On the surface, this morning’s trading appears to be a bit odd. Overnight earnings reports out of the US have been coming in better than expected but as the morning has progressed, US index futures have given up their overnight gains and slipped back into the red with current declines of about 0.3% for the three main contracts.
Traders have responded positively to better-than-expected earnings ($3.10 vs street $2.13) and net subscriber additions (2.41M vs street 1.09M) from Netflix, sending its shares up 12.0% in premarket trading. In other overnight earnings news Procter & Gamble was able to raise prices/shrink packaging enough to beat the street ($1.57 vs street $1.54). United Airlines is also soaring this morning, up 5.5% in premarket action with investors cheering a big earnings beat ($2.81 vs street $2.28) and strong guidance for this quarter ($2.25 vs street $0.98). Insurance giant Travelers also beat expectations ($2.20 vs street $1.54). Tesla Motors and IBM report results after the close today.
While positive earnings have helped their related individual stocks, they may be weighing on the overall market by giving traders a sense that the US economy is perhaps doing better than feared, which would potentially clear the runway for continued hawkishness at the Fed moving forward.
Bond trading suggests that investors are anticipating more tightening from central banks. The US 10-year treasury note yield has pushed up above 4.10% today, while the 30-year yield has climbed back up above 4.00% and is trading at its highest level since 2011. This has ignited another rally in the US Dollar, which is up 1.1% against Gold, 0.8% against the Euro, 0.7% against the Pound, and 0.3% against the Canadian Dollar. Commodity action is mixed with Copper down 1.1% and WTI Crude Oil up 1.0%.
In economic news, Canadian inflation came in hotter than expected overall with headline consumer prices (6.9% vs street 6.8% and previous 7.0%), core consumer prices (6.0% vs street 5.6% and previous 5.8%) and industrial prices (0.1% vs street -2.0% and previous -1.2%) all exceeding expectations. Only raw material prices were not as bad as feared (3.2% vs street 0.0% and previous -4.2%). US housing data was a split decision relative to expectations with housing starts missing slightly and building permits beating slightly.