Month: July 2015

The coming days are likely to be dominated by earnings reports, though next week’s Federal Reserve meeting is already looming large after Federal Reserve Bank of St. Louis President James Bullard said a September interest rate increase was a 50/50 proposition. The meeting is important for a September rate hike because the Federal Reserve is widely expected to signal any changes at least one meeting in advance.

Earnings reports will be abundant, with a long list of blue chip companies ranging from Apple (AAPL) to Verizon (VZ) set to announce results. Abbot Labs (ABT), Celgene (CELG), Biogen (BIIB), Abbvie (ABBV) and Eli Lilly (LLY) headline the healthcare sector. Along with Apple, IBM, Microsoft (MSFT), Qualcomm (QCOM) and Amazon (AMZN) report. Comcast (CMCSA) and AT&T (T) from telecom, Boeing (BA) and Caterpillar (CAT) from industrials, Coca-Cola (KO) and McDonald’s (MCD) from the consumer sectors, plus Visa (V) and American Express (AXP) from the financial sector are other significant companies that report. Last week earnings, mostly technology and financials, were very strong and exceeded expectations.

Greek banks opened on Monday to long lines as withdrawal limits are still in place. Greek consumers need more cash because the VAT tax on many items went from 13 percent to 23 percent, about a 9 percent rise in prices since last week. Additionally, the first round of aid was delivered to Greece and it immediately went to repay the very creditors who provided the money.

The most important assets to watch over the coming days may be currencies and commodities. Last week, the Canadian dollar fell to new lows versus the U.S. dollar. Today, the Mexican peso broke to a new all-time low, exceeding the previous low set in 2008. The U.S. Dollar Index was steady on Monday but recent weakness in the euro has been pushing the greenback towards its March high.

Commodity prices are tumbling, with industrial metals such as platinum under increasing pressure. The metal is down nearly 20 percent this year and prices collapsed overnight before rebounding. Gold is also falling after there was rumored forced selling in China, when 5 tons hit the Shanghai physical gold exchange. This could be a sign that China’s credit bubble is bursting and investors are forced into selling liquid assets. West Texas Intermediate Crude oil will battle to hold the $50 level this week; it was trading as low as $50.25 in Monday morning trading.

Weakness in commodities has been weighing on the energy stocks. SPDR Energy (XLE) is again testing its lows for the year. Natural gas stocks are tumbling, with First Trust ISE Revere Natural Gas (FCG) down about 20 percent in July, even though gas prices have ticked higher in July. Due to the sharp nature of the declines across many commodities, we could see a bottom forming.

The broader stock market is likely to see limited gains this week. Earnings should provide some support but gains may be limited if commodities don’t rebound.

Equities pushed to new all-time highs this week, led by a strong rally in the technology-laden Nasdaq. An earnings beat by Google (GOOG) that sent shares up double digits fueled the index’s move higher on Friday, pushing the index up while the broader market opened lower. Earlier in the week, Netflix (NFLX) beat earnings and shares jumped double digits. Several big name technology companies such as Amazon (AMZN) and Ebay (EBAY) saw solid single digit gains.

The financial sector didn’t see a market crushing week like technology but some financial ETFs including SPDR Financials (XLF) achieved a new 52-week highs. This happened in a week when major banks such as Bank of America (BAC), J.P. Morgan (JPM) and Citigroup (C) delivered earnings. Overall, the financial sector’s reports were good and the decline of litigation costs stemming from the 2008 financial crisis helped some firms beat their estimates. Citigroup also broke out to a new post-2009 high, signaling the potential for a major bullish breakout.

Federal Reserve Chair Janet Yellen gave testimony to Congress this week and signaled that higher rates are coming this year as long as economic data doesn’t deteriorate. The odds of a September rate hike are currently 50/50 in the futures market and the Fed may signal its move at its July 29th meeting. Long-term interest rates moved lower during the week, while short-term rates moved higher.

Greece is moving towards a third bailout after its parliament passed some tough reforms requested by European creditors. On Friday, Germany’s parliament approved the third bailout negotiation process. It is expected to take up to one month to reach a final deal. If an agreement is not reached, a Greek exit from the Eurozone would likely follow. The euro tumbled on the Greek passage of the initial phase of the deal and fell again when Germany gave its approval. For the week, European equities gained about 1 percent.  WisdomTree European Hedged Equity (HEDJ), which hedges away euro exposure, gained more than 3 percent. The euro and U.S. Dollar Index are at their lowest and highest points, respectively, since late May. If they continue moving in the same direction, a test of their low and high for the year could come in August. Adding fuel to the dollar rally was the Canadian central bank, which made a surprise interest rate cut due to rising recession fears.

China rebounded this week as the government rescue continued. Commodity prices didn’t move higher as West Texas Intermediate Crude sank to a $50 a barrel. If oil slides below $50, a test of the lows near $43 could follow.  It couldn’t happen at a better time for U.S. drivers in peak driving season. Nevertheless, gasoline prices have yet to reflect the drop in crude prices.

Retail sales in June were down 0.3 percent but manufacturing and business data out this week was better than expected. Producer price inflation increased 0.4 percent, twice as what was expected. The consumer price index was in line with expectations, up 0.3 percent for the headline number and 0.2 percent for core inflation. Healthcare cost inflation slowed a bit in June, while housing costs increased. The decline in energy prices shaved about 1.2 percent off headline inflation.