Stock weekly market review
Global stock markets continue to recover, despite the worsening epidemiological situation. On Friday, a new world record was set in terms of the number of new cases of coronavirus – almost 230 thousand. In the USA, the daily growth in the number of confirmed cases exceeds 60 thousand.
However, the demand for risky assets remains high, despite the risks of re-introducing lockdown restrictions. Growth leaders are shares of technological companies. The corporate earnings season starts this week. In particular, banks will report earnings from Tuesday to Thursday.
JP Morgan, Wells Fargo, and Citigroup will report earnings on Tuesday before the market open. Goldman Sachs will report on Wednesday, and Bank of America on Thursday before market open.
The macroeconomic environment is unfavorable for the banking sector. The interest rate is at the record low level of 0 – 0.25%, which puts downward pressure on the interest income of banks. The reporting quarter covers the period of lockdown restrictions when the economy was put on pause and consumer spending dropped significantly, which translated into lower volumes of new loans. Also, banks are forced to reserve more funds to cover potential losses on unpayable loans.
Johnson & Johnson will present a quarterly report on July 16 before the market open. Healthcare is one of the few sectors seeing high demand, which can positively affect the financial results of the company. In addition, Johnson & Johnson made progress in the development of a coronavirus vaccine and plans to begin a human vaccine trial in July.
Netflix will report earnings on July 16 after the market close. Lockdown restrictions became a positive factor for the company, as it helped to attract an additional number of subscribers. However, Netflix faces increasing competition in streaming services, as well as the inability to create new content due to lockdown restrictions.
Dollar remains in a downtrend amid declining demand for safe-haven assets. The Fed announced a record weekly decline in its balance sheet in 11 years. Over the week, the Fed’s balance sheet declined by $ 88 billion. It is noteworthy that for the first time in 10 months there were no repo operations, which indicates the saturation of the banking system with dollar liquidity.
On Tuesday and Wednesday, a meeting of the OPEC + Ministerial Monitoring Committee will be held, based on which recommendations will be developed regarding the need to change the amount of oil production cuts. The committee is not expected to recommend extending current production cuts beyond August 1. According to current agreements, starting from the 1st of August, the amount of oil production cuts will be reduced from 9.7 million barrels per day to 7.7. million. An increase in production may put downward pressure on the price of oil.
The price of gold reached an 8-year maximum on Wednesday, boosted by a weakening dollar.
Main events of the current week
- On Monday, Governor of the Bank of England Andrew Bailey will speak.
- On Tuesday, data on UK GDP and industrial production will be presented as well as the economic sentiment index in Germany and a US consumer price index.
- On Wednesday, data on consumer price indices in the UK, Canada, and New Zealand will be published, as well as data on crude oil inventories. The Bank of Canada will hold a monetary policy meeting, at which no decision on interest rate change is expected, which is at the level of 0.25%.
- On Thursday, data on employment in Australia, GDP and industrial production in China, claimant count change in the UK, jobless claims and retail sales in the United States will be published. ECB will hold a meeting as well. No monetary policy changes are expected from the regulator after it decided to expand its quantitative easing program to 1.35 trillion. euro at the last meeting.
- On Friday, data on UK retail sales, consumer price index in the eurozone, and building permits issued in the United States will be presented.
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