Earnings season heats up – Daily Market Brief, July 18, 2022

Corporate earnings step up this week to take centre stage. Banks and big tech will help investors assess how firms are coping with surging inflation.

·      Federal Reserve hike expectations soften & China unveils more support

·      Earnings season ramps up with Bank of America, Goldman Sachs, and IBM due today

·     Oil rises as the USD falls lower but remains below $100 per barrel

While stocks across Europe and Wall Street rebounded firmly on Friday, they still booked losses across the week. Higher than forecast US inflation data, aggressive Fed bets, and fears of a global economic slowdown hurt risk sentiment.

Friday’s solid rebound came as markets reassessed the probability of a 100 basis point rate hike, with Fed hawkish Waller and Bullard supporting a 75 basis point hike. The softening of Fed expectations combined with China pledging to shore up economic growth are helping stocks higher at the start of the week while pulling the USD lower.

Inflation and central bank action will remain in focus this week with CPI reports due from the UK, the eurozone, and Canada. Meanwhile, the ECB and the BoJ will also announce their interest rate decisions. While the BoJ is not expected to adjust its ultra-loose monetary policy, the ECB is expected to hike interest rates for the first time since 2011.

Earning season

The banks kicked earnings season off to a disappointing start last week, missing earnings forecasts. JP Morgan was notably cautious in its outlook and halted its buyback programme. Today, Bank of America and Goldman Sachs will report ahead of the open. As with their peers, the focus will be on bad loan reserves amid growing concerns of an economic slowdown.

Tech earnings also kick off this week, with big names such as Netflix, Tesla, Snap, and Twitter in focus. Investors will be keen to see whether the worst has passed for these giants.

Today IBM is reporting second-quarter earnings, as it trades close to its all-time high. The stocks rose over 7% in response to its Q1 reports after beating estimates for both the top and bottom lines. The results showed that IBM made progress as it continued with its massive multi-year restructuring. Investors will be looking to see whether the momentum has continued.

Oil

Oil prices are rising after experiencing steep falls across the previous week. Oil tumbled over 6% last week and has fallen over 20% from its mid-June high as it enters a bear market. Fears of an economic slowdown and rising COVID-19 cases in China hurt the demand outlook for oil pulling it lower. Last week, President Biden met with Saudi Arabia’s Crown Prince Mohamed Bin Salama. However, it remains to be seen whether Biden achieved any immediate success in increasing oil supply from the politically risky visit. Today the weaker USD is supporting the oil price. A weaker dollar makes the dollar-denominated commodity cheaper for buyers of other currencies. Looking ahead, the next OPEC+ meeting on August 3rd will be watched closely as the existing agreement for additional supply comes to an end.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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