Top Things to Know Today - page 19
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U.S. stock index futures pointed to a marginally higher open on Thursday morning, as investors looked ahead to a fresh batch of corporate earnings reports and U.S. economic data, while keeping an eye on oil prices.
Meanwhile, European and U.K. stocks were mixed in mid-morning trade Thursday, with oil and gas shares under pressure.
Earlier, Asian shares closed lower, tracking overnight losses on Wall Street, amid a fall in oil prices.
2. IEA cuts global oil demand forecast
The International Energy Agency on Thursday slashed its forecast for global oil demand growth next year amid a dimmer economic outlook and warned that the "massive" stock overhang is keeping a lid on crude oil prices.
In its closely watched monthly oil market report, the Paris-based organization said it expects global oil demand to grow by 1.2 million barrels a day in 2017, a decline of 100,000 barrels a day compared with last month's forecast and down by 200,000 barrels a day from this year.
U.S. crude was down 20 cents, or 0.5%, to $41.51 a barrel during morning hours in New York, while Brent dipped 13 cents, or 0.3%, to $43.92 a barrel.
Oil futures plunged on Wednesday as a surprise crude build in the U.S. combined with record-high Saudi Arabian production weighed on sentiment.
3. U.S. department store earnings in focus
While second quarter earnings season continues to wind down this week, corporate reports this morning are due from department store giants Macy's (NYSE:M) and Kohl’s (NYSE:KSS), while Nordstrom (NYSE:JWN) reports after the closing bell.
The U.S. department stores are expected to see earnings and revenues slide, an ongoing trend for the industry.
Chinese online retailing giant Alibaba (NYSE:BABA) also reports earnings ahead of the bell. Its revenues are expected to jump nearly 50% from last year, and earnings should rise about 13%, as internet sales in China and the U.S. grow.
4. Valeant reportedly under criminal investigation; shares down 10%
U.S. prosecutors have opened a criminal investigation into Valeant Pharmaceuticals over whether it hid from insurers its relationship with a specialty pharmacy that helped boost its drug sales, the Wall Street Journal reported on Wednesday.
Lawyers at the U.S. Attorney's Manhattan office are trying to gauge whether concealing those ties may have amounted to defrauding insurers, the Journal report said, citing people familiar with the matter.
U.S.-listed shares of Valeant (NYSE:VRX), which is headquartered in Canada, plunged more than 10% in pre-market trade.
5. Reserve Bank of New Zealand cuts rates to record low
The Reserve Bank of New Zealand cut interest rates a quarter point to a record low of 2.0% on Thursday and flagged the need for more cuts as it struggles to head off deflation risks.
Despite the rate cut, the New Zealand dollar surged to its highest level in more than a year against its U.S. counterpart, as there had been some speculation the RBNZ might cut interest rates by 50 basis points.
The kiwi rose to as high as $0.7343, a level not seen since May 2015, before settling back to stand at $0.7249, up 0.5% (NZD/USD).
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Euro Zone Economy Slows in Q2: GDP
Euro zone economic growth slowed in the second quarter compared to the first quarter, data confirmed on Friday.
GDP in the 19-nation bloc added 0.3% quarter-on-quarter in the three months ended in June 31, compared to the 0.6% hike seen in the first quarter.
A preliminary print showed 0.3% growth, meeting original estimates.
5 Things to Watch on the Economic Calendar This Week
1. Fed FOMC Meeting Minutes
The Federal Reserve will release minutes of the July policy meeting on Wednesday at 18:00GMT, or 2:00PM ET, as investors search for some clarity on where the U.S. central bank stands on its path toward rate hikes.
The Fed kept interest rates unchanged following its meeting on July 27 and said near-term risks to the U.S. economic outlook had diminished. However, the central bank stopped short of signaling a near-term rate rise.
Fed funds futures are currently pricing in a 9% chance of a rate hike by September. December odds were at around 45%.
2. U.S. inflation data for June
The Commerce Department will publish July inflation figures at 12:30GMT, or 8:30AM ET, Tuesday. Market analysts expect consumer prices to ease up 0.1%, while core inflation is forecast to increase 0.2%.
On a yearly base, core CPI is projected to climb 2.3%. Core prices are viewed by the Federal Reserve as a better gauge of longer-term inflationary pressure because they exclude the volatile food and energy categories. The central bank usually tries to aim for 2% core inflation or less.
Rising inflation would be a catalyst to push the Fed toward raising interest rates.
3. Japan second quarter preliminary GDP
Japan will publish preliminary second quarter economic growth data at 23:50GMT, or 7:50PM ET, on Sunday. The report is expected to reveal that Japan's economy expanded by just 0.2% in the April-June period, maintaining pressure on policymakers to support the world's third largest economy.
4. U.K. CPI, employment & retail sales data
The U.K. Office for National Statistics will release data on consumer price inflation for July at 08:30GMT, or 4:30AM ET, on Tuesday. Analysts expect consumer prices to rise 0.5%, after increasing 0.5% a month earlier.
