Market Analysis

Beyond the Numbers

Upbeat Citigroup Earnings May Generate Continued Buying Interest
7/15/2019 8:52 AM

The major U.S. index futures are currently pointing to a higher opening on Monday, with stocks likely to extend last week’s run to new record highs.

A positive reaction to earnings news from Citigroup (C) may generate some early buying interest, as the financial giant is moving moderately higher in pre-market trading.

Citigroup kicked off the earnings season by reporting second quarter earnings of $1.95 per share compared to analyst estimates for $1.81 per share. The company also reported stronger than expected revenue growth.

Traders may be reluctant to make substantial moves, however, as a slew of other big-name companies are due to report their quarterly results in the coming days.

Goldman Sachs (GS), Johnson & Johnson (JNJ), JPMorgan (JPM), Kraft Heinz (KHC), IBM (IBM), Microsoft (MSFT), and America Express (AXP) are among the companies due to report their results this week.

Closely watched reports on retail sales, industrial production, homebuilder confidence and housing starts are also likely to attract attention over the next few days.

Extending the upward trend seen over the past few sessions, stocks moved mostly higher during the trading day on Friday. With the continued upward move, the major averages all ended the session at new record closing highs.

The major averages saw further upside going into the close, finishing the day at their best levels of the session. The Dow jumped 243.95 points or 0.9 percent to 27,332.03, the Nasdaq climbed 48.10 points or 0.6 percent to 8,244.14 and the S&P 500 rose 13.86 points or 0.5 percent to 3,013.77.

For the week, the Dow surged up by 1.5 percent, while the Nasdaq and the S&P 500 advanced by 1 percent and 0.8 percent, respectively.

The markets continued to benefit from renewed optimism about the Federal Reserve lowering interest rates as soon as its next meeting later this month.

Congressional testimony from Fed Chairman Jerome Powell indicating crosscurrents, such as trade tensions and concerns about global growth, have continued to weigh on the U.S. economic outlook helped spark the resurgence in optimism about a rate cut.

Powell's remarks triggered an upward trend on Wall Street that lifted the Dow above the 27,000 level for the first time ever.

Trading activity was somewhat subdued, however, as traders brace for the unofficial start of earnings season next week.

Citigroup (C), Goldman Sachs (GS), Johnson & Johnson (JNJ), JPMorgan (JPM), Wells Fargo (WFC), IBM (IBM), Netflix (NFLX), Microsoft (MSFT), and American Express (AXP) are among the slew of companies due to report their quarterly results.

Meanwhile, traders largely shrugged off a report from the Labor Department showing U.S. producer prices unexpectedly edged higher in the month of June.

The Labor Department said its producer price index for final demand inched up by 0.1 percent in June, matching the uptick seen in May. Economists had expected producer prices to come in unchanged.

Excluding food and energy prices, core producer prices climbed by 0.3 percent in June after rising by 0.2 percent in May. Core prices had been expected to show another 0.2 percent increase.

"The small gain in producer prices in June suggests the increase in tariffs on $200bn of imports from China has yet to generate a pick-up in inflation and confirms that underlying domestic inflationary pressures remain subdued," said Michael Pearce, Senior U.S. Economist at Capital Economics.

He added, "That should help ease any fears, following the June CPI figures released yesterday, that underlying consumer price inflation will rise back above 2%."

Transportation stocks moved sharply higher over the course of the trading session, driving the Dow Jones Transportation Average up by 2.4 percent. With the jump, the average ended the session at its best closing level in two months.

Significant strength was also visible among semiconductor stocks, as reflected by the 1.9 percent gain posted by the Philadelphia Semiconductor Index.

Chemical, gold and steel stocks also saw notable strength on the day, moving higher along with most of the other major sectors.

On the other hand, pharmaceutical stocks extended the sell-off seen in the previous session, dragging the NYSE Arca Pharmaceutical Index down by 2 percent to its lowest closing level in over a month.

Commodity, Currency Markets

Crude oil futures are rising $0.20 to $60.41 a barrel after inching up $0.01 to $60.21 a barrel last Friday. Meanwhile, an ounce of gold is trading at $1,414.50, up $2.30 from the previous session’s close of $1,412.20. On Friday, gold climbed $5.50.

On the currency front, the U.S. dollar is trading at 107.95 yen compared to the 107.91 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is valued at $1.1266 compared to last Friday’s $1.1270.


