Disappointing Earnings News Likely To Weigh On Wall Street

The major U.S. index futures are currently pointing to a lower open on Thursday, with stocks likely to come under pressure following the lackluster performance seen in the previous session.

The downward momentum on Wall Street partly reflects disappointing earnings news from financial giants JPMorgan Chase (JPM) and Morgan Stanley (MS).

JPMorgan and Morgan Stanley are both seeing pre-market weakness after reporting second quarter earnings that missed analyst estimates.

Concerns about inflation and higher interest rates are also likely to continue weighing on the markets after the Labor Department released a report showing U.S. producer prices increased by more than expected in the month of June.

The Labor Department said its producer price index for final demand jumped by 1.1 percent in June after climbing by an upwardly revised 0.9 percent in May.

Economists had expected producer prices to increase by 0.8 percent, matching the advance originally reported for the previous month.

The annual rate of producer price growth accelerated to 11.3 percent in June, reflecting the largest spike since a record 11.6 percent jump in March.

Economists had expected the annual rate of producer price growth to slow to 10.7 percent in June from 10.9 percent in May.

A separate report from the Labor Department showed first-time claims for U.S. unemployment benefits unexpectedly inched higher in the week ended July 9th.

After recovering from an early move to the downside, stocks showed a lack of direction over the course of the trading session on Wednesday. The major averages climbed off their early lows and spent the rest of the day bouncing back and forth across the unchanged line.

The major averages eventually ended the session in negative territory but well off their worst levels. The Dow slid 208.54 points or 0.7 percent to 30,772.79, the Nasdaq edged down 17.15 points or 0.2 percent to 11,247.58 and the S&P 500 fell 17.02 points or 0.5 percent to 3,801.78.

The early weakness on Wall Street came as a Labor Department report showing a bigger than expected increase in U.S. consumer prices added to concerns about the outlook for interest rates.

The Labor Department said its consumer price index shot up by 1.3 percent in June after jumping by 1.0 percent in May. Economists had expected consumer prices to leap by 1.1 percent.

With the bigger than expected monthly surge, the annual rate of consumer price growth accelerated to 9.1 percent in June, reflecting the biggest increase since November 1981.

Economists had expected the annual rate of consumer price growth to accelerate to 8.8 percent in June from 8.6 percent in May.

Excluding increases in prices for food and energy, core consumer prices advanced by 0.7 percent in June after climbing by 0.6 percent in May. Core prices were expected to rise by another 0.6 percent.

While the annual rate of core consumer price growth slowed to 5.9 percent in June from 6.0 percent in May, the rate of growth was expected to decelerate to 5.7 percent.

The bigger than expected jump in consumer prices has solidified expectations the Federal Reserve will raise interest rates by 75 basis points later this month and increases the likelihood of another 75 basis point rate hike in September.

Traders continue to express concerns the Fed’s aggressive fight to contain elevated inflation will inadvertently push the economy into a recession.

Later in the day, the Fed released its Beige Book, a compilation of anecdotal evidence on economic conditions in each of the twelve Fed districts, which noted U.S. economic activity has expanded at a modest pace since mid-May.

However, the Fed said several districts reported growing signs of a slowdown in demand, with contacts in five districts noting concerns over an increased risk of a recession.

The report said most Fed districts reported that consumer spending moderated as higher food and gas prices diminished households’ discretionary income.

On the inflation front, the Fed noted substantial price increases were reported across all districts, at all stages of consumption, although three quarters noted moderation in prices for construction inputs such as lumber and steel.

While most of the major sectors ended the day showing only modest moves, gold stocks moved sharply higher, driving the NYSE Arca Gold Bugs Index up by 2.7 percent. The rally by gold stocks came amid an increase by the price of the precious metal.

Considerable strength also emerged among steel stocks, as reflected by the 1.5 percent gain posted by the NYSE Arca Steel Index.

On the other hand, banking stocks showed a significant move to the downside on the day, dragging the KBW Bank Index down by 1.5 percent.

Transportation stocks also saw notable weakness, resulting in a 1.3 percent drop by the Dow Jones Transportation Average.

Delta Air Lines (DAL) helped lead the sector lower, tumbling by 4.5 percent after reporting weaker than expected second quarter earnings.

Commodity, Currency Markets

Crude oil futures are tumbling $1.53 to $94.77 a barrel after rising $0.46 to $96.30 a barrel a barrel on Wednesday. Meanwhile, after climbing $10.70 to $1,735.50 an ounce in the previous session, gold futures are sliding $24 to $1,711.50 an ounce.

On the currency front, the U.S. dollar is trading at 139.11 yen versus the 137.39 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.0003 compared to yesterday’s $1.0059.

Asia

Asian stocks ended mixed on Thursday as a record-setting U.S. inflation report kept pressure on the U.S. central bank to further tighten monetary policy aggressively at its upcoming policy meetings.

