The first look at U.S. GDP for the second quarter arrives later this morning. Economists expect 2.6% growth to be reported, although many forecasts have been revised lower. Both Morgan Stanley and JPMorgan trimmed their GDP forecast recently to 2.2%, while GDPNow clipped its view to 1.8%. The U.S. economy generated 1.1% growth in Q1. The reading from the University of Michigan survey of consumers will also be closely watched this morning. The preliminary report for July showed a 4.3% month-over-month drop to 89.5 for the Index of Consumer Sentiment. Analysts expect an improvement to 90.6 for the final survey report.
The Bank of Japan held interest rates steady and offered up only a mild dose of stimulus. The central bank announced it would purchase ¥6 trillion ($57B) worth of exchange-traded stock funds annually, an increase from the prior amount ¥3.3T. The size of a key lending program was also doubled to $24B. The Nikkei Stock Index closed 0.6% higher after a volatile session. The yen and yields on Japanese government bonds shot higher. “That the BOJ did not increase bond purchases is significant and will disappoint those looking for coordination of monetary and fiscal easing,” noted RBC Capital Markets analyst Adam Cole.
Eurozone flash inflation increased to 0.2% in July to top the 0.1% pace seen in June and expected by economists. Eurozone flash GDP rose 0.3% in Q2 to match estimates. The pace was only half of the growth rate from Q1. Inflation was at 0.2% for the quarter, and the unemployment rate was unchanged at 10.1%. European stocks are mixed across the continent after the data dump. The STOXX 600 is up 0.35% at last check.
Hillary Clinton delivered her acceptance speech last night at the Democratic National Convention, capping off a tumultuous week for U.S. politics. Betting markets still have Clinton as the favorite to win the November 8th election, while the rolling RealClearPolitics.com poll average gives Donald Trump a very narrow edge. Many experts see the election boiling down to results in the battleground states of Florida, Ohio, Pennsylvania, Michigan and Virginia, which have all seen economic growth outpace the national average this year.
The unemployment rate in Italy increased to 11.6% in May, in a sharper move than anticipated by economists. The economy in Italy is under pressure due to the impact of Brexit and an ongoing banking crisis. Youth unemployment in Italy is at 36.5%. The Bank of Italy expects economic growth of less than 1% this year in the nation.
French GDP came in flat for Q2, to miss the expectation for a 0.2% bump for the quarter. Slow spending by consumers continues to hamper growth in the nation. Spain reported GDP of 0.7%, in line with economists’ forecasts.
Anheuser-Busch InBev disclosed mixed results this morning. The beer giant reported roughly in-line revenue of $10.82B and EPS of $1.06 vs. $1.03 expected. Results in Mexico (positive F/X) and Brazil (pre-Olympics buildup) helped to prop up sluggish sales in the U.S. Though analysts expect limited commentary from AB InBev (NYSE:BUD) executives on the Megabrew deal during the earnings call, investors will be searching for any hints of forward motion. Investors are waiting for the SABMiller board to weigh in on the new takeover offer and for China to complete its regulatory review.
Audi is likely to miss profit targets this year after reporting an 18% drop in first-half operating profit to €2.4B ($2.66B). Operating margin was 8% for the period. The luxury Volkswagen (OTCPK:VLKAY) brand is battling through the effects of the Takata (OTCPK:TKTDY) airbag recall and diesel emissions cheating scandal. Audi sees its full-year profit margin falling slightly below the 8-10% goal.
Retailers continue to lose e-commerce market share to Amazon (NASDAQ:AMZN), which posted better-than-expected results for Q2. The dazzling quarter included 31% Y/Y net sales growth, AWS revenue of $2.89B and record net income of $857M. Looking ahead, the company expects Q3 sales guidance of $31-$33.5B and operating income of $500M to $650M. Amazon is up 1.4% premarket.
Automobile stocks ended yesterday lower after Ford (NYSE:F) warned of slowing demand in the U.S. The automaker doesn’t think sales in the U.S. will match last year’s level and forecasts a contraction for 2017. Detroit automakers are feeling some operating margin pressure with incentive spending up at a double-digit rate this year. Brexit and increased market share competition in China are also weighing on the sector. In yesterday’s action, Ford fell 8.2%, while General Motors (NYSE:GM) was down 3.2% and Fiat Chrysler Automobiles (NYSE:FCAU) dropped 4.8%.
Strong sales growth from advertising and Google websites helped Alphabet (GOOG, GOOGL) top Q2 expectations. Alphabet’s revenue rose 21% year over year and 6% sequentially to $21.5B. Net profit increased to $4.88B for the quarter. Shares are up 3.3% in premarket action.
Apple may have blown its chance to launch a TV streaming service by placing harsh demands on networks. In negotiations with Disney (NYSE:DIS), Apple (NASDAQ:AAPL) wanted to freeze the monthly per-viewer rate instead of following industry protocol of allowing yearly rate resets. The TV industry is one area where Apple’s innovation is seen as lagging.
Two Canadian energy companies outlined preliminary plans to add new oil sands production at their Alberta operations, although analysts caution against concluding that oil sands growth would rebound rapidly. Cenovus Energy (NYSE:CVE) noted with its Q2 update that it was performing engineering and rebidding work on a 50K bbl/day expansion of its Christina Lake thermal project and would decide whether to proceed by December. MEG Energy (OTCPK:MEGEF) tipped it could invest up to C$30M in its own project to raise production.
The Macau sector received a shot in the arm after Wynn Resorts (NASDAQ:WYNN) reported a 3.6% increase in Q2 revenue from its Macau operations to help offset a slip from Vegas properties. Adjusted EBITDA from Macau was up 10% to outperform the 0.2% EBITDA growth from Vegas operations. Earlier this week, Las Vegas Sands (NYSE:LVS) pointed to some signs of stabilization in Macau.
The gains keep piling up for Facebook (NASDAQ:FB) as it passed Berkshire Hathaway’s (BRK.A, BRK.B) valuation this week to jump into 5th place on the list of most valuable companies in the world. Apple (AAPL), Alphabet, Microsoft (NASDAQ:MSFT) and ExxonMobil (NYSE:XOM) are the only companies with a larger market capitalization than the social network juggernaut. Facebook’s market cap has increased to just under $364B after this week’s vibrant post-earnings rally.
DigitalGlobe (NYSE:DGI) unchanged after topping Q2 estimates.
Columbia Sportswear (NASDAQ:COLM) -2.5% on disappointing sales levels.
Starz (NASDAQ:STRZA) -0.5% after in-line EPS.
Western Digital (NASDAQ:WDC) -6.9% after posting a loss.
SkyWest (NASDAQ:SKYW) +1% after strong earnings.
Expedia (NASDAQ:EXPE) -6.5% due to sales miss.
In Asia, Japan +0.6% to 16529. Hong Kong -1.28% to 21891. China -0.5% to 2979. India -0.6% to 28054.
In Europe, at midday, London -0.1%. Paris +0.1%. Frankfurt +0.5%.
Futures at 6:20, Dow -0.1%. S&P -0.1%. Nasdaq flat. Crude -0.7% to $40.85. Gold -0.1% to $1340.40.
Ten-year Treasury Yield Flat at 1.52%
Friday’s Economic Calendar
8:30 GDP Q2
8:30 Employment Cost Index
9:30 PM Fed’s Williams Speech
9:45 Chicago PMI
10:00 Consumer Sentiment
1:00 PM Baker-Hughes Rig Count
3:00 Farm Prices
Companies reporting earnings today »