Opening Bell: Raw Materials, Crude Lead Global Equities Higher
Investing.com | Jul 26, 2017 06:35AM ET
by Pinchas Cohenh2 Key Events/h2
- FOMC on second day of policy meeting
- Trump Jr., Manafort appear before Senate
- Oil has best rally since November, providing a better short entry
- Ford, Coca-Cola, Hershey, PayPal and Whole Foods release earnings reports
After yesterday's mixed Asian and European markets, investors drove up US stocks on upbeat earnings reports from McDonald’s (NYSE:MCD) and Caterpillar (NYSE:CAT). The S&P 500 closed at a record even as Alphabet (NASDAQ:GOOGL) dragged the tech sector down.
Meanwhile, bonds fell more than they had in months, ahead of the FOMC meeting, causing banks to advance on rising sovereign debt yields and a rally in copper via miners. Ironically, the tech sector fell just one day after it was largely responsible for preventing a broader decline in the market.
h2 Global Affairs/h2The euro reached its near-two year high, after German business confidence beat expectations with a rise to 116.0 instead of falling to 14.9, a record. According to the Institute for Economic Research, a Munich-based think tank, the business climate in Germany, Europe’s economic engine, improved for a sixth month in July. This reading, however, is at odds with the latest economic indicators.
Both Germany’s manufacturing and service output declined to their lowest levels, and the eurozone is experiencing its slowest pace of growth over the previous six months. As proof, its Composite PMI fell to 55.8 in July from 56.3. However, German business confidence has risen to its highest level over the same six month period.
Looking ahead, Germany's stock index fell to three-month lows this week amid fears that a strong euro would hit export-reliant firms.
How does an investor interpret this apparent dichotomy? Can the data be flawed, or if it’s correct, are investors still bullish because the EU is experiencing its fastest and most robust growth since the 2008 crash? If that’s so, might this be a case of irrational exuberance, signifying classic market-top psychology?
The CBOE Volatility Index, the VIX, known as Wall Street’s “Fear Gauge," measures the implied volatility of S&P 500 options. Fear, or the lack thereof, is very contagious in a global economy. Yesterday, the VIX closed below 10 for an eighth straight day, settling at 9.43, but not before reaching 9.04 intraday. This is only 13 points above its record low, when it reached 9.30 on December 22, 1993, and extremely close to its all-time low of 8.89 on December 29, 1993.
It has been argued that an extreme low read on the VIX suggests complacency, which increases downside risk. Others argue that implied volatility and fear have been decoupled, due to extremely low volume. However, extremely low volume on a record high may actually suggest that demand is running dry and a large correction may be impending, if not a full-fledged bear market.
h3 Oil/h3
Get The News You Want
Oil surged 4.5-percent in, its biggest rally since it rose 9.3-percent on November 29, after Saudi Arabia announced it will deepen crude export cuts. Even after Monday's St. Petersburg meeting, Nigeria and Libya, the two countries that were the focus of the recent glut, are still exempt from these limitations.
This is the second time that oil has rallied, after it entered a bear market. From a technical standpoint, oil is in a downtrend. As long as the price doesn’t rise above $50 a barrel, but still continues to climb, the better the risk-reward ratio will be for a short.
h2 The Market Today/h2The rally in oil, as well as copper—which broke out of a consolidation, solidifying a bottom since its 2011 top—along with other commodities, gave a boost to producers of raw materials, even with a rising dollar.
The rising dollar-demand is positively correlated with a lower demand for bonds, ahead of the Fed’s second-day policy meeting.
Stocks continued to rally today, after yesterday Caterpillar and McDonald’s beat their earnings expectations. Equities in Asia and Europe also continued to climb, led by energy shares which were ignited by oil’s strongest rally since November, after rising above $48 a barrel for the first time since early June, and copper extended its gains on a higher outlook for Chinese demand.
While Caterpillar’s share price surged almost 6 percent to $114.54, overcoming its July, $11.46 peak, it couldn’t overcome its $116.95 all-time high from February 2012.
h3 Wall Street Fueled by Earnings Despite Lukewarm Data/h3While investors have been disappointed time and again, as almost all the US economic data disappointed this year, more than 80 percent of the S&P 500’s earnings have beaten expectations. These earnings beats are supporting optimism about the global economy and reducing volatility to fresh record lows.
h2 Up Ahead/h2 h3 Huge Dollar-Volatility Potential/h3- 9:45: US - Markit Services PMI (July, flash): expected to fall to 53.1 from 54.2.
- 10:00: US - New Home Sales (June): expected to slide to an annual rate of 580K from 610K.