Chinese shares fluctuated before finishing marginally lower, while Hong Kong’s Hang Seng Index slipped 0.2 percent to 20,751.21.

Japanese markets advanced as a cheaper yen helped spur bargain hunting in export-oriented shares. The Nikkei 225 Index climbed 0.6 percent to 26,643.39, while the broader Topix closed 0.2 percent higher at 1,893.13.

Panasonic Holdings rose 0.7 percent after the battery maker said it had selected Kansas as the site for a new electric vehicle battery plant. Shipping firms surged, with Mitsui O.S.K. Lines rising 2.4 percent and Kawasaki Kisen climbing 3.9 percent.

Seoul stocks ended slightly lower amid concerns about fast-growing inflation and rate hike woes. The Kospi dipped 0.3 percent to close at 2,322.32.

Australian markets eked out modest gains to extend the winning streak for a third day after official data showed employment rose more than expected in June.

The benchmark S&P/ASX 200 Index rose 0.4 percent to 6,650.60, while the broader All Ordinaries Index ended 0.6 percent higher at 6,848.60.

Miners topped the gainers list as iron ore prices rebounded on the back of positive exports data from China. BHP, Rio Tito and Fortescue Metals Group rose 1-2 percent.

Coal miners New Hope and Whitehaven Coal surged 5.7 percent and 6.5 percent, respectively, on reports that China may be preparing to reverse its unofficial ban on Australian coal imports.

Europe

European stocks have declined on Thursday, with recession worries and mixed earnings reports weighing on sentiment.

Fed Governor Christopher Waller is scheduled to speak later today amid speculation the Federal Reserve could raise its target fed funds rate by 1 percentage point at its July 26-27 meeting.

While the U.K.’s FTSE 100 Index has slumped by 1.2 percent, the German DAX Index and the French CAC 40 Index are both down by 1.5 percent.

Sweden’s Ericsson has moved sharply lower after the telecom giant’s quarterly core profit missed estimates on rising costs.

Bayer AG shares have also moved lower. The German pharma and life sciences firm has inked a deal with Grünenthal, a company focused on pain management and related diseases, to sell its men’s health product Nebido, for up to 500 million euros.

Deutsche Telekom has also dropped after it agreed to sell a 51 percent stake in GD Towers, which consists of tower assets in Germany and Austria, to a consortium.

Investment manager Ashmore Group has also moved to the downside after the company saw its assets under management drop 18.3 percent to $64 billion in the three months to June 2022.

On the other hand, recruiter Hays has advanced after reporting a 23 percent jump in quarterly fees. Luxury fashion house Hugo Boss has also rallied after raising its full-year outlook.

British consumer credit reporting company Experian has also jumped after its revenue in the first quarter grew 7 percent at actual exchange rates and 9 percent at constant exchange rates, benefiting from robust demand mainly in North America.

U.S. Economic Reports

First-time claims for U.S. unemployment benefits unexpectedly inched higher in the week ended July 9th, according to a report released by the Labor Department on Thursday.

The report showed initial jobless claims crept up to 244,000, an increase of 9,000 from the previous week’s unrevised level of 235,000. The uptick surprised economists, who had expected jobless claims to come in unchanged.

The Labor Department said the less volatile four-week moving average also edged up to 235,750, an increase of 3,250 from the previous week’s unrevised average of 232,500

A separate report released by the Labor Department showed U.S. producer prices increased by more than expected in the month of June.

The Labor Department said its producer price index for final demand jumped by 1.1 percent in June after climbing by an upwardly revised 0.9 percent in May.

Economists had expected producer prices to increase by 0.8 percent, matching the advance originally reported for the previous month.

The annual rate of producer price growth accelerated to 11.3 percent in June, reflecting the largest spike since a record 11.6 percent jump in March.

Economists had expected the annual rate of producer price growth to slow to 10.7 percent in June from 10.9 percent in May.

Excluding prices for food, energy and trade services, core producer prices rose by 0.3 percent in June after climbing by 0.4 percent in each of the two previous months.

Compared to the same month a year ago, core producer prices were up by 6.4 percent in June, reflecting a slowdown from the 6.7 percent surge in May.

At 11 am ET, the Treasury Department is scheduled to announce the details of this month’s auction of twenty-year bonds.

Federal Reserve Governor Christopher Waller is also due to speak on the economic outlook at the Global Interdependence Center Conference: Fourteenth Annual Rocky Mountain Economic Summit in Victor, Idaho, at 11 am ET.

Stocks In Focus

Shares of Ericsson (ERIC) are moving sharply lower in pre-market trading after the Swedish telecom giant reported weaker than expected second quarter earnings.

Food producer Conagra (CAG) is also seeing pre-market weakness after reporting fiscal fourth quarter earnings that beat estimates but providing disappointing guidance.

On the other hand, shares of Taiwan Semiconductor (TSM) are likely to see initial strength after the chipmaker reported better than expected second quarter earnings and raised its full-year revenue forecast.