18Q2 earnings season is underway with the first batch of nine companies reporting last week. Exhibit 1 provides a summary of reporting results. Exhibit 1: Earnings Season Results Overall, most
President Trump and First Lady Melania Trump arrived in Helsinki late Sunday night for his long-awaited summit meeting with Russian President Vladimir Putin, according to the Financial Times. And though the two leaders have met before, Monday's summit will mark the first sit down meeting between the two leaders since Trump's inauguration. In an interview that aired yesterday, Trump cautioned that he has "low expectations" going into the summit, because no matter what he accomplishes, the media and Trump's political opponents will treat him like it wasn't enough. Trump said Friday during his press conference with UK Prime Minister Theresa May that he expects to discuss Syria, Ukraine and terrorism with Putin. He said later that he would consider asking Putin about the possibility of extraditing the more than two dozen Russians who have now been indicted by the DOJ over allegations of interference in the 2016 election. Just hours before meeting with Putin, Trump blamed former President Barack Obama for the so-called Russian interference during the election because Obama knew about the interference but chose to do nothing, and slammed his political opponents for allowing the US's relationship with Russia to deteriorate to a point where it "has never been worse." President Obama thought that Crooked Hillary was going to win the election, so when he was informed by the FBI about Russian Meddling, he said it couldn’t happen, was no big deal, & did NOTHING about it. When I won it became a big deal and the Rigged Witch Hunt headed by Strzok! — Donald J. Trump (@realDonaldTrump) July 16, 2018 Our relationship with Russia has NEVER been worse thanks to many years of U.S. foolishness and stupidity and now, the Rigged Witch Hunt! — Donald J. Trump (@realDonaldTrump) July 16, 2018 Following Friday's latest round of indictments against a dozen Russian military intelligence officials, Democratic lawmakers slammed Trump for refusing to cancel the meeting. And while Trump berated his political opponents for taking advantage of the indictments and their timing to try and foil the long-anticipated meeting between the two world leaders, National Security Advisor John Bolton said on Sunday that the president had been briefed in advance about the indictments of the Russian intelligence agents. According to Reuters, Trump appeared upbeat during a breakfast meeting with Finland’s president before the meeting with Putin in the Finnish capital, even tweeting his thanks to his hosts for their hospitality. It was an honor to join you this morning. Thank you! https://t.co/NOUTroe8MV — Donald J. Trump (@realDonaldTrump) July 16, 2018 Shortly before the meeting was set to begin, Putin was filmed getting off his presidential aircraft in Helsinki. JUST IN: Russian Pres. Vladimir Putin arrives in Helsinki, Finland, ahead of meeting with Pres. Trump. https://t.co/pnM34fHNdQ pic.twitter.com/QwCcMh6OSC — ABC News (@ABC) July 16, 2018 The Kremlin has said it doesn't expect an easy meeting after pushing back against President Trump's criticisms of a planned Russian gas pipeline to Germany, while suggesting it could be difficult to find common ground on Syria thanks to tensions over Iran.
U.S. futures are fractionally higher, following European shares in the green as Asian equities retreated ahead of today's historic Trump-Putin summit and the first big week of earnings for US corporations. The key economic catalyst overnight was the latest batch of Chinese data, where GDP rose as expected 6.7% - the slowest since 2016 - however Industrial Production missed badly as discussed last night, printing at 6.0%, below the 6.5% expected and the lowest since Dec 2015, pressuring regional equities. Chinese Economic Data The data indicates that Chinese economic growth momentum slowed further, but investors are more worried about coming quarters as U.S. tariffs come into effect, says Ben Kwong, executive director at KGI Asia; sentiment remains quite cautious. As a result, Chinese stocks slumped after data showed GDP grew at the slowest since 2016 in the second quarter, while Xiaomi dropped after being excluded from a list of stocks eligible for trading via connects with mainland as China aims to protect retail investors using HK link from less understood securities. The Shanghai Composite Index closed down 0.6% at 2,814, while the CSI 300 was also 0.6% lower, ChiNext down -0.1%. Offsetting some of the gloom, the PBoC injected CNY 170bln via 7-day and CNY 130bln via 14-day reverse repos for a net CNY 300bln daily injection. “Investors will watch for signs of monetary and fiscal policy loosening from the upcoming central economic work conference, and first-half results for stocks with cheap valuations and