Market Outlook

Stock futures today indicate a higher open, pointing towards a positive day for Wall Street. Despite the substantial index gains since the start of the year, market participants continue to display an inclination to buy on any signs of weakness, exhibiting a bullish trend in the market. Several blue-chip names have released their earnings reports since yesterday’s close, with mostly positive reactions fuelling a boost in the broader market. The mega cap stocks, having experienced a slight slump recently, have also begun to show signs of recovery, contributing further to the optimism in the markets.

Central Bank Policy and Currency Markets

The Bank of Japan’s decision not to make any changes to its interest rates has been overshadowed by its decision to conduct yield curve control policies with greater flexibility. It is now allowing the 10-year Japanese Government Bond (JGB) yield to rise to 1.0% while maintaining the target at 0.5%. This announcement briefly bolstered the yen, although the currency returned to its previous levels against the dollar shortly after.

The U.S. Dollar Index has dipped slightly, down 0.3% to 101.44, with USD/JPY decreasing 0.2% to 139.15. The market will watch closely to see if this trend continues.

Treasury Yields

In the Treasury market, the 2-year note yield is down six basis points to 4.86%, and the 10-year note yield is down five basis points to 3.96%. This could be a reflection of investor sentiment and reactions to the central bank policies and the overall health of the economy.

Corporate Earnings Update

In terms of corporate news, several companies have reported their earnings with a mixed bag of results:

• Intel (INTC) beat the earnings per share (EPS) and revenue expectations, achieving a gross margin of 39.8% compared to a guidance of 37.5%. Moreover, Intel’s Q3 EPS guidance is above consensus, with revenues in-line with expectations.
• Ford Motor (F) also exceeded the EPS and revenue expectations and raised its guidance for the fiscal year 2023 (FY23).
• Procter & Gamble (PG) managed to surpass both EPS and revenue estimates and gave an in-line guidance for fiscal year 2024 (FY24).
• Chevron (CVX) fell short of EPS expectations, but beat on revenues, while Exxon Mobil (XOM) also missed EPS expectations but surpassed revenue estimates.
• Colgate-Palmolive (CL), Boston Beer Co (SAM), and Mondelez Int’l (MDLZ) also beat EPS and revenue expectations, while Coursera (COUR) missed EPS but beat on revenues.
• First Solar (FSLR), KLA Corporation (KLAC), and Roku (ROKU) beat both EPS and revenue estimates, with T-Mobile US (TMUS) beating EPS estimates and reporting in-line revenues.
• Juniper Networks (JPNR) and Sleep Number (SNBR) beat on EPS and missed on revenues, with SNBR appointing a new CFO and expecting Q3 EPS slightly below $0.22.
• XPeng (XPEV) was upgraded to Buy from Hold at Jefferies.

Asian Markets and Bond Yields

Asian bonds retreated after Japan surprised investors by loosening its control of market rates. The Bank of Japan, being the only major central bank not to have begun reversing ultra-easy monetary policy, previously capped bond yields at 0.5%. It now regards that level as a reference point rather than a rigid limit, pushing Japan’s 10-year yield to the highest level since 2014. Speculation now suggests this may be the first step towards ending the extraordinary stimulus after the recent surge in inflation.

This announcement led to an immediate jump in US and European yields, although this impact faded throughout the day.

Economic Indicators

Investors have grown increasingly bullish as they believe central banks are nearing the end of hiking interest rates. Encouraging economic figures hint at a soft landing for the US economy, and Germany has reportedly exited a recession in the second quarter.

Investors will also be watching the release of the US PCE deflator, the Fed’s favored inflation gauge, to assess if price growth continues to slow.

The Takeaway

Today’s market indicators point to an overall bullish trend, with the stock futures indicating a positive opening and the earnings reports providing a boost to the market. The Bank of Japan’s policy change has caused some ripples in the bond market, and the US PCE deflator will be a significant data point to watch. Overall, the economy appears to be on a solid footing, justifying the optimism seen in the markets.