected pending home sales to edge up by 0.3 percent compared to the 8.0 percent spike originally reported for the previous month.

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.

Steel stocks showed a substantial move to the upside, driving the NYSE Arca Steel Index up by 3 percent to its best closing level in well over two months.

Significant strength was also visible among housing stocks, as reflected by the 2.8 percent spike by the Philadelphia Housing Sector Index.

Gold stocks also saw considerable strength on the day, resulting in a 2.5 percent jump by the NYSE Arca Gold Bugs Index. The rally by gold stocks came amid a sharp increase by the price of the precious metal.

Semiconductor and networking stocks also showed strong moves to the upside, while some weakness emerged among airline and biotechnology stocks.

Commodity, Currency Markets

Crude oil futures are slipping $0.11 to $73.51 a barrel after jumping $1.23 to $73.62 a barrel on Thursday. Meanwhile, after spiking $31.20 to $1,835.80 an ounce in the previous session, gold futures are falling $4.90 to $1,830.90 an ounce.

On the currency front, the U.S. dollar is trading at 109.68 yen versus the 109.48 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1884 compared to yesterday’s $1.1887.

Asia

Asian stocks fell on Friday, as concerns about the fast-spreading Delta variant and regulatory actions in China outweighed optimism around corporate earnings.

Chinese shares ended lower amid fears of a foreign investor exodus. The benchmark Shanghai Composite Index slipped 14.37 points, or 0.4 percent, to 3,397.36, while Hong Kong's Hang Seng Index ended down 354.29 points, or 1.4 percent, at 25,961.03.

Japanese shares hit over six-month lows amid earnings disappointments and concerns over the economic recovery due to virus flare-ups. The Nikkei 225 Index slumped 498.83 points, or 1.8 percent, to 27,283.59, marking its biggest decline since June 21 and the lowest close since January 6.

The broader Topix finished down 1.4 percent at 1,901.08 as the government proposed states of emergency in three prefectures near Olympic host city Tokyo as well as Osaka Prefecture through August 31.

Sumitomo Dainippon Pharma plummeted 10.8 percent after posting lower than expected earnings. Fuji Electric, Astellas Pharma and Fujitsu also tumbled 8-9 percent after reporting their financial results.

Meanwhile, shipping companies gained ground, with Mitsui OSK Lines rallying 12.3 percent, Nippon Yusen climbing 6.9 percent and Kawasaki Kisen rising 6.4 percent.

In economic news, industrial output and retail sales figures for June beat expectations, while the jobless rate in Japan came in at a seasonally adjusted 2.9 percent in the month.

Australian markets ended lower amid worries about a spike in COVID-19 cases in the most populous state of New South Wales.

The benchmark S&P/ASX 200 Index dropped 24.80 points, or 0.3 percent, to 7,392.60, while the broader All Ordinaries Index ended down 31 points, or 0.4 percent, at 7,664.20.

Tech stocks succumbed to selling pressure, with Appen losing 3.7 percent and Afterpay falling 5.3 percent.

Origin Energy plunged 7.9 percent after the power and gas retailer issued a grim outlook for its core earnings in its energy markets business. Rival AGL Energy declined 4 percent to hit a record low.

Banks ended narrowly mixed, while miners fell broadly despite copper prices reaching record highs. NAB rose 0.6 percent after announcing a $2.5 billion share buyback.

In economic news, central bank data showed that private sector credit in Australia was up 0.9 percent month-on-month in June, accelerating from 0.4 percent in May.

Seoul stocks fell sharply as rising uncertainties related to China's clampdown on its tech firms promoted investors to cash in on recent gains. The benchmark Kospi fell 40.33 points, or 1.2 percent, to close at 3,202.32, marking the index's largest daily drop since May 13.

Chipmaker SK Hynix dropped 1.3 percent, automaker Hyundai Motor shed 1.8 percent and pharmaceutical firm Samsung Biologics lost 2.3 percent.

Industrial output in South Korea expanded a seasonally adjusted 2.2 percent sequentially in June, Statistics Korea said earlier in the day. That beat expectations for an increase of 1.0 percent following the downwardly revised 1.0 percent contraction in May.

Separate data showed the value of retail sales in the country rose a seasonally adjusted 1.4 percent month-on-month in June- beating expectations for an increase of 1.2 percent following the 1.9 percent contraction in May.

