By Geoffrey Smith
Investing.com -- The European Central Bank may hike rates by more than it signaled on Thursday, lifting the euro. The housing market remains under the spotlight with building permits and housing starts data for June. Netflix, Johnson & Johnson and Lockheed Martin all release results. And oil prices come under pressure again as China's COVID case count rises. Here's what you need to know in financial markets on Tuesday, July 19.
1. ECB set to discuss 50 bp rate hike, euro bounces off lows
The euro rose and European Central Bank will look at raising its official interest rates by 50 basis points at Thursday’s meeting, newswires reported citing unnamed sources.
The ECB had so far only guided for a 25 basis point increase, but has been negatively surprised by repeated overshoots in inflation, the latest of which was confirmed earlier by Eurostat at an annual rate of 8.6%. Even excluding volatile energy and food effects, the cost of living was up 4.6% from a year earlier, more than twice the ECB’s target.
Eurozone bond markets took the news stoically, still in suspended animation while awaiting the outcome of Mario Draghi’s negotiations to keep his coalition government together. Draghi sealed an important deal on Monday to import extra natural gas volumes from Algeria, although that may not be enough to avert a serious and unpopular decline in living standards this year.
2. Housing market data in focus after NAHB index slump
The U.S. housing market remains in the spotlight after the biggest ever monthly drop in the National Association of Homebuilders’ index of activity in the sector.
The index fell to its lowest since the start of the pandemic, with soaring prices and mortgage rates both having a chilling effect on sentiment. Tuesday’s data will focus on building permits and housing starts. Both of these dropped abruptly in May after defying gravity in the previous six months.
Analysts expect a modest bounce in starts but another decline in building permits. Anything markedly stronger than that may revive concerns of a full percentage point hike in U.S. interest rates from the Federal Reserve next week. Fed vice-chair Lael Brainard speaks at 02:35 PM ET.
3. Stocks set to recover from Apple-related selloff; J&J, Netflix earnings eyed
U.S. stock markets are set to open higher later, recovering momentum after a report about Apple (NASDAQ:AAPL) slowing hiring and cutting departmental budgets that cast a pall over the broader market.
By 06:20 AM ET (1020 GMT), Dow Jones futures were up 215 points, or 0.7%, while S&P 500 futures and Nasdaq 100 futures were both up 0.9%. The three main cash indices had all lost between 0.7% and 0.9% on Monday.
Stocks likely to be in focus later include Johnson & Johnson (NYSE:JNJ), Lockheed Martin (NYSE:LMT), Halliburton (NYSE:HAL), JB Hunt (NASDAQ:JBHT), Hasbro (NASDAQ:HAS) and Omnicom (NYSE:OMC), all of which report earnings. Overnight, Novartis (NYSE:NVS) ground higher after reaffirming its outlook for the year. Perhaps the biggest report of the day will come after the bell, however, when Netflix (NASDAQ:NFLX) will want to avoid a third disaster in a row.
4. Europe’s energy crisis reaches nationalization stage
Europe’s energy crisis – years in the making – has reached the nationalization stage. The French government said earlier it will pay some $10 billion to buy out the free shareholders of Electricite de France (EPA:EDF), the continent’s biggest power generator, ending an 18-year experiment with partial privatization.
The Finance Ministry said nationalization was the only way to ensure that the company will be able to build a new generation of nuclear reactors. The current, aging fleet has been increasingly badly affected by reliability issues, leaving it unable to fill the gap in power supply caused by the unavailability of gas-fired generation due to Russian supply cuts.
EDF shares leaped 15% in response to what appeared a generous offer, given the miserable performance of the stock in recent years.
EDF is unlikely to be the last European energy giant to be finished off by the current crisis. Germany's Uniper (ETR:UN01), ruined by the need to cover its Russian gas shortfall on the spot market, looks likely to be the next shoe to fall.
5. Oil dips as Chinese COVID-19 cases rise; API eyed
Crude oil prices fell as another rise in China’s COVID-19 case count revived fears for the trajectory of global demand.
The country reported nearly 700 cases on Monday, after reporting 1,000 over the weekend. Most importantly for global markets, the key trade hub of Shanghai has ordered another couple of rounds of mass testing for most of the city’s 25 million inhabitants. Parts of the city seen at high risk are still locked down, Bloomberg reported. More extensive business closures have been reported in the southern province of Guangxi and the city of Chengdu.
By 06:30 AM ET, U.S. crude prices were down 0.2% at $99.20 a barrel, while Brent was down 0.6% at $105.68 a barrel. The American Petroleum Institute releases its weekly stockpiles data at 04:30 PM ET, as usual.