Fading Fed rate hike bets, as well as solid earnings from UnitedHealth, have stocks moving higher Friday ahead of a key reading of U.S. retail sales.
U.S. equity futures moved higher Friday as stocks looked to snap a five-day losing streak amid easing bets on a jumbo Fed rate hike later this month and a key reading of June retail sales prior to the start of trading.
Stocks are holding onto their pre-market gains, as well, despite weaker-than-expected earnings from Wells Fargo (WFC) – Get Wells Fargo & Company Report, which followed its larger rival JPMorgan (JPM) – Get JP Morgan Chase & Co. Report in setting aside a big number to cover for potential increases in bad loans as the broader economic outlook deteriorates.
Recession concerns remain at the forefront overseas, as well, following a much weaker-than-expected reading of second quarter GDP out of China, which showed the world’s largest economy narrowly avoiding contraction with growth of just 0.4%.
That’s the slowest — apart from the direct Covid hit in the first quarter of 2020 — in at least thirty years and raises big question about the impact of its broader health policies heading into the second half of the year.
The data failed to keep a lid on global oil prices in overnight trading, however, as investors offset fading demand from the world’s biggest energy importer and focused on President Joe Biden’s controversial visit to Saudi Arabia.
Biden will meet with King Salman bin Abdulaziz, as well as Crown Prince Mohammed bin Salman on Friday as part of his broader Middle East visit arranged, in part, to talk energy policy with the world’s biggest oil producer.
Biden is expected to push the Kingdom — which he called a “pariah state” during his 2019 election campaign — to use its influence with the OPEC cartel to boost production and offset the impact of sanctions placed on Russian crude exports. He is not, however, expected to raise the issue of Jamal Khashoggi, a Washington Post journalist who was murdered by agents of the Saudi Crown Price in 2018.
U.S. markets, however, are looking cautiously positive ahead of a key reading of June retail sales prior to the start of trading and some soothing remarks from Fed Governor Christopher Waller and St. Louis Fed President James Bullard, who both indicated their preference for a 75 basis point rate hike when the Fed meets next starting on July 26.
The CME Group’s FedWatch, which put the odds of a 100 basis point hike at nearly 90% following the shocking June inflation print of 9.1%, is now indicating just a 46.4% chance.
Still, Fed rate hikes are expected to be significant and ongoing as the central bank steps-up its fight against the fastest inflation in four decades, and bond markets are betting the cost of controlling it will tip the domestic economy into recession.
Benchmark 2-year Treasury note yields traded at 3.118% overnight, against a 2.926% rate for 10-year notes, holding the so-called ‘inversion’ of the yield curve — an accurate predictor of recesion — at the steepest since December of 2000.
On Wall Street, futures tied to the S&P 500 are indicating a 15 point opening gain while those liked to the Dow Jones Industrial Average are priced for a 165 point move to the upside, thanks in part to another solid quarter earnings report from UnitedHealth Group (UNH) – Get UnitedHealth Group Incorporated (DE) Report. Futures linked to the tech-focused Nasdaq are indicating a 45 point bump.
UnitedHealth Group shares were up 1.11%, adding around 40 points to the Dow, after it posted better-than-expected second quarter earnings, and lifted its full-year profit forecast, as revenues from its healthcare solutions division Optum continued to paced topline gains.
Wells Fargo fell 2.6% after it published weaker-than-expected second quarter earnings as the group set aside more than half a billion dollars to cover for bad loan losses over the coming months.
Pinterest (PINS) – Get Pinterest Inc. Class A Report shares, meanwhile, surged 14% after the Wall Street Journal reported that activist investors Elliott Management have amassed a more than 9% stake in the social media group.