Asian stocks ended mixed on Monday after official data showed Chinese GDP growth slowed to 6.2 percent in the second quarter from a year earlier, its weakest pace in at least 27 years amid a prolonged trade war with the United States. The Japanese markets were closed for the Marine Day holiday.

Chinese factory output and retail sales figures offered signs of improvement, helping limit the downside across the region.

Annual industrial production growth advanced more than expected to 6.3 percent in June from 5 percent in May, showing the fastest growth in three months.

Likewise, retail sales grew at a faster pace of 9.8 percent after rising 8.6 percent a month ago. Economists had forecast an 8.5 percent increase for June.

Year-to-date fixed asset investment increased 5.8 percent compared to the 5.6 percent expansion in the January to May period, while property investment logged double-digit growth of 10.9 percent during the January to June period.

China's Shanghai Composite Index gained 11.64 points or 0.4 percent to finish at 2,942.19 after reports the U.S. may start approving licenses to certain companies to start selling specific Huawei products in the next two or three weeks. Hong Kong's Hang Seng Index rose 83.26 points or 0.3 percent to 28,554.88.

Meanwhile, Australian markets ended off their day's lows on expectations that Beijing will continue to roll out more support measures in coming months.

The benchmark S&P/ASX 200 Index ended down 43.50 points or 0.7 percent at 6,653, while the broader All Ordinaries Index dropped 42.60 points or 0.6 percent to 6,746.20.

Financials fell, with the big four banks ending down between half a percent and 1 percent. Wealth manager AMP slumped 15.8 percent after scrapping its interim dividend and saying the $3.3 billion sale of its life insurance arm to a foreign buyer was unlikely to proceed.

Mining giant Rio Tinto rose 0.4 percent and smaller rival Fortescue Metals Group advanced 0.7 percent after iron ore prices clocked their best week in three on supply concerns.

Seoul stocks fell after the release of the mixed Chinese data and uncertainties over a trade dispute with Japan. The benchmark Kospi dipped 4.18 points or 0.2 percent to 2,082.48, snapping a three-day winning streak.

Automaker Hyundai Motor fell 1.1 percent and Samsung BioLogics, a biopharmaceutical affiliate of Samsung Group, shed 1.7 percent, while chipmaker SK Hynix rallied 2 percent.


European stocks have moved to the upside over the course of the trading session as traders react to the mixed Chinese data and the start of earnings season in the U.S.

While the French CAC 40 Index has risen by 0.2 percent, the U.K.’s FTSE 100 Index and the German DAX Index are both up by 0.5 percent.

LafargeHolcim has moved modestly higher on the day after agreeing to buy Romanian precast producer Somaco from ORESA.

Miners have also moved to the downside as an easing of an export ban by the U.S. on Chinese communication technology provider Huawei and the resumption of U.S.-China trade talks has bolstered commodity prices.

On the other hand, Sports Direct International has slumped after the sports-apparel retailer delayed publishing its results.

Anheuser-Busch InBev has also moved to the downside. The company said on Friday it would not proceed with an IPO of its Asia Pacific unit Budweiser Brewing Company APAC Ltd. on the Hong Kong Stock Exchange.

U.S. Economic Reports

After reporting an unexpected contraction in regional manufacturing activity in the previous month, the Federal Reserve Bank of New York released a report on Monday showing activity rebounded modestly in the month of July.

The New York Fed said its general business conditions index climbed to 4.3 in July from a negative 8.6 in June, with a positive reading indicating growth in regional manufacturing activity. Economists had expected the index to rise to a positive 2.0.

The bigger than expected rebound by the general business conditions index came after it recorded its first negative reading in over two years in the previous month.

Stocks In Focus

Shares of Galapagos (GLPG) are moving sharply higher in pre-market trading after Gilead Sciences (GILD) agreed to invest $5.1 billion in the biotechnology company as part of a 10-year global research and development collaboration.

Carrizo Oil & Gas (CRZO) is also seeing significant pre-market strength after agreeing to be acquired by Callon Petroleum (CPE) in an all-stock transaction valued at $3.2 billion.

On the other hand, shares of Molson Coors (TAP) may see initial weakness after Bank of America/Merrill Lynch downgraded its rating on the brewing giant to Underperform from Buy.
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