At 08:30GMT, or 4:30AM ET, Wednesday, the ONS will publish the July jobs report. The claimant count change is expected to rise by 10,000, with the jobless rate holding steady at 4.9%. Wage growth including bonuses is forecast to rise 2.4%.
On Thursday, the ONS will produce a report on July retail sales at 08:30GMT, or 4:30AM ET, with analysts expecting an increase of 0.4%, following a drop of 0.9% in the preceding month.
The Bank of England cut interest rates to a record-low and launched fresh easing measures earlier this month in a bid to buffer the economy from a downturn following the Brexit vote.
Economic activity in the U.K. is expected to slow down sharply in the second half of the year as businesses face uncertainty over the country’s future direction in wake of the U.K.'s vote to exit the European Union.
5. German ZEW business survey
The ZEW Institute will publish its August German business climate index at 09:00GMT, or 5:00AM ET, on Tuesday, amid expectations for a rebound to 2.0 from July's reading of -6.8. The current conditions index is forecast to inch up to 50.0 from 49.8.
Oil at 3-week highs on hopes for OPEC action to support prices
Japan's economic growth stalls in the second quarter
Dollar struggling at 1-week lows against other majors
Brexit could be delayed until late 2019 Sunday Times reports
German ZEW Index Back in Positive Territory for August
The German ZEW index of business expectations strengthened to 0.5 for August from -6.8 previously, but this was lower than the expected figure of 1.8 and still the second lowest reading of 2016. The limited improvement will maintain reservations surrounding the overall German outlook given that interest rates are extremely low.
The current situation improved to 57.6 from 49.8 previously, while the expectations index recovered to 4.6 from -14.7 previously.
ZEW economists stated that economic expectations are recovering somewhat following the Brexit shock. There were, however, still concerns surrounding political risks both within and outside the Eurozone and there were further doubts over the resilience of the EU banking sector with further very negative readings for the banks in the survey.
The ZEW index for the Eurozone strengthened to 4.6 from -14.7 previously with the current situation improving only slightly to -10.3 from -12.4, while there was a strong gain for the expectations index.
There will be some surprise that the monthly expectations index has strengthened more substantially within the Eurozone than in Germany given generally disappointing data in France and Italy. Forthcoming data will be watched closely to assess whether this increased optimism is justified.
Within the German data, there were expectations that the inflation rate would increase with long-term interest rates also expected to rise.
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1. Fed meeting minutes on tap as odds for rate hike rise
On a sparse day for economic data, investors will focus Wednesday on the minutes of the Federal Reserve’s (Fed) most recent policy meeting due at 18:00GMT, or 14:00ET, for further clarity on the timing of the next U.S. rate hike.Odds for a rate hike this year increased after hawkish comments from two Fed officials on Tuesday.
New York Fed chief William Dudley said that the U.S. is edging closer toward the point in time where it will be appropriate to raise interest rates further.
In addition, Atlanta Fed president Dennis Lockhart said that two rate hikes in 2016 were a possibility.
Fed fund futures currently price in a 52.5% chance of policy tightening in December.
2. Oil pulls back from 5-week high on speculation for bearish inventory data
Oil fell back from a five-week high on bets that government crude inventory data out on Wednesday will be bearish for black gold.The U.S. Energy Information Administration will release its weekly report on oil supplies at 14:30GMT, or 10:30AM ET, amid expectations for an increase of 522,000 barrels.
After markets closed Tuesday, the American Petroleum Institute said that U.S. oil inventories fell by 1.0 million barrels in the week ended August 12. It also showed an increase of 2.2 million barrels in gasoline stocks, a worrying demand signal well ahead of the end of the summer driving season.
U.S. crude oil futures fell 0.64% to $46.28 at 9:50AM GMT, or 5:50AM ET, while Brent oil traded down 0.71% to $48.88.
Asian stocks were mixed with Japan’s Nikkei 225 leading gains as hawkish Fed comments strengthened the dollar against the yen. Chinese stocks recovered from initial losses to close flat on the back of government approval of a plan to connect the giant stock markets of Shenzhen and Hong Kong.3. Global stocks mixed as investors recheck Fed expectations
European stocks were mostly lower on Wednesday, as investors eyed the minutes of the Federal Reserve’s most recent policy meeting for hints on the timing of the next rate hike.
Meanwhile, U.S. futures traded flat while looking the Fed minutes. At 9:52AM GMT, or 5:52AM ET, the blue-chip Dow futures slipped 5 points, or 0.02%, S&P 500 futures edged forward 1 point, or 0.03%, while the Nasdaq 100 futures inched up 3 points, or 0.07%.
4. Cisco reportedly plans to axe 20% of its workforce
Cisco Systems (NASDAQ:CSCO) will lay off around 14,000 employees, equivalent to nearly 20% of its workforce, according to a report citing sources close to the company from tech news site CRN.The blue-chip network equipment maker was expected to announce the cuts in the next few weeks in the latest wave of layoffs among tech giants as firms face the industry decline.
