MARKET WRAPS

Watch For:

July Manufacturing PMI; July ISM Report On Business Manufacturing PMI; June Construction Spending; July Global Manufacturing PMI.

Opening Call:

U.S. stock futures edged down to start a new month of trading, after major indexes finished July with their best month since 2020.

U.S. stocks mounted a furious recovery to start the second half of this year, boosted by positive signals from earnings and expectations that the Federal Reserve may not need to raise interest rates as aggressively as once thought.

Federal-funds futures, used by traders to place bets on the course of interest rates, on Monday morning showed a 21.5% probability that the Fed will raise its key interest rate to a range between 3.5% and 3.75% or higher by the end of the year, down from 45.7% a week ago.

Last week, central-bank officials approved another unusually large interest-rate increase, lifting their federal-funds rate to a range between 2.25% and 2.5%.

The optimism marks a stark turnaround from the first six months of 2022, when stocks recorded their worst first half of a year since 1970. The July rally in stocks came alongside a sharp recovery in Treasury bond prices, providing relief to investors who often count on bonds in their portfolios to hedge against pullbacks in stocks.

Even so, there are concerns that have kept traders cautious, including decades-high inflation, the war in Ukraine and expectations that the U.S. economy will slip into a recession.

The possibility that the Fed could still move aggressively at its next meeting in September has also kept jitters lingering in the market. On Sunday, Federal Reserve Bank of Minneapolis President Neel Kashkari said on CBS's "Face the Nation" that inflation remains "very concerning" and that central bankers would do what's needed to bring price pressures down.

Investors' shifting expectations for central-bank policy for the rest of the year have scrambled other areas of financial markets in recent days, upending some trades that have flourished this year. The U.S. dollar, for example, which has staged a prolonged rise in 2022, fell on Monday for a fourth consecutive session, with the WSJ Dollar Index losing 0.2%.

Later Monday, investors will parse earnings from companies including Loews, due before the market opens, as well as Diamondback Energy, Pinterest and Activision Blizzard, all of which will report after the closing bell.

Overseas, the pan-continental Stoxx Europe 600 rose. London-traded shares of HSBC Holdings climbed after the global banking giant said profit rose 62% in the second quarter from a year earlier. In Asia, indexes traded mostly higher despite data showing Chinese manufacturing activity unexpectedly contracted in July.

Forex:

The DXY dollar index fell in early European trading. Weak real economic data from China isn't a good sign for the dollar because falling demand from the Asian giant means there will be a decline in demand for energy globally, according to Commerzbank. "Everything that currently endangers the prospect of high energy prices and thus high U.S. terms of trade is bad for the U.S. dollar," the bank said. "Thus, also the risk of a U.S. recession."

---

USD/JPY may extend its recent pullback, based on technical charts, UOB said. Late last week, USD/JPY fell sharply and broke below both the trendline support and 55-day exponential moving average in quick succession, the bank said. If USD/JPY closes below the next major support level near the bottom of the daily Ichimoku cloud at 131.45, this would suggest the July high of 139.39 may not come back into the picture, at least for a few months, UOB said.

Energy:

Oil prices fell Monday amid uncertainty over the outcome of the OPEC+ meeting this week. The group will reportedly consider keeping oil production unchanged for September despite calls from the U.S. for more supply, but a modest increase in output is also expected to be discussed, Phillip Securities Research team said.

The also technically marks the end of the production alliance between Saudi Arabia-led OPEC and Russia, but analysts expect the OPEC+ alliance to continue. The Saudi energy minister and Russian deputy prime minister met Friday to discuss continued "opportunities for cooperation," the Saudi Ministry of Energy said.

Metals:

Metals markets in early European trading were mixed as worries over the health of the global economy continue to mount. Demand for metals remains uncertain with data showing Chinese manufacturing output rose at a slower pace in July.

Supply issues are also still present with Europe's energy crisis likely to curtail zinc and aluminum output. "Stockpiles [of aluminum] plunged to a 31 year low of 295,325 tons last week, which equates to approximately 1.5 days of consumption," ANZ Research said.

   
 
 
   
 
 

TODAY'S TOP HEADLINES

 
 

HSBC Pledges to Restore Pre-Covid Dividends as Profit Jumps

Global banking giant HSBC Holdings PLC's profit rose 62% in the second quarter from a year earlier, and the bank said it plans to resume paying quarterly dividends in 2023.