The Economic Sentiment Index - a composite of the Bank of Korea's business and consumer surveys - came in at 103.9 in July, down from 109.4 in June.

Europe

European stocks have retreated on Friday as Amazon reported disappointing earnings and fresh losses in Chinese markets stirred debates about China's policy risks.

Meanwhile, the euro area economy recovered in the second quarter, the preliminary flash estimate published by Eurostat showed.

Gross domestic product expanded 2 percent sequentially, reversing the 0.3 percent drop posted in the preceding period. The growth rate was bigger than the expected 1.5 percent.

On a yearly basis, GDP rebounded 13.7 percent after shrinking 1.3 percent in the first quarter. GDP was forecast to grow 13.2 percent.

Eurozone inflation accelerated more than expected in July, largely driven by higher energy prices, flash data from Eurostat showed. Inflation rose to 2.2 percent in July from 1.9 percent in June. The rate was above the expected 2 percent.

While the French CAC 40 Index has dipped by 0.2 percent, the U.K.’s FTSE 100 Index and the German DAX Index are both down by 0.8 percent.

Miners Anglo American, Antofagasta and Glencore have declined amid mounting concerns about harsh regulation on a range of private companies in China.

NatWest Group has also fallen even as the bank returned to a profit and announced plans for a fresh round of dividends and share buybacks.

Intertek has also slumped despite the assurance and product testing group reporting a rise in first-half profits.

British Airways-owner IAG has also moved sharply lower after it plunged to a €2 billion (£1.7 billion) half year loss.

BNP Paribas has edged down. The French lender reported a 26 percent rise in net income in the second quarter and said it will pay shareholders an additional dividend.

Automaker Renault has also declined. The company said the supply chain issue and rising raw material prices could curb further recovery in profitability this year.

Airline Air France has also moved to the downside despite narrowing its loss for the second quarter.

Healthcare company Fresenius has tumbled despite posting better than expected second-quarter results and raising its 2021 earnings guidance.

On the other hand, luxury glasses maker EssilorLuxottica has jumped after raising its full-year guidance.

Publishing company Pearson has also rallied. The company raised its interim dividend after reporting improved sales across all arms of its business in its latest half-year.

Italian lender UniCredit has also moved sharply higher after reporting a higher than expected net profit.

U.S. Economic Reports

Personal income in the U.S. expectedly saw a slight increase in the month of June, according to a report released by the Commerce Department on Friday.

The report showed personal income inched up by 0.1 percent in June after tumbling by a revised 2.2 percent in May.

The uptick surprised economists, who had expected personal income to dip by 0.3 percent compared to the 2.0 percent slump originally reported for the previous month.

Meanwhile, the Commerce Department said personal spending jumped by 1.0 percent in June after edging down by a revised 0.1 percent in May.

Economists had expected personal spending to increase by 0.7 percent compared to the unchanged reading originally reported for the previous month.

The report also showed the annual rate of core consumer price growth crept up to 3.5 percent in June from 3.4 percent in May.

At 9 am ET, St. Louis Federal Reserve Bank President James Bullard is due to speak on the U.S. economy and monetary policy before a European Economics and Financial Centre Virtual Event via Zoom.

MNI Indicators is scheduled to release its report on Chicago-area business activity in the month of July at 9:45 am ET. The Chicago business barometer is expected to come in unchanged at 66.1, with a reading above 50 indicating growth.

At 10 am ET, the University of Michigan is due to release its revised reading on consumer sentiment in the month of July. The consumer sentiment index is expected to be unrevised at 80.8.

Federal Reserve Board Governor Lael Brainard is scheduled to speak on “Rebuilding the Post-Pandemic Economy” before an Annual Meeting of the Aspen Economic Strategy Group at 8:30 pm ET.

Stocks In Focus

Shares of Pinterest (PINS) are plummeting in pre-market trading after the image-sharing website operator reported better than expected second quarter earnings and revenues but a quarterly decline in monthly average users.

Construction equipment manufacturer Caterpillar (CAT) is also seeing pre-market weakness despite reporting second quarter results that exceeded analyst estimates on both the top and bottom lines.

On the other hand, shares of Capri Holdings (CPRI) are likely to see initial strength after the Michael Kors and Versace parent reported better than expected fiscal first quarter results and provided upbeat guidance.

Restaurant Brands (QSR) may also move to the upside after the parent of Tim Hortons, Popeyes and Burger King reported second quarter results that exceeded analyst estimates.
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