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U.S. Opening Bell: Earnings Misses Hit Futures; Japan Yields Spike; Yuan Tumbles

By Investing.com (Pinchas Cohen)Market OverviewJul 30, 2018 11:30
uk.investing.com/analysis/opening-bell-earnings-misses-hit-futures-japanese-yields-spike-yuan-tumbles-200202816
U.S. Opening Bell: Earnings Misses Hit Futures; Japan Yields Spike; Yuan Tumbles
By Investing.com (Pinchas Cohen)   |  Jul 30, 2018 11:30
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  • Global stocks ease amid earnings miss, key rate decisions
  • Chinese yuan's fall increases risk of equity correction
  • Japanese yields leap on mounting expectations for BOJ tapering

  • Oil higher but within bearish pattern: $66 the next test

European stocks and futures on the S&P 500, Dow and NASDAQ 100 opened the week on the back foot, as investors focused on earnings misses and moved to risk-off trade ahead of key interest rates decisions.

The STOXX 600 slid lower with miners as well as food and beverage makers tracking a downturn in all the major Asian equity markets. Heineken (AS:HEIN), the world’s second-biggest beer brewer, reported a 1.89 euros EPS, below the 1.91 forecast. The company also cut its full-year margin guidance to reflect the impact of currency headwinds on revenues and operating profit.

USD/JPY Daily Chart
USD/JPY Daily Chart

A jump by 10-year Japanese yields to their highest level in nearly a year and a half kicked off a week loaded with crucial monetary policy discussions by the US Federal Reserve, the Bank of England and the Bank of Japan.

Speculation that the Bank of Japan may cut back its massive asset-buying program and allow the yield to rise above its 0.100 percent target prompted the yield surge on Monday. Should those expectations materialize, an investor rotation into higher yields would entail a boost for the yen as well. Technically, the dollar-yen pair has developed a bearish pennant pattern right on top of the uptrend line. A downside breakout, as the greenback weakens versus its Japanese counterpart, would signal that yen buyers have absorbed all available supply at these levels and are prepared to bid prices higher in search of willing sellers.

Meanwhile, the Chinese yuan extended last week’s decline and is set to close at the lowest level since June 2017. The yuan's downward spiral, which has recently sparked US President Donald Trump's criticism of Chinese authorities for alleged currency manipulation, significantly increases risk for equity markets as it pushes investors to shift to risk off trade and safe-haven assets. Such a move would jibe with our analysis that stocks and the USD are ripe for a correction.

WTI Daily Chart
WTI Daily Chart

In other news, WTI crude creeped 0.95 percent higher, erasing most of Friday's losses. Technically, the price has been consolidating since July 13 in a pennant-shaped, considered a continuation pattern. A downside breakout would signal that traders are prepared to resume the prior selloff since $75. The uptrend line since November 2017, currently at $66, will be the next test.

Up Ahead

  • Earnings season continues with:

  • Tech heavyweight Apple (NASDAQ:AAPL) reports on Tuesday: analysts expect EPS of $2.16 and revenues of $52.3 billion
  • BP (LON:BP) also report on Tuesday. Analysts expect EPS of $0.10 and revenues of $68.17 billion.
  • Berkshire Hathaway (NYSE:BRKa), due Friday, EPS 3,398.89 & revenue $61.64 billion forecast
  • Barclays (LON:BARC), due Thursday, EPS $0.28 & revenue $6.94 billion forecast
  • Tesla (NASDAQ:TSLA), due Wednesday, EPS $2.78 & revenue $4.03 billion forecast
  • Royal Bank of Scotland (LON:RBS) earnings are due on Friday, with revenues of $3.3 billion and EPS of $0.07 forecast.
  • Toyota (NYSE:TM), due Friday, EPS $3.95 & revenue $65.15 billion forecast
  • The US Treasury is set to release its funding program for the next three months on Wednesday.

  • Central banks in the US, Japan, the UK, Brazil and India all meet this week. The BOJ may tweak its yield-curve control policy and cut its CPI forecasts, while the Bank of England is expected to hike rates even amid Brexit gloom. The Fed is expected to hold rates, as is Brazil’s central bank. The RBI will probably raise its benchmark.

  • The UK release PMIs covering manufacturing, construction and services sectors.
  • US personal spending and income data for June, out on Tuesday, are expected to post a steady reading.

  • The jobs report on Friday is predicted to show a healthy labor market, with 193,000 new jobs and the unemployment rate slipping back to 3.9 percent.

  • China's PMI probably edged lower in July, hindered by a deleveraging agenda and trade war jitters.

Market Moves

Stocks

  • The FTSE was up 0.11 percent mid-session.
  • The STOXX Europe 600 lost 0.4 percent, the biggest decrease in almost three weeks.

  • Futures on the S&P 500 fell 0.2 percent to the lowest level in more than a week.

  • The MSCI All-Country World Index slipped 0.2 percent.

  • The MSCI Emerging Market Index slid 0.4 percent, the first retreat in a week and the largest fall in more than a week.

Currencies

  • The British pound rose less than 0.05 percent to $1.311.
  • The Dollar Index climbed 0.1 percent.

  • The euro declined less than 0.05 percent to $1.1656.

  • The Japanese yen decreased 0.1 percent to 111.13 per dollar.

  • The yuan gained 0.22 percent, set to the lowest close since June 2017.

Bonds

  • Britain's 10-year yield fell less than one basis point to 1.282 percent, the most significant fall in more than a week.

  • The yield on 10-year Treasuries gained one basis point to 2.96 percent.

  • Germany’s 10-year yield dropped one basis point to 0.40 percent.

Commodities

  • The Bloomberg Commodity Index gained less than 0.05 percent.

  • West Texas Intermediate crude climbed 0.5 percent to $69.02 a barrel.

  • LME copper slipped 1.9 percent to $6,176.00 per metric ton, the lowest level in a week on the most substantial decrease in almost three weeks.

  • Gold fell 0.3 percent to $1,220.31 an ounce, the weakest level in almost 13 months.

U.S. Opening Bell: Earnings Misses Hit Futures; Japan Yields Spike; Yuan Tumbles
 

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U.S. Opening Bell: Earnings Misses Hit Futures; Japan Yields Spike; Yuan Tumbles

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