Five things you need to know before the market opens on Thursday, July 13:
1. -- Stocks Extend Gains As Slowing Inflation Data Revives Bulls
U.S. equity futures extended gains Thursday, while the dollar slumped to a fifteen month low on foreign exchange markets, as investors re-priced expectations for near-term Federal Reserve rate hikes while prepping for the start of the second quarter earnings season.
Wednesday's June inflation report, which showed consumer pricing rising at the slowest pace in more than two years, with the crucial core reading falling below 5%, has markets testing the Fed's resolve for "two or more" rate hikes between now and the end of the year.
Better-than-expected commentary from the Fed's June 'Beige Book' report on regional economic activity also added to bets that the U.S. will be able to avoid recession over the second half of the year.
Rate traders have effectively locked-in a 25 basis point hike at the Fed's next meeting in late July, but have pared bets on a follow-on move in September to just 11.1% and see the Fed Funds rate topping at 5.25% to 5.5% for the remainder of the year.
Benchmark 2-year Treasury note yields, as a result, have fallend to 4.637% in overnight trading, after hitting a 2007 high of around 5.09% last week, with 10-year paper down to 3.88% following Wednesday's solid auction of $32 billion in re-opened notes.
The U.S. dollar index was also in retreat, falling another 0.22% against a basket of six global currencies in overnight dealing to 100.320, the lowest in fifteen months.
Markets will now likely focus on the start of the second quarter earnings season, with updates from PepsiCo and Delta Air Lines prior to the start of trading, and a trio of big bank reports lead by JPMorgan on Friday.
Collective S&P 500 profits are expected to fall 6.4% from a year earlier to a share-weighted $436.9 billion, according to data from Refinitiv, with the energy sector leading the benchmark's overall earnings decline.
Heading into the start of the trading day on Wall Street, futures contracts tied to the S&P 500, which closed at an April 2022 high last night were indicating a 16 point opening bell gain while those linked to the Dow Jones Industrial Average were priced for an 85 point move to the upside. Nasdaq futures were up 98 points.
In overnight trading, the MSCI ex-Japan index rose 1.86% into the close of trading, following on from last night's rally on Wall Street, but had to navigate a dismal set of trade figures from China, which showed the biggest decline in exports since the global pandemic and a fourth consecutive monthly decline in imports.
The Europe-wide Stoxx 600 was marked 0.46% higher in early Frankfurt trading while Britain's FTSE 100 gained 0.27% in London, even as the pound hit a multi-year high of 1.3041 against the beaten-down greenback following May GDP data showing the broader U.K. economy will likely avoid near-term recession.
2. -- Jobs Data On Deck As Fed Rate Bets Fade
The Bureau of Labor Statistics will publish its regular report on weekly jobless claims Thursday with investors focused on recent weakness in the labor market that could cement forecasts for slowing inflation over the coming months.
Around 280,000 people are expected to have filed for new unemployment benefits over the week ending on July 8, a 32,000 increase from the prior period at the highest overall total since October of 2021.
The jump would follow last week's June jobs report, which showed the softest tally of new hires in nearly three years, at 209,000 but also indicated a modest tick higher in average hourly earnings.
ADP's monthly employment report, however, noted a downtick in earnings for both those remaining in their current positions and those leaving for new roles, with chief economist Nela Richardson suggesting that "hiring likely is cresting after a late-cycle surge" even as the headline payroll number surged to 497,000.
The Bureau of Labor Statistics is also set to report June factory gate inflation data at 8:30 am Eastern time, following yesterday's slower-than-expected consumer price reading, with investors expecting both a headline and core reading of 0.2% for the month of June.
3. -- PepsiCo Earnings In Focus As Price Pressures Weigh on Profit
PepsiCo (PEP) -) shares edged higher in pre-market trading ahead of the snacks and beverages group's second quarter earnings set for before the opening bell.
Analysts expect PepsiCo to post an adjusted bottom line of $1.96 per share, up 5.4% from last year, on revenues of $21.73 billion.
PepsiCo's outlook, and its ability to pass on higher input and wage costs to inflation-hit consumers, will likely dictate the stock's performance following its second quarter update, as the consumer discretionary sector is set to contribute an estimated $34 billion to collective S&P 500 profits.
Earlier this spring, the group forecast organic revenues would rise 8% this year, up from its prior estimate of a 6% gain, with core earnings at around $7.27 per share.
PepsiCo shares were marked 0.62% higher in pre-market trading to indicate an opening bell price of $184.30 each.
4. -- Delta Leads Airlines Earnings With Q2 Update
Delta Air Lines (DAL) -) shares jumped higher in pre-market trading ahead of the carrier's second quarter earnings prior to the opening bell.
Delta, the first of the major U.S. airlines to report June quarter profits, its expected to see its adjusted bottom line rise 66% from last year to $2.39 per share, with revenues up 4.6% to $14.46 billion.
A surge in travel demand, extending from the end of the Covid pandemic and into the first half of this year, has helped Airlines book solid revenue gains, with lower fuel costs and a recent agreement on pilot pay keeping expenses from spiraling higher.
The Transportation Security Administration said last week that its screened more than 11.3 million passengers over the five-day period that ended on July 5, a level that represents around 93% of the volumes recorded over the same period in 2019.
Delta said in April that fuel costs were up 30% from last year to $2.7 billion for the March quarter, but added that non-fuel costs were "progressing as expected", and would likely rise between 1% and 3% over the three months ending in June.
Delta Air Lines shares were marked 2% higher in pre-market trading to indicate an opening bell price of $48.90 each.
5. -- Disney Shares Jump After Extending CEO Bob Iger's Contract
Walt Disney (DIS) -) shares moved higher in pre-market trading after the media and entertainment group extended the contract of interim CEO Bog Iger for another two years.
Iger, who returned to Disney as CEO late last year with plans to remain in the role until 2024, will now stay with the group until 2026, giving him more time to deliver on a series of group restructuring plans while also extending the search for his permanent successor.
Last month, Disney posted second quarter earnings that were largely in-line with Street forecasts, but noted that Disney+ paid subscribers fell by 4 million, thanks in part to the loss of televised cricket rights in India. The group has also moved ahead with plans to eliminate 7,000 jobs as part of a $5.5 billion cost-cutting effort.
"On my first day back, we began making important and sometimes difficult decisions to address some existing structural and efficiency issues, and despite the challenges, I believe Disney’s long-term future is incredibly bright,” Iger said in a statement. “But there is more to accomplish before this transformative work is complete."
Disney shares were marked 1.06% higher in pre-market trading to indicate an opening bell price of $91.11 each.