earnings growth that beat estimates,” said Central China Securities strategist Zhang Gang. Elsewhere in Asia, shares were lower, the MSCI Asia Pacific index declining -0.3%, with volumes down in most markets while Japan was shut for a public holiday. Europe bucked the trend with banks rising on the Stoxx Europe 600 Index, after Deutsche Bank said its earnings are likely to be above market expectations, offsetting a drop in miners. The biggest European bank whose stock price recently a new all time low, said it sees net income of about 400 million euros ($468 million) and pretax income of 700 million euros, “considerably” above estimates. The news sent DB stock surging 8% in early trading, its biggest daily gain since April 2017. In FX, the dollar weakened against most G-10 peers ahead of an expected slowdown in U.S. retail sales data, set to be reported at 830am ET. The Bloomberg Dollar Spot Index fell 0.2%, taking its three-day decline to more than 0.3%; Treasury 10-year yields rose 1bp to 2.84% “The USD’s sharp turnaround late on Friday may be telling of the currency’s waning bullish momentum –- or the fact that the dollar looks to be running out of positive catalysts,” wrote ING Groep FX strategist Viraj Patel. “We may need a very strong U.S. retail sales print today to see the dollar push higher.” The pound rose a third day ahead of a vote later Monday on U.K. Prime Minister Theresa May’s Brexit legislation in Parliament, while the euro was stuck in a small range near the $1.17 level, while the yen edged lower, adding to its biggest weekly slide in 10 months. In rates, US Treasuries inched lower, tracking bond declines across most of Europe: the 10Y TSY yield dipped 1 basis point to 2.84%; German 10Y Bund yields climbed 1bps to 0.35% while Britain’s 10-year yield also climbed 1bp to 1.273%. Meanwhile, as Bloomberg notes, with no fresh signs of a trade war escalation and President Donald Trump heading to a summit with Vladimir Putin, investors will focus on a barrage of economic data including Monday’s mixed figures from China, and company earnings, with Bank of America Corp. due to report. The big event this week is Federal Reserve Chairman Jerome Powell's semi-annual testimony where he is expected to lay the groundwork for further tightening. Commodities traded mixed with WTI and Brent leak lower: Brent flirted around USD 75.00/bbl while WTI hovered near the USD 70.50/bbl level in the aftermath of a pullback from last Friday’s settlement amid reports that the Trump administration was said to be considering tapping into the Strategic Petroleum Reserve to rein in prices. Sentiment also hampered by the weekly Baker Hughes rig count showing an increase of 2 rigs in operation compared to the prior week. Elsewhere, gold (+0.2%) prices are buoyed by the softer USD. London Copper slipped this morning while Chinese Q2 growth printed a slight downtick (yet in-line with expectations), focus continues to remain on China’s response to US tariffs. Steel-linked metals, Nickel and Zinc, are subdued on lower demand expectations amid China’s top steelmaking city ordering steel mills to shut sintering plants for five days due to adverse weather conditions. Expected data today includes retail sales, which should decline from last month's 0.8% to 0.5%, and the Empire State Manufacturing Survey. Bank of America, BlackRock, and Netflix are among companies reporting earnings. Market Snapshot S&P 500 futures up 0.1% to 2,805.25 STOXX Europe 600 up 0.2% to 385.64 MXAP down 0.3% to 165.20 MXAPJ down 0.4% to 538.17 Nikkei up 1.9% to 22,597.35 Topix up 1.2% to 1,730.07 Hang Seng Index up 0.05% to 28,539.66 Shanghai Composite down 0.6% to 2,814.04 Sensex down 0.2% to 36,455.29 Australia S&P/ASX 200 down 0.4% to 6,241.52 Kospi down 0.4% to 2,301.99 German 10Y yield rose 1.6 bps to 0.356% Euro up 0.08% to $1.1694 Italian 10Y yield fell 7.2 bps to 2.286% Spanish 10Y yield rose 0.7 bps to 1.27% Brent futures down 0.1% to $75.28/bbl Gold spot little changed at $1,244.21 U.S. Dollar Index down 0.1% to 94.61 Top Overnight News from Bloomberg President Donald Trump prepared to meet Vladimir Putin in Helsinki on Monday, under pressure to confront his Russian counterpart over Kremlin meddling in the 2016 election and with concerns rising that the U.S. is abandoning the current international order Goldman Sachs Group Inc. bank plans early this week to name company President David Solomon -- whom Blankfein has publicly referred to as his successor -- as its next CEO, the New York Times reported Sunday, citing people briefed on the plan European Union President Donald Tusk called on Donald Trump to reform the world order rather than bring it down, warning that trade wars can lead to “hot conflicts.” China’s economic expansion slowed in line with expectations, signaling broadly stable output as the trade conflict with the U.S. intensifies. GDP increased 6.7 percent in the second