North American Morning Briefing: Apple, Amazon Gains to Lift Broader Stocks

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MARKET WRAPS

Watch For:

Personal Income & Outlays for June; Employment Cost Index for 2Q; Chicago Business Barometer — ISM-Chicago Business Survey — Chicago PMI for July; University of Michigan Final Consumer Survey for July; Canada GDP for May; earnings from Chevron, Exxon Mobil, Procter & Gamble, Enbridge

Opening Call:

Stock futures were higher on Friday after Apple and Amazon reported record strong quarterly earnings.

Powered by after-hours gains from the two tech giants, which together combine for a market capitalization of about $3.79 trillion, Nasdaq was leading its peers heading into Friday’s session.

Even as earnings season progresses and investors look for insights in other sources, like Federal Reserve commentary and Thursday’s GDP estimate, the economic picture isn’t clear.

The GDP reading, which showed a second straight quarterly contraction, would conventionally suggest that the economy had entered a recession; however, other parts of the economy, particularly the labor market, remain very sturdy.

The National Bureau of Economic Research, which officially determines the timing and duration of recessions, hasn’t called a recession, but would likely only do so long after one has begun.

Pantheon Macroeconomics Chief Economist Ian Shepherdson put it simply in a Thursday memo: “The economy is not in recession. Payroll growth averaged 456K across the first half, a pace usually not seen even at the peak of booms.”

Friday’s Personal Income & Outlays report will include June readings for the personal-consumption expenditures price index, the Fed.’s preferred gauge of inflation.

The core version of this index, which strips out the more volatile food and energy categories, is expected to rise 4.7% from a year ago, which would be equivalent to May’s 4.7% annual growth rate, according to 12 economists surveyed by The Wall Street Journal.

An update to the index could test markets’ recent optimism with Jerome Powell.

Morgan Stanley economists, for example, wrote that they continue to envision a “steep path for rate increases this year” after Wednesday’s 0.75-point increase. They also believe the “pace of tightening going forward will be highly data-dependent,” suggesting the new inflation data Friday could assume extra importance.

The CME FedWatch Tool currently estimates a 74% chance of an increase of 50 basis points, or half a percent, when the FOMC makes its next move in late September. The tracker assigns a probability of 26% to a 75-basis-point raise.

The University of Michigan’s final consumer sentiment report for July also comes out at 10 a.m. Friday. Economists polled by the Journal anticipate a reading of 51.1, which would be in line with the month’s preliminary reading but still nearly 40% off the index’s value from a year ago.

Overseas, the pan-European Stoxx 600 was 0.9% higher while Hong Kong’s Hang Seng Index tumbled 2.3%. Chinese stocks were weaker after economic warnings from the country’s commerce ministry, including caution on risks to trade.

Forex:

The dollar fell to a more-than-3-week low against a basket of currencies in further reaction to Thursday’s GDP data.

MUFG said the data caused market participants to reduce expectations for rises in U.S. interest rates. But a strong ECI, which hit a record high in the first quarter, “could cast some doubt on the markets’ expectation for less hawkish Fed policy and provide some relief for the dollar.”

Energy:

Oil prices gained around 2% in European trading and are on course for a 5% weekly gain.

Brent crude has been choppy in recent days but appears to have stabilized around the $100 a barrel level. Prices might well remain at that level for the remainder of the year, said Natixis. It has forecast $110 a barrel for the third quarter and $105 a barrel in the fourth quarter.

Recessionary fears will weigh on prices and put off speculative investors, Natixis said. 2023 could see tightness return to the market as the EU’s ban on Russian crude oil imports takes effect.

“Oil prices are likely to reaccelerate in 2023.”

Metals:

Copper prices rose as risk assets gained in Europe on hopes that weak U.S. data would make the Fed ease off its hiking cycle.

Still, the red metal is on course for a 4.8% monthly decline. That would be its fourth straight monthly fall as fears about recession and a strong dollar have weighed on the metal.

“Bad news is good! Powell did say the next hike will be data-dependent; will this [U.S. GDP] be a leading indicator to a moderating Fed path?” said SPI Asset Management.

   
 
 
   
 
 

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July 29, 2022 05:18 ET (09:18 GMT)

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