Month: July 2016

Overseas markets rallied on the holiday as investors continued pricing in central bank aid, extending a move that started last Tuesday. The Bank of England delivered a cut to its capital buffer rate from 0.50 percent to zero Tuesday morning. The cut frees enough capital to finance roughly 150 billion pounds in lending. The British pound fell on the news, but British stocks rallied and the FTSE 100 outperformed the other major European indexes by more than 1 percent on Tuesday.

The eagerly anticipated June monthly employment report will be out on Friday. Last month, the economy created 38,000 jobs, far short of analysts’ expectations in part due to striking Verizon (VZ) employees. Analysts project 175,000 new jobs were created last month, with those Verizon jobs added back in. It will take a very positive report to shift rate hike expectations in the wake of Brexit. At the moment, the market sees no more rate hikes in 2016.

Factory orders for May fell 1.0 percent, according to Commerce Department data, slightly more than forecast and down from April’s 1.8 percent advance. June’s FOMC meeting minutes will be released on Wednesday.

Crude oil inventory and oil production figures will be in focus this week. Morgan Stanley reported rising rig counts, a prelude to increased production. Weekly initial unemployment claims data, which is expected to rise slightly from the week prior, will be released on Thursday.

Overseas, the Royal Bank of Australia held interest rates steady at 1.75 percent on Tuesday, as expected. The European Central Bank will release the minutes of its last meeting this week. Italy’s banking system is likely to remain in the headlines as the Italian government threatens the European Union’s bailout rules.

Earnings season doesn’t officially kick off until next week, but investors will hear from Walgreens and PepsiCo. Walgreens (WBA) is scheduled to release its latest quarterly earnings Wednesday before the markets open. Analysts are calling for earnings per share of $1.14 on revenues of $29.8 billion. The company’s acquisition of rival Rite Aid (RAD) is still an issue; the government requires the sale of some assets in order to gain regulatory approval. PepsiCo (PEP) is scheduled to report on Thursday. Analysts expect the company will report lower earnings due to a stronger dollar and surging sugar prices. The consensus prediction is for EPS of $1.29, which is three cents lower than the previous quarter, and a 4 percent drop in year-over-year revenues to $15.37 billion. The company recently announced that it is switching its Diet Pepsi formula back to aspartame from sucralose in response to customer complaints.

Brexit selling spilled into Monday, but the markets rebounded strongly and recovered most of their losses by Friday. The major indexes rallied more than 5 percent from Monday lows to within just a few percentage points of their 52-week highs. The Bank of England Governor Mark Carney hinted at the prospect of more stimulus this summer. Italy announced a $166 billion bank bailout plan, and investors also bet on more stimulus from Japan, where the 40-year bond yield fell below 0.1 percent.  Domestically, the bounce may signal economic resilience.

Despite Brexit’s political significance, the impact is extremely limited in financial markets and the broader economy. The British FTSE Index climbed to a new 2016 high this week and even after adjusting for the drop in the pound, the UK market is higher than it was a week before the vote. Were it not for the run-up in asset prices before the vote, it would be impossible to pick out the Brexit vote on most long-term charts.

The June U.S. Purchasing Managers Index (PMI) from ISM and Markit came in at 53.2 and 51.3, both showing expansion in nearly all subcategories. First quarter GDP was revised higher to 1.1 percent, hitting consensus estimates. The Consumer Confidence survey reached its highest level since October. The number of Americans filing for first time jobless benefits rose slightly to 268,000, but remains near 40-year lows.

Before the markets opened Wednesday, General Mills (GIS) reported earnings per share of $0.66, beating analysts’ expectations despite missing on revenues. Shares rose 10 percent on the company’s strong forward guidance for the next two fiscal years. Agribusiness giant Monsanto (MON) delivered disappointed investors with lower-than-expected EPS of $2.17 and revenues of $4.19 billion. Shares of MON rose slightly as buyout talks with pharmaceutical giant Bayer and other yet-to-be-named parties continued. Although missing consensus revenue estimates by 1 percent, Nike (NKE) delivered EPS of $0.49, which beat expectations by a penny per share due to forward guidance and better inventory management.

ConAgra Foods (CAG) experienced a 9.5 percent decline in net sales for the most recent quarter. Although the company met consensus estimates with an EPS of $0.52, its $2.83 billion in revenues was less than expected. Darden Restaurants (DRI) posted mixed earnings results for the current quarter and fiscal 2016. The Orlando-based DRI reported beat estimates with EPS of $1.09, but missed sales estimates. Share prices fell on lower guidance for fiscal 2017. Finally, Micron Technology (MU) delivered EPS of negative $0.08, which beat expectations by one cent. An increase in DRAM sales offset a decline in other product areas.

Energy was among the best performing sectors in the first half of 2016 with a 10-percent rally.  Utilities, healthcare and consumer staples followed. All but three sectors beat the performance of the S&P 500 Index, technology, cyclicals and industrials each slipped more than 1 percent. The S&P 500 Index gained 0.80 percent in the second quarter.