Market Perspective for July 5, 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.

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