U.S. Stock Futures Climb Amid Earnings Anticipation: Markets Wrap

Jul 19, 2022

(Bloomberg) US equity futures advanced as investors assessed the outlook for corporate earnings and global growth amid Europe’s deepening energy crisis. The dollar fell against all its Group of 10 peers.

Contracts on the Nasdaq 100 and S&P 500 climbed 0.9% after early-week gains unravelled Monday on Apple Inc.’s plans to slow hiring to brace for a potential economic downturn. The Stoxx Europe 600 traded little changed after erasing an earlier loss.

Signs that high inflation and monetary tightening are squeezing consumers and employment could feed into worries that an equity revival since mid-June is merely brief. Corporate updates such as Apple’s are helping markets to calibrate the risk of recession. Netflix Inc., Johnson & Johnson and Lockheed Martin Corp. headline another busy day for earnings.

“Inflation and its detrimental effect on consumers’ pockets and corporate margins is yet to be fully seen,” Mizuho International Plc strategists Peter McCallum and Evelyne Gomez-Liechti wrote in a note to clients. “Until then, we don’t expect investors to feel properly comfortable buying on dips other than in the most defensive names.”

Investor allocation to stocks plunged to levels last seen in October 2008 while exposure to cash surged to the highest since 2001, according to Bank of America Corp.’s monthly fund manager survey.

Meanwhile, the euro rose to its highest level in about two weeks after Bloomberg News reported the European Central Bank may consider raising interest rates on Thursday by double the quarter-point outlined previously to counter worsening inflation.

German bunds fell, while benchmark Treasuries traded little changed after paring gains following the report.

Markets are pricing in about 38 basis points of tightening on Thursday, when the ECB is expected to raise rates for the first time in more than a decade. That reflects about a 50/50 chance of a 50-basis point increase. An outsized hike would put the ECB more in line with global peers moving up their policy rates at warp speed.

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The ECB is under pressure to subdue inflation, but the potential for a Russian gas shutdown could plunge Europe into recession. The European Union is preparing to tell members to cut gas consumption “immediately” to preserve supplies for winter, according to a report.

European stocks could slump another 10% if Russia cuts off gas to the region, triggering a recession, according to Citigroup Inc. strategists. A halt of Russian gas supplies could potentially reduce the euro area’s gross domestic product by about 1%, which would imply a 10% contraction in European earnings-per-share over the next 12 months, according to Citi.

Oil slipped but held above $100 a barrel after posting the biggest one-day advance since May, aided by a tightening market and a cooling in dollar gains.

How high will the Fed go in this hiking cycle? Will it use the balance sheet and will it avoid tipping the US economy into a recession? It takes one minute to participate in the MLIV Pulse survey, so please click here to get involved anonymously.

Key events to watch this week:

Earnings this week include Netflix, Tesla
US Treasury Secretary Janet Yellen visits South Korea. Tuesday
Reserve Bank of Australia releases July minutes. Tuesday
UK Chancellor Nadhim Zahawi and Bank of England Governor Andrew Bailey speak at event. Tuesday
Bloomberg Crypto Summit in New York. Tuesday
Bank of Japan, European Central Bank rate decisions. Thursday
Nord Stream 1 pipeline scheduled to reopen following maintenance. Thursday

Some of the main moves in markets: