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Research Market strategy
by Swissquote Analysts
Daily Market Brief

Investors Have High Expectations of US Earnings Season

1

Investors Have High Expectations of US Earnings Season

By Strategy Desk

Stock markets are back on track after being somewhat bearish last week. Nevertheless, the first signs of a rally continuation could be seen last Friday. Investors hope that most US businesses will beat forecasts in the earnings season, as expectations had been exaggeratedly slashed amid the coronavirus panic. Besides this, drug maker Gilead, whose Remdesivir has been officially approved as a COVID treatment, said that the medication could cut the death rate of coronavirus patients by 62% compared to standard care. In light of this, US stock indexes are expected to ascend, with Nasdaq to update the record high again after doing so at the end of last week. S&P 500 and Nasdaq futures are currently up 0.46% and 0.39%, respectively.

Asian stocks are impatiently waiting for the US earnings season, pricing in the optimism. At the time of writing, Japan’s Nikkei 225 has surged 1.85%, South Korea’s KOSPI rose 1.49%, and Australian ASX 200 is up 0.70%.

China attempts to recover from last week’s pessimism, even though the three-week rally has formed overbought levels on technical oscillators. Shanghai Composite is now up 1.27%, and the Shenzhen Component has surged 2.72%. Markets are waiting for China’s trade data for June, scheduled for Tuesday, to get hints about the economic recovery. Hong Kong’s Hang Seng Index is up 0.97%. The financial hub’s health authorities warned that the coronavirus situation is getting a bit out of hand, as the city confirmed 38 cases on Sunday.

In fact, Sunday was quite gloomy in general, as the World Health Organization (WHO) confirmed a record surge in coronavirus cases – over 230,000 in 24 hours. The US and India also reported record daily figures in COVID cases.

Despite everything, investors seem to ignore the situation and instead focus on optimism around Gilead’s Remdesivir and the discovery and rapid implementation of a vaccine. On top of this, markets are also pricing in more stimulus from central bankers.

Confidence in positive reporting is triggering a short-term boost. Financial giants JPMorgan, Wells Fargo, and Citigroup are scheduled to report on Tuesday. Goldman Sachs and Bank of NY will come next on Wednesday, while Netflix and Morgan Stanley will report on Thursday.

European stocks will not miss the general bullishness, as DAX and FTSE futures are flashing green.

In the commodity market, oil futures are down on Monday, as markets are anticipating the OPEC’s technical meeting, due on Wednesday. Investors expect the oil cartel to recommend a relaxation of existing cuts, which might reverse crude gains. At the time of writing, Brent futures are down 0.81% to $42.85, while WTI has dropped 0.84% to $40.21. On top of that, the record increase in the daily number of COVID cases might force many regions to extend lockdown measures, and that means lower demand for oil.

On Friday, crude prices managed to secure generous gains after the International Energy Agency revised its oil demand forecast for 2020 upwards by 400,000 barrels per day.

On the other side, the worsening COVID crisis is favoring gold, which maintains above $1,800. The metal is also a good refuge amid the political tensions between the US and China. US President Donald Trump said last Friday that there would be no phase 2 trade deal. Investors are now waiting for China’s response.

In FX, investors continue to distance themselves from the US dollar and eye yielding currencies of emerging markets and those backed by commodities, including the Australian and Canadian dollar.

The USD Index, which tracks the greenback against six currencies, is down 0.27% to 96.350. Investors are all into stocks right now, anticipating a favorable earnings season. Also, hopes for the development of effective COVID vaccines and drugs are backing the risk sentiment.

The sterling is surging against the greenback and moderately up against the euro. Markets are waiting for the speech of Bank of England Governor Andrew Bailey, due later today.

The EUR/USD pair is up 0.32%. Despite being plagued with crises, the euro is still a major attraction for the bloc’s member countries that haven’t adopted it yet. Croatia and Bulgaria got Europe’s nod to enter the so-called waiting room to become part of the eurozone. Romania hopes to be accepted next and become the 22nd country to join the single currency.

 
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