HSBC earned $5.5 billion in April through June, up from $3.4 billion in the same period in 2021. Analysts had expected a profit of $2.7 billion, according to consensus forecasts compiled by the company.

   
 
 

Amgen Fights IRS Over $10.7 Billion Tax Bill

Biotech Amgen Inc. is in a pitched battle with the Internal Revenue Service over the company's international tax strategy and $10.7 billion in back taxes and penalties that the agency says it is owed.

The IRS says that Amgen underreported its taxable income by nearly $24 billion from 2010 to 2015 by inappropriately attributing what the agency says should have been U.S. profits to a Puerto Rico subsidiary that oversees manufacturing of the company's drugs.

   
 
 

Made-in-Vietnam Electric Vehicles Are Heading to the U.S. Market

Vietnam's Vingroup JSC became a corporate juggernaut in its home country, operating everything from luxury resorts to hospitals, shopping malls and supermarkets.

Now, it wants to break into the U.S. car market with a little-known electric-vehicle startup, called VinFast, that has a novel way of pricing its models.

   
 
 

Heineken First-Half Net Profit Tops Market Views; Sees Significant Cost Pressures Ahead

Heineken NV said Monday that net profit for the first half rose on the back of action to mitigate inflationary pressures on its cost base, and that it affirmed its forecast for 2022 and changed its guidance for 2023.

The Dutch brewer said that it expects significant cost pressures and ongoing investment to affect the second-half of 2022 and into 2023, noting that the commodities price softening is being offset by higher natural price levels and availability.

   
 
 

A Banana Boat Sunscreen Spray Was Recalled Due to Presence of Carcinogen Benzene

Edgewell Personal Care Co. issued a voluntary recall of one of its Banana Boat sunscreen spray products after an internal review found trace levels of the carcinogen benzene in some samples.

Edgewell pulled several batches of its Banana Boat Hair & Scalp Sunscreen Spray SPF 30 after tests found that the product contained small amounts of the cancer-causing chemical, the manufacturer said Friday in a statement to the U.S. Food and Drug Administration.

   
 
 

Investors Fear Stock-Market Rally Will Be Short-Lived

Bearish investors aren't buying into hopes that July's rapid advance for stocks heralds the start of a new bull market.

If anything, they say the worst might be yet to come as inflation remains high, the Federal Reserve plans more interest-rate increases and stocks trade at valuations that still don't look cheap.

   
 
 

Market Mayhem Triggers Deal-Making Drought

Merger activity has slowed dramatically after a record year in 2021, and some deal makers are bracing for an even quieter second half.

In the U.S., about $1 trillion of deals had been struck in 2022 through late July, according to Dealogic. That is the lowest in five years-excluding 2020, when deal making ground to a halt at the outset of the pandemic-and a nearly 40% drop from the same period in 2021. Globally, some $2.4 trillion of deals were announced, representing a roughly 30% decrease. The total number of transactions also was down.

   
 
 

Ukraine Grain Shipment Departs for First Time Since Russian Invasion

Ukraine dispatched its first grain shipment since the start of Russia's invasion on Monday, under a deal aimed at easing global food shortages.

The ship departed the Odessa port carrying 26,000 metric tons of corn headed for Tripoli, Lebanon, according to Ukrainian officials and the Turkish government, which helped broker the deal. The Sierra Leone-flagged bulk carrier, the Razoni, is expected to arrive in Istanbul on Tuesday, and then continue on its course following inspections.

   
 
 

China's Manufacturing Output Expanded at Slower Pace in July

China's factory activity expanded at a slower pace in July, according to a private gauge, as Beijing's stringent Covid-19 restrictions eased and lockdowns were largely confined to less economically important regions of the country, lowering the economic impact.

The Caixin China purchasing managers index fell to 50.4 in July from 51.7 in June, according to data released Monday by Caixin Media Co. and S&P Global. The 50 mark separates expansion from contraction.

   
 
 

Write to nihad.ahmed@wsj.com TODAY IN CANADA

The financial market is closed for the Civic Holiday.

   
 
 

Expected Major Events for Monday

00:30/JPN: Jul Japan Manufacturing PMI

05:00/JPN: Jul Auto sales

06:00/GER: Jun Retail Trade

06:00/RUS: Jul Russian Manufacturing PMI

07:45/ITA: Jul Italy Manufacturing PMI

07:50/FRA: Jul France Manufacturing PMI

07:55/GER: Jul Germany Manufacturing PMI

08:00/ITA: Jun Unemployment

08:30/UK: Jul S&P Global / CIPS UK Manufacturing PMI

13:45/US: Jul US Manufacturing PMI

14:00/US: Jul ISM Report On Business Manufacturing PMI

14:00/US: Jun Construction Spending - Construction Put in Place

15:00/US: Jul Global Manufacturing PMI

23:01/UK: Jun Zoopla House Price Index

23:50/JPN: Jul Monetary Base

All times in GMT. Powered by Onclusive and Dow Jones.

   
 
 

Expected Earnings for Monday

AFLAC Inc (AFL) is expected to report $1.25 for 2Q.

Aerojet Rocketdyne Holdings (AJRD) is expected to report $0.54 for 2Q.

Affiliated Managers Group Inc (AMG) is expected to report $3.21 for 2Q.

Alexander's Inc (ALX) is expected to report for 2Q.

Alliance Resource Partners LP (ARLP) is expected to report $0.94 for 2Q.

Amkor Technology Inc (AMKR) is expected to report $0.47 for 2Q.

Beasley Broadcast Group (BBGI) is expected to report for 2Q.

Builders FirstSource Inc (BLDR) is expected to report $3.02 for 2Q.

CNA Financial Corp (CNA) is expected to report $0.98 for 2Q.

CNO Financial Group (CNO) is expected to report $0.48 for 2Q.

Cerevel Therapeutics Holdings Inc (CERE) is expected to report for 2Q.

Credit Acceptance (CACC) is expected to report $12.89 for 2Q.

EPR Properties (EPR) is expected to report $0.53 for 2Q.

Emergent Biosolutions (EBS) is expected to report $-0.04 for 2Q.

Encompass Health Corp (EHC) is expected to report $0.84 for 2Q.

Equity Commonwealth (EQC) is expected to report for 2Q.

FRP Holdings Inc (FRPH) is expected to report for 2Q.

German American Bancorp (GABC) is expected to report $0.70 for 2Q.

Global Payments Inc (GPN) is expected to report $1.18 for 2Q.

Jacobs Engineering Group Inc (J) is expected to report $1.69 for 3Q.

Jeld-Wen Holding Inc (JELD) is expected to report $0.67 for 2Q.

Kemper Corporation (KMPR) is expected to report $-0.98 for 2Q.

Lindblad Expeditions Holdings Inc (LIND) is expected to report $-0.39 for 2Q.

Loews Corp (L) is expected to report $0.72 for 2Q.

Matson Inc (MATX,X-MATX) is expected to report $8.24 for 2Q.

Meridian Corp (MRBK) is expected to report $0.93 for 2Q.

Minerva Neurosciences Inc (NERV) is expected to report for 2Q.

Monolithic Power Systems (MPWR) is expected to report $2.12 for 2Q.

ON Semiconductor Corp (ON) is expected to report $1.17 for 2Q.

Partners Bancorp (PTRS) is expected to report for 2Q.

Pinterest Inc (PINS) is expected to report for 2Q.

Regal Rexnord Corp (RRX) is expected to report $1.82 for 2Q.

Security Federal Corp (SFDL) is expected to report for 2Q.

Solaris Oilfield Infrastructure Inc (SOI) is expected to report $0.14 for 2Q.

Sterling Bancorp Inc (SBT) is expected to report $0.07 for 2Q.

TG Therapeutics (TGTX) is expected to report $-0.51 for 2Q.

Titan International (TWI) is expected to report $0.77 for 2Q.

Transcat (TRNS) is expected to report $0.23 for 1Q.

VBI Vaccines Inc (VBIV,VBV-T) is expected to report $-0.07 for 2Q.

Zovio Inc (ZVO) is expected to report for 2Q.

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ANALYST RATINGS ACTIONS

Carlyle Group Raised to Outperform From In-Line by Evercore ISI Group

Hercules Capital Cut to Perform From Outperform by Oppenheimer

Mid-America Apartment Raised to Market Outperform From Market Perform by JMP Securities

Paramount Global Cut to Market Perform From Outperform by Barrington Research

Ping Identity Holding Cut to Neutral From Buy by B of A Securities

This article is a text version of a Wall Street Journal newsletter published earlier today.

 

(END) Dow Jones Newswires

August 01, 2022 06:25 ET (10:25 GMT)

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