quarter from a year earlier, slowest since 2016 and down slightly from the 6.8 percent pace in the previous quarter. Investment growth and industrial output also slowed in June. Theresa May’s long-running battle with her divided Conservative Party took a potentially more dangerous turn, as one of her former ministers began assembling lawmakers to vote against her Brexit plans. Steve Baker, a former Brexit minister, is coordinating lawmakers on WhatsApp ahead of key parliamentary votes, according to a person familiar with the strategy Bank of England policy makers are getting a crucial glimpse of the health of the U.K. economy before their crunch August meeting. A deluge of numbers on wages, inflation, retail sales and public borrowing are coming over the next five days Asian stocks began the week subdued with the region lacklustre amid the absence of Japanese participants and following a quiet weekend in terms of newsflow, while the region also digested a deluge of mixed Chinese data including a slowdown in Q2 GDP. ASX 200 (-0.4%) was on the backfoot from early trade amid cautiousness prior to the key Chinese releases and with the index dragged by losses in miners and financials. Elsewhere, Shanghai Comp. (-0.6%) and Hang Seng (+0.1%) were initially downbeat after the mixed data in which GDP topped estimates on a Q/Q basis at 1.8% vs. Exp. 1.6%, but GDP Y/Y slowed inline with forecasts to 6.7% vs. Prev. 6.8%. In addition, Retail Sales was better than expected and Industrial Production disappointed, while the lending and money supply data late last week was also varied and added to the uninspired tone. In terms of today’s notable movers, ZTE shares surged after the US confirmed to lift the ban on US sales to the Co. while Xiaomi were on the other side of the spectrum after the Shanghai Stock Exchange banned investors from trading in a dozen of foreign companies and firms with weighted-voting rights via the stock-connect. Chinese Premier Li reiterated China and EU are to uphold multilateralism and free trade during meeting with EU officials, while EU's Tusk said trade wars can result to hot conflicts and that EU is seeking support for WTO reform. Top Asian News China’s Economy Slows as Expected With Trade War Dimming Outlook China Stocks at Record Lows Make Case for $941 Billion Fund Bank of Thailand Says 4.5% Growth May Spur More Hawkish Stance Malaysia to Propose 10% Sales Tax on Goods, 6% on Services Iron Ore’s Top Grade May Hit $100 as China Chases Blue Skies European equities opened relatively flat and since then have traded in no firm direction (Eurostoxx 50 +0.1%). Financials (+0.7%) outperform as Deutsche Bank (+6.5%) ignited a bid in the sector after announcing better than expected Q2 preliminary results. Banks dominate gains in their respective bourses. Meanwhile, Indivior (+27.1%) shares sky-rocketed after a US court blocked Indian competitors from selling a cut-price version of Indivior’s bestselling opioid addiction treatment in the US. Due to the Farnborough Air Show, it may be worth keeping an eye on BAE Systems (BA/ LN), Rolls-Royce (RR/ LN), Leonardo (LDO IM), Boeing (BA) and Airbus (AIR FP). Top European News Buy Europe’s Defensives as Economic, Earnings Growth Slows: HSBC Another Week, Another Brexit Showdown for Theresa May In FX, the DXY index is meandering within a narrow 94.558-776 band in line with restrained Dollar movement vs its G10 counterparts after last week’s volatile trade and relatively big swings culminated in the Usd netting decent gains, with the DXY briefly over 95.000 at one stage on Friday. Ahead, some data to provide impetus in the form of retail sales. JPY - A marginal underperformer after suffering heaviest losses vs the Usd of late and closing below a key 76.4% Fib (112.33) on Friday, However, the absence of Japanese participants due to the Marine Day holiday has impacted trade overnight between 112.20-55. CHF - Back on a par with the Greenback and still straddling 1.1700 vs the Eur, awaiting the next moves in global trade/tariff wars and anything from Trump’s meeting with Putin. CAD - The Loonie is pretty level vs its US peer and pivoting 1.3150 ahead of some Canadian data that could impact and/or offset any Usd-led moves in the form of existing home sales. Commodities trade fairly mixed while WTI and Brent continue to leak with losses. Brent has broken below USD 75.00/bbl while WTI has taken out USD 70.00/bbl to the downside in the aftermath of a pullback from last Friday’s settlement amid reports that the Trump administration was said to be considering tapping into the Strategic Petroleum Reserve to rein in prices. Sentiment also hampered by the weekly Baker Hughes rig count showing an increase of 2 rigs in operation compared to the prior week. Meanwhile, in talks with the Saudi’s Energy Minister, Iranian Oil Minister said OPEC decision does not give members the right to raise their production