SPX has best month in 2 years

US indices continued to gain last Friday, posting a 3-day winning streak while investors are making an attempt at figuring out whether we are in a bear market rally or a more sustained trend.

Key Factors for Today

• Recession fears subdue after oil giants report better-than-expected earnings
• Stocks carry on with rally as risk appetite seems sentiment-driven, not data
• Eurozone GDP surprises to the upside, but Germany disappoints

• China’s PMI in contraction, but no Covid cases reported
• Oil companies face regulatory scrutiny for “excess” profits
• Starbucks to sell 1,000 UK stores to a ‘franchisee’

Tech leads risk rally on upbeat reports 

The NASDAQ led last Friday’s rally as the tech index closed 1.88% higher. S&P500 followed second with a gain of 1.42%, and Dow Industrials registered a rise of 0.97%. NASDAQ and S&P500 printed the largest monthly gains seen in over two years. 

Upbeat corporate earnings reports from Exxon and Chevron supported sentiment as the oil supermajors smashed Q2 profit estimates amidst soaring energy prices. Exxon beat estimates of $16.9bn, at $17.9bn, and Chevron reported profits of $11.6bn, compared to a consensus of $9.9bn.

Price action on the indices suggests markets might be driven by excessive risk appetite as participants seem to discount the marginal increase in PCE inflation reported last Friday. 

The move could continue in today’s session regardless, as China reported no covid cases as of Sunday.

European Prelim Q2 GDP above expectations

As the ECB lifts off on rates, the first look at Eurozone GDP showed better than expected growth across the board, including in the periphery. 

Even if hawks like Holzman suggested that a recession might be inevitable to get prices under control, the figures could give the ECB more room to act. Germany was a lone country to have disappointing results, with Q2 GDP reported as flat, while Eurozone as a whole advanced 0.7% quarterly. Despite a weaker dollar, the euro remains stubbornly suppressed at around $1.02.

China Manufacturing PMI back into contraction

China’s NBS Manufacturing survey managed to surprisingly fall into contraction at 49.0, below expectations of 50.4. China reports no new covid cases on Sunday which could add to the sentiment. Macau is expected to allow the return of dine-in services starting on August 2.

Oil companies report better results but don't reinvest

There is high potential for renewed regulatory scrutiny on major oil firms that reported record profits alongside skyrocketing fuel prices. Chevron raised its stock buyback, but Exxon did not announce any increase in Capex. Oil firms are taking advantage of high prices to return more capital to shareholders and pay down debt, which could rile up authorities in Washington who have already been pointing to "excess" profits in the industry.

FT Reports Starbucks to sell its UK stores

Starbucks is not exiting the British market but would sell over 1,000 stores to a franchisee. The valuation of the deal is not yet known but an announcement would boost the stock and NASDAQ up a bit. Starbucks is expected to report later in the week. Also, a major equity firm, STRS Ohigo, took a substantial stake in the company.

Boeing receives approval from FFAA to address 787 problems

Boeing has not been able to make deliveries of its flagship plane for over two years due to production problems at its Georgia plant. It has 120 undelivered orders with a value of over $25B. The plan would allow a resumption of the 787 production and support the stock, and Dow. Additionally, workers in the defense division will vote today on the latest wage proposal to avoid a strike.