Markets were quiet overnight ahead of the Netflix earnings report after the bell this morning and Fed Chair Powell’s testimony to the Senate tonight.
Volatility remains subdued across bonds, equities and currencies with the market seemingly in “summer mode”. The major market mover has been oil, which is down more than 4% on reports that Saudi Arabia is offering more supply to some Asian customers (following through on its pledge to increase production for OPEC) while speculation continues to swirl that the US is considering releasing barrels from its Strategic Petroleum Reserve ahead of the US mid-term elections. This follows news last week that Libyan supply was set to resume after ports were re-opened. Brent crude fell to its lowest level since April although it still remains up almost 7% this year.
Most major equity markets are slightly lower on the day, with the S&P500 down 0.2% and the NASDAQ down 0.4%. The financial sector is boosting US equities after Bank of America beat earnings expectations, following the lead of JPM and Citi on Friday. Energy stocks have weighed on the broader index amid the declines in oil prices. Netflix’s earnings will be the focus in the session ahead (it reports after the bell later this morning). 86% of companies have beaten earnings expectations so far this quarter (5.7% of companies have reported so far), although the subdued market reaction to the stellar earnings results last quarter was a reminder that market expectations can sometimes run ahead of analysts.
US yields are up slightly on the day, with the 10 year Treasury yield up 2bps to 2.85%. US data was a mixed bag, with core retail sales disappointing expectations but prior months revised up. The Atlanta Fed GDPNow estimate of Q2 growth (released next week) rose from 4.1% to a very healthy 4.5% after the retail sales release, with the upward revisions dominating. The US 10 year yield has been in an exceptionally narrow 7bp range for the past three weeks, underlining the recent period of subdued volatility. In FX, the US dollar is generally weaker on the day despite the increase in US rates, with the various USD indices down between 0.1 to 0.2%.
The focus shifts to Fed Chair Powell’s semi-annual address to the Senate tonight where he is certain to be grilled by lawmakers about how an escalation in trade tensions would be expected to affect the economy and the Fed rate outlook. A September rate rise is nearly 90% priced, so the market will be looking for guidance beyond this point.
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