level above targets Elsewhere, gold (+0.2%) prices are buoyed by the softer USD. London Copper slipped this morning while Chinese Q2 growth printed a slight downtick (yet in-line with expectations), focus continues to remain on China’s response to US tariffs. Steel-linked metals, Nickel and Zinc, are subdued on lower demand expectations amid China’s top steelmaking city ordering steel mills to shut sintering plants for five days due to adverse weather conditions. Iran warns OPEC it will be less effective if the production cap slip. Looking at today's calendar, the highlight is likely to be the June retail sales report, while the July empire manufacturing report and May business inventories data are also due. Away from that, Bank of America and Netflix are due to report their Q2 earnings while the IMF is due to release its World Economic Outlook. Politics is likely to be a big focus too with US President Trump holding talks with his Russian counterpart President Vladimir Putin and the China - EU summit starting in Beijing. US Event Calendar 8:30am: Empire Manufacturing, est. 21, prior 25 8:30am: Retail Sales Advance MoM, est. 0.5%, prior 0.8%; Retail Sales Ex Auto MoM, est. 0.3%, prior 0.9% Retail Sales Ex Auto and Gas, est. 0.4%, prior 0.8% Retail Sales Control Group, est. 0.4%, prior 0.5% 10am: Business Inventories, est. 0.4%, prior 0.3% DB's Craig Nicol concludes the overnight wrap Congratulations to our readers from France this morning following the country’s highly entertaining 4-2 win over Croatia in the World Cup final yesterday. We’ll have to find something else to talk about now but the good news is that it’s just 25 days until the Premier League season gets underway again. So a decent window to get life admin out of the way. Jim was in France for the game yesterday and we haven’t heard from him so we can only assume he’s still out celebrating with the locals. Aside from the football, as we’ve become slightly accustomed to of late, much of the weekend newsflow has centred around President Trump. Specifically, it’s an interview released on CBS‘s ‘Face the Nation’ yesterday which has attracted the main headlines as during it, President Trump was asked to name the US’s “biggest foe globally”. It’s fairly quiet outside of that in terms of weekend news; however, this morning we’ve already had one of the bigger data releases expected this week. China’s Q2 GDP reading has come in at 6.7%, in line with expectations and down one-tenth of a percent from Q1. The rest of the June activity data out of China was a bit mixed, with retail sales above market at 9.0% (vs. 8.8% expected), fixed asset investment in line at 6.0% while industrial production was weaker than expected at 6.0% (vs. 6.5% expected). The Shanghai Comp (-0.47%) and CSI 300 (-0.45%) are both lower following the data while the rest of Asia is also trading down with the Kospi (-0.27%), Hang Seng (-0.17%) and ASX 200 (-0.44%) all modestly in the red. Markets in Japan are closed for holidays. The CNY and CNH are little changed along with base metals (Oil is about 0.5% lower, however) although US equity index futures are flat slightly higher as we type. To be honest that China GDP print is probably the most significant data release this week. This afternoon we’ll get US retail sales data for June where our US economists expect a healthy +0.6% mom headline print and +0.4% mom retail control reading; however, the rest of the calendar is reasonably sparse of data. Markets are likely to spend most of their time preoccupied with any further (unpredictable) developments on the trade front, while, as mentioned at the top, the first summit between President’s Trump and Putin in Helsinki today should be worth watching as a bit of potential political drama to start the week, as well as the EU-China summit which gets going today and where one would expect there to be plenty of debate on both trade and also the WTO. As far as central banks are concerned, Fed Chair Powell’s semi-annual monetary policy testimony to the Senate Banking Committee on Tuesday and then the House Financial Services Committee on Wednesday will likely be the main highlight, although the latter is usually a copy and paste of the former. Our US economists expect Powell’s testimony to largely reflect the minutes of the June 13th FOMC meeting as he will be testifying on behalf of the committee. As a reminder those minutes presented a generally upbeat economic outlook and broad based support amongst participants for continuing along the path of gradual policy firming. That said policymakers did note the rising risks to the outlook associated with trade policy and given the news last week, Congress will no doubt question Powell as to how the Fed views these risks. The yield curve could also be a point of debate however our economists do not expect Powell to raise alarm bells about the recent flattening. Elsewhere earnings season