The first quarter earnings season will continue Tuesday, with the U.S. banking sector remaining in focus as Bank of America (NYSE:BAC) and Morgan Stanley (NYSE:MS) are both due to report.
JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) got the season off to a disappointing start on Friday, but Goldman Sachs (NYSE:GS) turned the tide with strong numbers that were fueled by a recovery in underwriting, deals and bond trading in the first quarter that lifted its earnings per share to the highest since late 2021.
Other key reports are due, including from Johnson & Johnson (NYSE:JNJ), UnitedHealth (NYSE:UNH) and United Airlines (NASDAQ:UAL).
With the first-quarter reporting season underway, 30 S&P 500 companies have posted results so far with a 6% earnings beat, according to BofA Global Research.
However, earnings estimates are likely to weaken as companies issue cautious outlooks, according to Evercore ISI strategists.
“We believe the corporate outlooks will be more guarded, and EPS revised lower,” Evercore said in a research note on Sunday.
Evercore said they were defensively positioned, including “outperform” ratings on the consumer staples, healthcare and communication services sectors, as they anticipate “intensifying volatility.”
U.S. stock futures edged lower Tuesday, continuing the recent weakness as investors digested corporate earnings, rising bond yields and escalating geopolitical tensions in the Middle East.
By 04:00 ET (08:00 GMT), the Dow futures contract was 20 points, or 0.1%, lower, S&P 500 futures dropped 3 points, or 0.1%, while Nasdaq 100 futures traded largely unchanged.
The main indices posted hefty losses Monday, with the Dow Jones Industrial Average falling almost 250 points, or 0.7%, erasing most of its gains this year, the S&P 500 losing 1.2%, and the Nasdaq Composite dropping 1.8%.
Weighing heavily has been the rise in bond yields–with the benchmark 10-year Treasury yield climbing to its highest level since November–after the release of strong retail sales data further raised the likelihood that the Federal Reserve will delay cutting interest rates until much later in the year.
The raised tensions in the Middle East, after Iran launched drones and missiles on Israel over the weekend, is also hitting risk appetite.
The economic calendar includes the release of industrial production data for March, as well as the latest readings of housing starts and building permits, which will provide more insight into the health of the housing sector.
The Chinese economy grew faster than expected in the first quarter of 2024, with business activity boosted by sustained government stimulus measures.
Gross domestic product rose 5.3% year-on-year in the first three months of the year, data from the National Bureau of Statistics showed on Tuesday. The reading was above expectations of 4.8% growth and improved from the 5.2% print seen in the prior quarter.
GDP rose 1.6% on the quarter, an improvement from the 1% increase seen in the prior month.
The Chinese government has unveiled fiscal and monetary policy measures in a bid to achieve its 2024 GDP growth target of around 5%, with last year’s growth rate of 5.2% likely flattered by a rebound from a COVID-hit 2022.
The reading came as purchasing managers index data released for the first three months of 2024 showed some improvement in business activity, especially in the manufacturing sector.
However, other data released on Tuesday painted a weaker picture, as the world’s second-largest economy has struggled to mount a strong and sustainable post-COVID bounce, burdened, in particular, by a protracted property downturn.
Industrial production grew 4.5% year-on-year in March, missing expectations for a rise of 5.4% and slowing from the 7% seen in the first two months of the year.
Retail sales grew 3.1% year-on-year in March, missing expectations of 5.1% and slowing sharply from the 5.5% seen in the prior two months.
This all suggests that the Chinese authorities will have to continue stimulating the economy in order to meet the projected year-end growth rate.
The Bank of England maintained its interest rates at the highest level since 2008 at its meeting last month, with Governor Andrew Bailey subsequently stating that Britain’s economy was moving towards the point where the central bank can start cutting interest rates.
Bailey said there had been “further encouraging signs that inflation is coming down,” but he also said the BoE needed more certainty that price pressures were fully under control.
One of the bank’s prime concerns has been the potential for wage-driven inflation, and this may have been partially lifted by the latest data, released earlier Tuesday.
British core wage growth slowed again in the three months to February, posting its weakest rise since the three months to September 2022.
Regular wages excluding bonuses grew by 6.0% compared with the same period a year earlier, down from an increase of 6.1% in the November-to-January period, the Office for National Statistics said.
Growth in total pay, which includes more volatile bonus payments, was unchanged at 5.6%.
Traders are generally expecting the Bank of England to start cutting interest rates in either August of September.
Crude prices steadied Tuesday, as traders digested Chinese growth data as well as an uncertain outlook in the Middle East.
By 04:00 ET, the U.S. crude futures traded largely unchanged at $85.39 a barrel, while the Brent contract was flat at $90.10 per barrel.
The data showing the Chinese economy grew by more than expected in the first quarter [see above] has supported the crude market, given a recovery in the world’s biggest oil importer this year has been the main bullish factor driving forecasts.
Oil prices soared last week to the highest levels since October, but fell on Monday after Iran’s weekend attack on Israel proved to be less damaging than anticipated, easing concerns of a quickly intensifying conflict hitting supply from this oil-rich region.
The focus is now on how Israel responds to Iran’s first-ever direct attack on Israel, given Iran produces more than 3 million barrels per day of crude oil as a major producer within the Organization of the Petroleum Exporting Countries.
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