Market Perspective for June 27, 2016

Markets will look for stability this week following Britain’s stunning decision to leave the European Union. Volatility is likely to continue as investors and fund managers reposition portfolios in light of the referendum, though trading had already moderated considerably by Monday afternoon. Although European markets traded lower on Monday, the FTSE 100 in the United Kingdom was well ahead of Friday’s lows. The European banking sector, however, continues to face selling pressure that some speculate will lead to policy intervention. Federal Reserve Chair Janet Yellen and Bank of England Governor Mark Carney both withdrew from an ECB Forum on Central Banking this week, a three-day event in Portugal that ends on Wednesday.

The third and final estimate of first quarter GDP will be released on Tuesday. Economists forecast the growth rate was 1.1 percent, up from the revised 0.8 percent figure in the prior report. The Case-Schiller home price index for April is also due out on Tuesday.

In addition to the weekly crude oil inventory data, personal income, consumer spending and core inflation for May, as calculated by the Bureau of Economic Analysis, will be available on Wednesday. Thursday’s reports include the weekly unemployment claims data in the U.S. as well as Japanese industrial production, British GDP growth and Eurozone consumer inflation.

Manufacturing PMI’s for the U.S., China, the United Kingdom and the Eurozone will all be closely watched. In the U.S., analysts expect both the Markit PMI and ISM Survey to come in around 51.5 to indicate manufacturing sector expansion. May construction spending, a key number for second quarter GDP, will also be released on Friday. Motor vehicle sales were strong in May, on pace for 17.4 million sales in 2016. Economists expect June sales of 17.3 million vehicles.

General Mills, Monsanto, Nike, ConAgra Foods, Darden Restaurants and Micron Technology will all report earnings this week. Before the bell Wednesday, analysts expect General Mills (GIS) will report earnings per share of $0.60 on revenues of $3.86 billion. The stock rallied after strong earnings last quarter, but adjusted gross margins declined due to weak cereal sales and the company’s introduction of organic, natural and gluten-free products. Monsanto (MON) is expected to deliver EPS of $2.42 and revenues of $4.5 billion. The consensus estimate calls for EPS of $0.48 from Nike (NKE) on revenues of $8.27 billion. Increased competition and lower sales of high-end basketball shoes with be a focus for investors.

ConAgra Foods (CAG) and Darden Restaurants (DRI) are scheduled to report before the bell Thursday. Omaha-based CAG is forecast to report EPS of $0.52 and revenues of $2.89 billion. Investors will want to see if DRI profited from the growth in restaurant spending in the prior quarter.  Shares of DRI have outperformed the S&P 500 Index since late April. Analysts expect EPS of $1.09 on $1.82 billion in revenue. DRI is the parent of restaurant chains Olive Garden and Longhorn Steakhouse, among others. Undermined by weak prices for DRAM and NAND technology, memory-chip manufacturer Micron Technology (MU) is expected to deliver a quarterly loss of 9 cents per share and revenue of $2.96 billion when it reports on Thursday.

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