xpectation of further monetary easing in China after disappointing trade data is lifting US stocks ahead of the open on Monday. Speeches from Fed members Stanley Fischer and Dennis Lockhart following the latest payrolls report are expected to draw the most attention.
Chinese trade slumped in July symbolising a drop in both domestic and international demand as well as stronger yuan versus the euro and Japanese yen. The trade data is an indication that easing from the People’s Bank of China to date may not have been enough to stabilise the economy. The Shanghai composite closed higher by 4.9%, the highest in a month on expectation the government will step in with further stimulus. With a benchmark interest rate of 4.85%, China has plenty more room to cut. Another cut of 50 basis points before the end of year looks entirely likely.
Friday’s payroll report is generally accepted as enough to keep a rate hike in September on the table, however after gaining through most of the day, the dollar sold off as markets started to question the deceleration in jobs growth. Fed member Lockhart is likely to suggest the jobs data wasn’t weak enough to prevent a rate hike in September. A better read on the rest of the committee will come from the more dovish vice chair Fischer.
On an individual stock level, attention will be on the strong performance divergence within the tech sector with Apple, Twitter and Facebook under pressure while Netflix and Amazon skyrocket. Forward P/E’s suggest the parabolic price moves in Netflix and Amazon are unsustainable and that eventually shares will come back to earth as quickly as they’ve risen. Apple, if you believe Carl Icahn, is serially undervalued. But stepping in the way of current upside momentum in Netflix and the downside pressure in Apple could mean steep near-term losses.
We’re into the tail end of earnings season and results this week include retailers Kohl’s, JC Penney, Macy’s as well as Cisco and News Corp. Kraft-Heinz report on Monday.
Futures suggest the:
will open 6 points higher at 2,083 with the
expected to open 33 points higher at 17,406 and the
16 points higher at 4,536.
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