Additionally, Cisco will report fiscal fourth quarter earnings on Wednesday after the market close.
5. U.K. employment data shrugs off Brexit worries
Despite dire warnings were made by economists following the U.K.’s June 23 decision to leave the European Union, known as a Brexit, the July claimant count gave an upbeat reading of the British labor market. The first available data for the period following the vote showed an unexpected decline of 8,600 people, compared to the forecast for a 9,500 increase.The jobless rate for June also remained at an 11-year low of 4.9%, while U.K. employment in the second quarter hit a record high of 74.5%.
Economic data due from Asia today
Coming up on the calendar todayFed minutes show a split
While FOMC minutes released yesterday showed that a couple of Federal Reserve officials backed a rate hike at the July meeting, overall the committee remained split on whether the slowdown in jobs growth means the labor market is nearing full employment or whether it's indicative of an economy that needs resuscitating. That left Fed fund futures implying balanced odds that there'll be a rate hike by the end of 2016 — a probability that's not much changed from before the minutes. Officials appeared inclined to continue normalizing rates, but their evident lack of urgency left the dollar trading weaker against most world currencies, setting the tone for much of the markets' overnight moves.
Clues about ECB QE
The European Central Bank is releasing minutes of its own at 7:30 a.m. New York time, which may give investors some clues about the future of its bond-buying program. While inflation is a rare point of consensus among U.S. monetary policy officials, it remains an issue on Mario Draghi's side of the Atlantic, where Sweden is selling inflation-linked bonds and euro zone data showed a tiny acceleration in consumer-price gains (to 0.2 percent in July versus June's 0.1 percent.) U.K. retail sales rose 1.4 percent in July, more than a percentage point faster than economists' expectations, suggesting the economy began its first post-referendum quarter on a strong footing. That has the pound 0.9 percent stronger to $1.3153 as of 4:38 a.m. ET.
Japanese exports fall
Japanese markets are feeling heat from the Fed, with the yen strengthening past 100 to the dollar in the day's trading, sending the Topix index 1.6 percent lower by the close. New data underscored the growth-sapping impact of a stronger yen as the country's exports fell 14 percent in July from a year earlier, the most since 2009 and the tenth consecutive month of declines. The Bank of Japan will review its monetary policy next month, amid fears it is running out of firepower to reflate the economy, while Japanese lenders say they have less flexibility to sell their government bond holdings to the central bank compared with earlier in the year. Meanwhile, part-time labor helped the Australian economy add more than twice as many jobs as economists were expecting, pushing the aussie higher.
Property market wobbles in China
Data suggest the Chinese real-estate sector — a key driver for the economy’s expansion in the first half of the year — is slowing down while imbalances are growing. In July, new-home prices rose in 50 out of the 70 cities tracked by China’s statistics agency, compared with 55 cities in June, while prices fell in more cities for a fourth consecutive month. Bloomberg Intelligence data for July also show property prices in top-tier cities are advancing while sentiment in lower-tier cities is cooling. The divergent outlook could place Beijing in a policy bind as it seeks to stabilize growth in the second half of the year. The yield curve on Chinese bonds is at its flattest since early 2015.Emerging markets bask in Fed's glow
While UBS Group AG has said emerging markets can't ignore the math of a Chinese slowdown forever, the asset class was lifted this morning by the weaker dollar — even if that's boosting some more than others. All ten industry groups of the MSCI Emerging Market Index were trading higher by 4:31 a.m. in New York, with Samsung Electronics Co.'s share price surging to a record.
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German PPI Deflation Eases Further for July
German producer prices rose 0.2% in July after gains of 0.4% in May and June and the reading was marginally stronger than the 0.1% expected.
In annual terms, there was a decline of 2.0% compared with 2.2% previously and the lowest rate of decline since August 2014. The underlying index excluding energy registered a 0.2% monthly increase for a 0.5% annual decline from 0.7% previously, while there was volatility in food prices for the month.
Energy prices were unchanged over the month, while registering a 6.2% annual decline, while prices of intermediate goods declined fell by 1.8% over the year. The other categories all recorded annual increases with an annual increase of 1.2% for durable consumer goods and 0.5% for capital goods.
There have been price increases for the last four months and prices also declined consistently during the second half of 2015. Given that energy prices have increased sharply over the past few weeks, there is the potential for the annual rate to turn positive before the end of 2016 for both the headline and core rates.
There will still be some concerns over the risk of deflationary shocks from global events, especially if Sterling continues to weaken and there is a renewed downturn in China, but the most likely outcome is that the annual rate will turn positive, which would tend to lessen pressure for further ECB policy easing.
There was little market reaction with EUR/USD holding just below 1.1350 on continued dollar weakness, while German bunds opened marginally lower.