The next two days might be characterized by slow trade in light volume as investors prepare for G-20 meeting. Walgreens and Conagra results came out this morning, with Nike waiting in the wings.
Figure 1: UTILITY CLOSET: After scampering to big gains over the last three months, the Utilities sector (candlestick) has come under pressure the last few days. This could indicate profit taking or be a sign of some investors getting less optimistic about a potential 50-basis point rate cut next month. Staples (purple line) have also been under pressure this week. Data Source: S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.
Will China’s Footprint Show in Nike Earnings? Retail bellwether and Dow Jones Industrial Average ($DJI) component Nike (NKE) reports after the close today, and investors will likely watch closely for any signs of trouble in China. NKE’s China business looked stellar in its previous quarter, rising 24%. At that time, NKE said it remained bullish about its business there despite the tariff tangle. For NKE, trade issues are a significant concern because, like most major athletic shoe makers, it relies heavily on imports from China. So escalating tariffs translate into escalating costs, which companies either have to absorb or pass on to customers, who may be less willing to spend more. With that said, it’s no surprise that NKE is among the companies that have come out against increasing tariffs on Chinese imports.
Looking ahead to the fiscal Q4 report due this afternoon, the third-party consensus earnings estimate is $0.66 per share, down from $0.69 per share a year ago. Revenue is projected to increase about 3.9% to $10.17 billion from $9.79 billion last year.
Data in Spotlight: This morning’s unsurprising GDP report wasn’t the last of the major data points ahead of G-20. Friday morning brings a key inflation reading in the form of personal Consumption Expenditure (PCE) prices for May. Last week, Fed Chair Powell talked about how inflation hasn’t been keeping up. Tomorrow’s report could help show if that trend continued. The Wall Street consensus for PCE prices is a small 0.2% rise, with core PCE up just 0.1%, according to Briefing.com. Consider watching the year-over-year rise in PCE as well and how it compares with 1.5% and 1.6% for headline and core, respectively, in April.
Also, consider keeping an eye out early next week for OPEC’s meeting. Many analysts expect the current 1.2 million barrel-a-day production cut to get extended, and if that’s the case, it seems doubtful there’d be much market impact. Any deviation from that, however, could help move crude one way or the other.
Best Hopes: A lot of excitement swirls around the scheduled meeting this Saturday between President Trump and President Xi. It’s probably fair to say few are looking for a major breakthrough, but perhaps one positive outcome would be if the leaders emerge with promises of no new tariffs while trade talks resume. That’s far from assured, but would likely soothe many investors and companies worried about the looming threat of U.S. tariffs hitting hundreds of billions of dollars in additional Chinese goods and any reprisals from Beijing on American products.
While Treasury Secretary Steven Mnuchin appeared to raise the market’s spirits Wednesday with his remark about previous talks taking the two countries “90% of the way” toward a deal, that last 10% could be tough if it concerns touchpoints like intellectual property, Chinese government subsidies to exporters, and forced technology transfers from foreign companies doing business in China. Seasoned China watchers say the country isn’t likely to easily give in on stuff like this, but U.S. trade negotiators are probably hammering away on those very points. That might be what caused the breakdown in talks more than a month ago.
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Economic calendar for week of June 24. Source: Briefing.com
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