Morning Minutes 7/16/2020

Morning Minutes

Stocks Slip Despite China GDP Rebound As US Retail Sales and Earnings Roll In

July 16, 2020

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
ccieszynski@siawm.com
+1 (647) 282-4428

Stock markets have been backsliding overnight in what appears so far to be normal profit-taking of recent gains against what has been another series of positive economic and corporate developments. US index futures declines vary from 0.8% for the Dow to 1.2% for the NASDAQ, while in Europe, the Dax is down 0.5% and the FTSE is down 0.3%.

China’s economy staged a strong rebound in Q2 with its quarterly GDP growth of 11.5% bouncing back from a 9.8% contraction in Q1 and beating the 9.6% street estimate. Chinese Q2 GDP was up 3.2% over a year ago, which was better than the 2.1% growth the street had expected. June numbers for China were mixed with industrial production beating expectations slightly (4.8% vs street 4.7%) offset by a surprise decline in retail sales. (-1.8% vs street 0.3%).

Today’s US economic news has been mixed. Retail sales for June were better than expected (7.5% vs street 5.0%), but jobless claims increased by more than expected (1.3M vs street 1.25M). Continuing claims fell to 17.338M which was better than expected.

US earnings season continues this morning. Highlights include:

Benefitting from strong trading performance that boosted its revenues by 30% over year, Morgan Stanley* posted significantly stronger than expected earnings per share ($1.96 vs street $1.12)

Increased trading revenues also boosted Bank of America’s earnings above expectations ($0.37 vs street $0.27), but there were some cracks in the results including a $4B increase in loan loss provisions from $1.1B to $5.1B, and an 11% decline in interest income due to falling interest rates.

Johnson & Johnson reminded investors that COVID-19 had a negative impact on parts of the health care sector as well, announcing that profits were down 34.6% from a year ago due to the negative impact of elective surgery cancellations on its medical device business. Adjusted EPS did beat expectations ($1.67 vs street $1.49), and the company raised its full year EPS guidance to $7.75-$7.95 from $7.50-$7.90.

Results from Netflix are due after the close today.

Crude oil is down slightly today with WTI down 0.9% and Brent down 0.6%, although both continue to hold above the $40.00/bbl level. OPEC+ agreed overnight to reduce their supply cuts by 2 mmbbld to 7.7 mmbbld from 9.7 mmbbld between August and December with the demand situation improving as economies around the world reopen, as indicated by drawdowns this week of 7.5-8.5 mmbbl in US oil inventories.

*Shares of Morgan Stanley are held in some portfolios managed by SIA Wealth Management.

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