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“The impossible could not have happened, therefore the impossible must be possible in spite of appearances.” – Agatha Christie
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Major US equities are heading into the last day before the weekend holding strong gains for the week. In addition to breaking above their respective 50-day moving averages, the S&P 500 is up 3.5% week to date while the Nasdaq is up over 5%. Futures for both indices are modestly lower this morning, but it could have been worse given some of the weak tech earnings since the close yesterday. Outside of equities, crude oil is lower while US Treasury yields are plunging with the 10-year yield down to 2.8% and the 3m10y treasury yield curve down to just 35 basis points (bps). It’s not inverted yet, but it’s moving quickly in that direction.
Things are pretty quiet given the Summer Friday, but enjoy the calm while it lasts. With earnings season ramping up next week, including reports from the four largest companies in the S&P 500, things could get rocky.
Today’s Morning Lineup discusses earnings news out of Europe and the US, the latest ECB decision, events in the Ukraine and Italy, and economic data from around the world including UK home prices and weekly US mortgage application data.
Crude oil is trading down over 1.5% this morning putting it on pace for the third straight day of declines of over 1%. That would be the longest streak of 1%+ daily declines since mid-March. As we type this, WTI is barely trading above its 200-DMA which is a level it has not closed below since last December. Current levels also coincide with where it was trading right before Putin invaded Ukraine back in late February. After briefly surging above $130 per barrel right after the invasion, crude oil has now declined nearly 28% from that peak. Look for these declines to start showing up in the monthly inflation numbers in the months ahead.
Energy stocks live and die by the price of oil (and natural gas), so it should come as no surprise that with crude oil down by over a quarter and natural gas still down from its early June high (although it has rallied sharply in the last two weeks), energy stocks have been under pressure. After peaking above $90 in early June, the Energy Select Sector SPDR (XLE) has pulled back more than 20%, and like WTI, is trading just above its 200-DMA and right around levels it was trading at prior to the Russian invasion of Ukraine. For both energy commodities and the stocks in the sector, their future direction will depend on the push of geo-political tensions and supply concerns versus the pull of increasingly weaker economic growth.
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