is set to ramp up in the US this week too with 64 S&P 500 companies slated to report. We’ll get the remaining banks with Bank of America today, Goldman Sachs on Tuesday and Morgan Stanley on Wednesday. Ahead of those, Friday’s earnings releases from JP Morgan, Citi and Wells Fargo were a bit of a mixed bag. Results for Wells in particular were taken fairly negatively with the stock falling -1.20% following a miss at both the revenue and EPS lines, while disappointing revenues at Citi saw the stock -2.20% lower by Friday’s close. JP Morgan’s numbers were a bit more positive but the stock still slid -0.46%. It’s worth noting that JP’s CEO Jamie Dimon addressed the trade war situation, calling it a “worry” but also saying that its “affecting psyche more than it is economics”. Away from the banks this week we’ve also got some notable tech names reporting including Netflix today, eBay on Wednesday and Microsoft on Thursday. Coming back to the trade debate, despite last week seemingly marking an escalation of the trade war between China and the US, markets were pretty well behaved for the most part and the one-week returns particularly for equity markets suggest little sign of concern for now. The lack of any retaliation is certainly a big part in that, but the +3.06% and +3.79% five-day returns for the Shanghai Comp and CSI 300 certainly stand out especially with the former seeing the biggest weekly gain since June 2016. The likes of the Kospi (+1.67%) and Nikkei (+3.71%) also had solid weeks while the MSCI EM index also put up a +1.48% return. In Europe the Stoxx 600 returned a more modest +0.70% but has still gained in 8 out of the last 9 trading days. Meanwhile the S&P 500 returned +1.50% and is also up on 6 out of the last 7 trading days. It also passed the elusive 2800 level on Friday. Vol measures are back down near their YTD lows with the VIX closing at 12.18 on Friday (compared to the YTD average of 16.11) and the VSTOXX at 12.80 (YTD average 15.86). So no real signs of stress. Bond markets meanwhile have been incredibly quiet with 10y Treasury yields just 0.5bps higher than last week and 10y Bunds 4.8bps higher. Both remain in incredibly tight ranges for now although the relentless flattening of the Treasury curve remains a feature with 2s10s closing at 24.5bps on Friday, meaning it flattened 3.6bps last week alone. To be fair commodities did have a tougher time of it but the moves are hardly eye watering. The likes of copper, lead and zinc fell -0.72%, -5.57% and -5.74% last week while WTI Oil fell -3.78%, albeit still only a few bucks off its YTD high. In terms of Friday’s session itself, risk assets nudged higher in the absence of further escalation in trade tensions. The Stoxx 600 rose +0.17% while the S&P (+0.11%) pushed through the 2,800 mark for the first time since February, with gains led by industrials and consumer staple stocks. Meanwhile core bonds firmed slightly with 10y yields down c.2bp (UST -1.9bp; Bunds -1.7bp) while IG credit spreads also tightened 1-1.5bp. Measures of volatility were little changed with the VIX down 0.4pts to 12.18. Friday was dominated by a steady slate of central bank speak. The Fed’s Bostic noted that the flattening yield curve requires monitoring by policymakers, but also noted that “to the extent the whole market believes that (relationship), whether it’s true or not is kind of immaterial because it can become a self-fulfilling prophecy”. Earlier on, the Fed’s Kaplan told Reuters that an escalation of US tariffs would harm the economy and “what’s going on in the short run certainly is not positive, but for me, it isn’t sufficient yet to materially change my outlook”. In the UK, the BoE’s Cunliffe signalled that the BoE should take a cautious approach to rate hikes as he noted that there remains a case for “a little stodginess”. Finally wrapping up with the data releases from Friday. In the US, the July University of Michigan consumer sentiment index dipped 1.1pts mom to a below market print of 97.1 (vs. 98.0 expected). In the details, inflation expectations for 1yr ahead moderated 0.1ppt from last month’s 3 year high to 2.9% yoy, while the 5yr ahead expectations index also edged down 0.2ppt mom to 2.4% yoy. Looking at today's calendar, in Europe today, the July Rightmove house price data in the UK followed by the release of the May trade balance for the Eurozone are due. In the US, the highlight is likely to be the June retail sales report, while the July empire manufacturing report and May business inventories data are also due. Away from that, Bank of America and Netflix are due to report their Q2 earnings while the IMF is due to release its World Economic Outlook. Politics is likely to be a big focus too with US President Trump holding talks with his Russian counterpart President Vladimir Putin and the China - EU summit starting in Beijing.
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