Marketmind: After The Storm

A look at the day ahead from Sujata Rao.

To sum up Monday’s price action: oil prices fell $6 a barrel, world stocks lost $1.5 trillion in value and U.S. 10-year Treasuries fell 10 basis points — at 1.18% they were some 60 bps off this year’s highs hit in March.

While selling continued in Asia, a bit of calm has returned. European and Wall Street indexes are tipped to open firmer, Treasury yields are back above 1.20%.

Still, the question remains — with COVID casting a dampener on the growth bounceback, how will central banks react?

Markets now see a December 2022 rate hike by the Federal Reserve as less likely and no longer fully price a January 2023 move either. Australia’s central bank, which trimmed its stimulus scheme earlier this month, said the economic outlook had since darkened.

Bright spots? Some. With “real” bond yields — the yield once inflation is stripped out — at minus 1% in the United States and minus 1.6% in Germany, equities look like a pretty good bet.

Second-quarter earnings may mark peak bounceback from last year’s funk but they look pretty good, with U.S. estimates revised to 72%, from 54% before the season kicked off.

In Europe, UBS reported a 63% profit jump, Remy Cointreau doubled quarterly sales and an earnings beat from IBM late on Monday sent its shares up 3% after-hours.

Dealmaking too continues apace — from UK grocer Morrisons to LVMH, which plans to buy 60% of the Off-White streetwear label. Netflix will be the first of the FAANGs to report later in the day.

Key developments that should provide more direction to markets on Tuesday:

– China keeps key lending rate for corporate and household loans unchanged despite some expectations for a cut

– Japanese CPI up 0.2% in June from a year earlier, fastest annual pace in over a year as commodity prices bit

– Auction: UK 50-year gilts reopening

– Data: Philadelphia Fed survey for July, German PPI

– U.S. earnings: Halliburton, Philip Morris, Netflix, United Airlines, Chipotle

– European earnings: Ubisoft, Kone, Volvo, Easyjet, Volvo, Electrolux, Remy Cointreueau, Alfa Laval, Alstom, Telenor, UBS

 

Graphic; Dividend yield vs Treasury yield – https://fingfx.thomsonreuters.com/gfx/mkt/zjpqkqqwmpx/Pasted%20image%201626764307471.png

(Reporting by Sujata Rao; editing by Dhara Ranasinghe)