Sleepy Overnight Session Interrupted By Chinese Market Turmoil
There was one bit of good news to come from the data on Friday though and that was the June industrial production reading which printed at a better than expected +0.4% mom (vs. +0.3% expected) while the May reading was also revised up one-tenth to +0.1%. For completeness, business inventories came in bang on the money at +0.3% mom. All told the Atlanta Fed revised down their Q2 GDP forecast on Friday following all that data to 2.4% from 2.6%. Over in markets, while equities surged to new highs, Treasury yields plummeted lower in the aftermath of the CPI report with the 10y touching 2.277% (down 6.7bps) and to the lowest this month, although interestingly did complete a near u-turn into the close to finish at 2.333% (down 1.3bps).That rebound appeared to be more technically driven than anything else. Bond markets in Europe were broadly down 1-6bps but also saw a similar bounceback into the close. The Dollar stayed lower however with the Dollar index finishing -0.60% and suffering its weakest day since June 27th. Against that we saw a decent rally in EM currencies with the likes of the South African Rand (+1.37%), Russian Ruble (+1.31%) and Polish Zloty (+1.08%) all up over 1%. Gold (+0.91%) also had its strongest day for a month a bit. It’s worth noting that the market pricing (based on Bloomberg’s calculator) for a rate hike by the Fed in September and December is down to 10% and 43% respectively (from 16% and 50% the day prior).
The other story for markets on Friday and which will likely be a growing theme in the weeks ahead was the start of US earnings season. On Friday all eyes were on the banks with JP Morgan, Citi and Wells Fargo all reporting Q2 results which were largely in line to slightly better than expected at both the revenue and earnings lines. As has been the theme in recent quarters however that was against a backdrop of market expectations which have been ramped down in recent weeks. Case in point being JP Morgan where consensus for Q2 EPS was $1.58 (vs. $1.71 reported) after being as high as $1.65 two months ago. Share prices for all 3 banks were anywhere from a half to one percent lower however (and in line with the wider sector) which partly reflects the soft CPI report and lower yields but also some of the more cautious outlook commentary. Wells Fargo focused on weakness in lending volumes while JPM watered down its loan growth outlook and net interest income for the remainder of the year. CEO Jamie Dimon also had some choice words for the lack of policy progress in the US with the analyst call including some colourful language. Dimon added that “it’s almost an embarrassment being an American citizen travelling around the world” and referred to “political stupidity” in Washington.