- 14:00: The FOMC concludes their rate decision meeting, which is expected to remain unchanged. Investor focus is on the timing of its balance sheet unwinding. According to a Bloomberg survey of 41 economists, the majority believe that this will happen in September, while the Fed will wait until December to raise interest rates again.
- President Donald Trump’s son-in-law Jared Kushner and former campaign Chairman Paul Manafort will appear before Senate committees today, which could create huge dollar volatility.
- 10:30: US - EIA Crude Inventories (w/e 21 July): expected to see a 1-million-barrel drop, after a fall of 4.7 million a week earlier. Markets to watch: Brent, WTI
The aeronautics giant Boeing (NYSE:BA) is scheduled to report earnings before market open, for the fiscal quarter ending June 2017. Consensus EPS forecast for the quarter is $2.32 versus $-0.44.
The stock is going straight up, on a string of all-time highs.
The soft drink manufacturer Coca-Cola Company (NYSE:KO) is expected to report earnings before market open, for the fiscal quarter ending June 2017. Consensus EPS forecast for the quarter is $0.57 versus $0.6 YoY.
The stock has fallen out of its February uptrend line on June 29. After nearing $44 on July 11 it has started a return move, which appears to be toward the top of a new falling channel.
Auto manufacturer Ford Motor Company (NYSE:F) is scheduled to report earnings before market open, for the fiscal quarter ending June 2017. Consensus EPS forecast for the quarter is $0.45 versus $0.52 YoY.
After down-trending since July 2017, the stock seems to have completed a Rounding Bottom. It is difficult to determine an absolute reversal-line, as it is a rounded pattern. The price had returned to the support of the new, rising trend, and the 50 dma, providing an ideal long entry from a risk-reward perspective.
The candy maker Hershey (NYSE:HSY) is scheduled to report earnings before market open. Consensus forecasts $0.91 EPS versus $0.85 YoY.
Online payment company PayPal (NASDAQ:PYPL) is scheduled to report earnings after market close, with a consensus EPS forecast of $0.32 versus $0.3 YoY.
The stock is at the top of its congestion since July 13. It suggests that while investors are holding onto the stock, they’re afraid to take it higher before they see the numbers. All things being equal, the price is pushing against its resistance and has a downward bias towards $56.
Health food supermarket chain Whole Foods (NASDAQ:WFM) is scheduled to report earnings after market close, with the consensus EPS of $0.34 versus $0.37 YoY.
On June 16, the price surged up 9.25%, after Amazon (NASDAQ:AMZN) acquired it for $42 per share, all-cash, at a value of $13.7b, including its debt. That’s a statement of faith by one of the biggest e-tailers on the planet.
h3 Market Moves/h3Stocks
- The Stoxx Europe 600 rose 0.3 percent as of 8:15 a.m. in London, after climbing 0.4 percent on Tuesday.
- Japan’s TOPIX rose 0.2 percent.
- Australia’s S&P/ASX 200 Index added 0.9 percent.
- South Korea’s KOSPI fell 0.2 percent.
- Hong Kong's Hang Seng gained 0.3 percent.
- China's Shanghai Composite added 0.1 percent.
- S&P 500 futures were little changed. The underlying gauge added 0.3 percent to close at a record high on Tuesday.
- The Dow Jones Industrial Average rose 100.26 points to finish just shy of its record from July 19. McDonald’s and Caterpillar added at least 4 percent to the pace of gains.
Currencies
- The Aussie fell 0.6 percent to 78.90 after the release of inflation figures and a speech by Reserve Bank of Australia Governor Philip Lowe. Australia’s second-quarter headline inflation rose less than expected from a year earlier. Lowe said his moves by his global counterparts to withdraw stimulus from their economies “has no automatic implications” for policy Down Under.
- The Dollar Spot Index rose 0.1 percent, reversing an earlier loss as the euro declined. The euro fell 0.1 percent to $1.1637, though it is still near its highest level in almost two years after German business confidence data beat expectations.
- The yen was little changed at 111.92 per dollar after declining 0.7 percent on Tuesday. This is its first retreat in more than a week.
Commodities
- West Texas Intermediate crude rose 1 percent to $48.37, extending Tuesday’s 3.3 percent surge, its largest jump since November. Crude inventories declined by 10.2 million barrels last week in an American Petroleum Institute report released Tuesday, people familiar with the data said.
- Copper rose 1.3 percent, extending a rally that lifted it to its highest level in more than two years. The metal for three-month delivery in London is on course for its biggest two-day gain since February.
Bonds
- The yield on 10-year Treasuries was at 2.32 percent, down two basis points, after surging eight basis points in the previous session.
- Germany’s 10-year bund yield was down one basis point, to 0.55 percent, after rising six basis points on Tuesday.
- 10-year Australian government notes saw yields climb four basis points to 2.73 percent.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.