Markets await data and more US bank earnings

Updated July 15, 2022

Headlines

*China’s economy expands at slowest pace since Wuhan outbreak

*Dollar pares gains as odds of 100bp Fed rate hike drop

*Gold set for longest run of weekly losses since 2018 on dollar strength

*Asian shares mixed as weak China hardens growth worries

USD was in a “game of two halves”, making a new top at 109.29 in the European session. But the greenback fell back later in the day. It closed at 108.62 where it currently trades. EUR dropped to a new low at 0.9952 before bouncing above parity. GBP closed lower at 1.1826 while USD/JPY broke north to a new multi-year high at 139.38. The Anitpodeans made fresh cycle lows. USD/CAD spiked higher through strong resistance to 1.3223 before closing at 1.3116.

US equities closed marginally lower after climbing gradually through the day. A disappointing start to Q2 bank earnings didn’t initially help the mood of investors. The S&P500 fell 0.30% while the Nasdaq closed in the green, up 0.34%. Asian stocks are generally mixed with the broad MSCI index hitting a two-year low in early trade. US futures are also mixed to finish the week with eyes on US Retail Sales data out later today.  European markets have opened in positive territory.

Day Ahead – Earnings season kicks off

How inflation is impacting businesses will be key in the current Q2 earnings season. First up we get major bank results. Equity analysts expect steep plunges of year-on-year profits as companies grow their loan loss reserves, fuelling fears of impending recession. JP Morgan earnings fell short of expectations yesterday for this very reason.

CEO Jamie Dimon warned high inflation and waning consumer confidence could hurt the economy “sometime down the road” even as rising rates and volatility help certain areas. JPM is the biggest US bank by assets and is a closely watched bellwether for the banking sector. Wells Fargo and Citigroup report today with Bank of America and Goldman Sachs slated for Monday.

Chart of the Day – Nasdaq tracking sideways

We get tech company results next week with Netflix and Tesla set to report om Tuesday and Wednesday. The (very) big tech companies like Microsoft, Meta and Amazon release earnings in the following weeks. Many of these companies generate the biggest percentage of their sales outside the US. This means this year’s 11% rise in the US dollar will impact sales and profits.

The Nasdaq has been in a broad bearish channel since the highs at the end of last year. We tapped the bottom of this in June and have bounced mildly since. The 50-day SMA at 12,072 capped the upside recently. Initial support is 11,322 ahead of the low at 11,037. We are currently trading at the midpoint of the pandemic lows and all-time highs at 11,768.

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