U.S. Stock Futures Edge Up as Banks Kick Off Earnings Season
July 14 2020 - 8:57AM
Dow Jones News
By Anna Hirtenstein
U.S. stock futures edged up Tuesday as investors digested
second-quarter results from the biggest banks for insights into the
health of the American economy and its lenders.
Futures tied to the S&P 500 ticked up 0.4%, suggesting that
U.S. stocks could rise after the opening bell. A rally in the
equity market on Monday fizzled after California rolled back some
of its reopening plans, stoking fears about additional
lockdowns.
A string of earnings reports out on Tuesday from major Wall
Street banks was being scrutinized for the effect of the downturn
on the flow of credit to businesses, and on borrowers' ability to
repay loans. JPMorgan Chase kicked off the earnings season with its
results this morning, followed by Citigroup and Wells Fargo.
Investors were likely to be interested in banks' trading
activities, which will show how they've coped in such a volatile
market, said Luc Filip, head of private banking investments at SYZ
Private Banking. "We'll have a bit more clarity on the reality of
the recovery theme, from the bottom up."
Shares of JPMorgan Chase rose 2.5% premarket after the bank
reported earnings per share for the second quarter that beat
estimates. Other major bank stocks also advanced, with Goldman
Sachs rising 2.3% and Morgan Stanley up 2.5%.
Wells Fargo's shares declined 3.1% after it reported a $2.4
billion net loss and said it intends to cut its dividend next
quarter. Citigroup's climbed 1.6% after it said its revenue rose,
but its net income slipped due to a higher allowance for
credit-loss reserves due to the economic downturn.
"This shows that there's a three-speed recovery in the economy,"
said Sebastien Galy, a macro strategist at Nordea Asset Management.
"Some banks will be better positioned than others" during times of
volatility, particularly in the case of JPMorgan who is a key
player in market-making. "Each bank is telling you something
different about the underlying economy," he said.
Meanwhile, shares of Delta Air Lines shed 1.2% after it reported
a pre-tax loss of $7 billion, but said it had $15.7 billion of
liquidity at the end of the quarter to help keep the company
afloat.
In Europe, the pan-continental Stoxx Europe 600 slipped 1.1%,
led lower by stocks in Germany and France. Industrial production in
the eurozone is recovering slower than expected and is still over
20% lower than last year, according to a Tuesday data release. A
gauge of sentiment for institutional investors in July also came in
below expectations.
"It's the virus-related newsflow at the same time as we're going
into an earnings season that's unpredictable and we're getting some
weaker economic data, it's the combination of all these things,"
said Georgina Taylor, a multiasset fund manager at Invesco. "Given
the good run in equities, it feels like the market is pausing to
digest all of this."
Fresh data showed that the U.K's economic expansion in May was
weaker than economists had expected, and output in Britain remains
around a quarter below the level it had reached in February, before
the pandemic struck and the economy was shut down. The British
pound edged down 0.3% against the dollar.
"For the U.K., it's a tough gig currently. The drop in GDP was
starker than on the continent and now the bounceback is weaker,"
said Peter Schaffrik, global macro strategist at RBC Capital
Markets. "It's a pretty big miss."
In Asia, major benchmarks slipped after tensions between the
U.S. and China rose, prompted by Secretary of State Mike Pompeo's
comments on Monday that the Trump administration formally rejects a
swath of Chinese claims in the South China Sea. China's main stocks
gauge, the Shanghai Composite Index, declined 0.8%.
"As we're getting closer to the U.S. election in November, we
expect some noise to be happening," said SYZ's Mr. Filip. "The
objective for the U.S. is to show strength, maybe flex muscle."
Investors are also awaiting consumer price data from the U.S.,
which is scheduled to be released at 8:30 a.m., and will show if
inflation has picked up as lockdowns have eased.
In government bond markets, the yield on U.S. 10-year Treasurys
slipped to 0.629% Tuesday, from 0.638% Wednesday. Bond yields and
prices move in opposite directions.
Write to Anna Hirtenstein at anna.hirtenstein@wsj.com
(END) Dow Jones Newswires
July 14, 2020 08:42 ET (12:42 GMT)
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