Marketmind: China falls short and oil ebbs but banks impress
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[July 17, 2023] A
look at the day ahead in U.S. and global markets from Mike Dolan
China's spluttering recovery set the tone for world markets on Monday
after a bumper week of U.S. disinflation news was capped with impressive
bank results and rising consumer confidence.
In what was read as another underwhelming collection of macro updates,
China said its annual economic growth rate picked up to 6.3% in second
quarter, well below the 7.3% forecasts as base-effects offset a firmer
0.8% expansion during the quarter.
Sub-forecast and sharply slowing retail sales growth for June likewise
offset a more upbeat industrial output readout for the months.
Even though the closure of Hong Kong and Tokyo markets on Monday
dampened trading volumes in Asia, Shanghai stocks slipped almost 1% and
the yuan fell back too.
Crude oil prices also retreated sharply below $80 per barrel,
underlining year-on-year declines of more than 20% through mid-July that
help sustain headline disinflation pressures into the second half of the
year.
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And it's that disinflation story, and hopes the Federal Reserve will
deliver a final hike of its 16-month rate rise campaign next week, that
drove Wall St stocks to their best levels in more than a year last week,
with the tech-heavy Nasdaq clocking up its biggest weekly gain since
March.
Two-year U.S. inflation expectations embedded in the Treasury market
fell as low as 1.88% on Friday and held at 1.90% on Monday, well below
the Fed's 2% target.
Surveys showing surging U.S. household confidence in June, as real wage
growth turns positive and jobs remain plentiful, saw a hesitation in
interest rate markets on Friday as Fed officials enter a blackout period
before the July 26 decision.
Even though falling import and export prices in June reinforced the
disinflation picture, two-year Treasury yields recouped some of the
week's steep declines. That, in turn, stalled stock indices slightly in
red at the close on Friday.
Big banks made an impressive start to the Q2 earnings season with profit
beats for the likes of JPMorgan, Citi and Wells Fargo - but red flags
raised about credit and real estate and the impact of tighter regulation
saw their shares slip on the day.
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Traders work on the floor of the New
York Stock Exchange (NYSE) in New York City, U.S., July 11, 2023.
REUTERS/Brendan McDermid/File Photo
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Other major banks such as Bank of America and Morgan Stanley report
on Tuesday, with Tesla and Netflix on Wednesday the first of the
mega cap tech giants to weigh in.
LUXURY FIRMS
U.S. stock futures were little changed ahead of Monday's open, but
two-year Treasury yields edged back lower to 4.72%.
The dollar edged lower again, with the euro briefly hitting its
highest since February last year.
"Peak Fed" speculation has pummeled the dollar again this month,
with hopes that mirrored gains in the euro and sterling will help
blunt hotter inflation pictures there. British June inflation
readings on Wednesday will be critical for UK markets.
The euro trade-weighted index hit its highest level on record on
Friday, surpassing a prior peak from late 2008. Sterling's
equivalent last week hit its highest since before the Brexit
referendum in 2016.
Elsewhere, shares of Richemont dropped nearly 7% after the world's
second-biggest luxury firm reported a miss in its sales and amid the
China growth dampener. Shares of other China-exposed luxury firms
such as LVMH, Hermes and Kering fell between 2% and 2.7%.
G20 finance chiefs met in India, but there appeared to be little
chance of any substantive breakthrough on any major issue in a
fractured grouping containing both G7 powers and Russia and China.
U.S. Treasury Secretary Janet Yellen said she was working with India
on energy transition and "eager" to work with China on debt
workouts.
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Events to watch for later on Monday:
* New York Federal Reserve July manufacturing survey
* G20 finance ministers and central bank governor's meet
* U.S. Treasury sells 3-, 6-month bills
(By Mike Dolan; Editing by Alison Williams; mike.dolan@thomsonreuters.com.
Twitter: @reutersMikeD)
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