News: S&P 500 has biggest back-to-back rise in two months


Investors zoom in on solid corporate earnings reports
Newsfeed22 Jul 2021
Photo credit: AFP Photo


US

Stocks climbed as a slew of solid corporate profits took the focus off concerns about the economic impact of coronavirus flareups around the globe.

After a bruising selloff driven by worries over a peak in earnings and a slowdown in growth momentum, the S&P 500 Index notched its biggest back-to-back advance in two months and finished up 0.82% at 4,358.69. Once again, the gains were led by companies that stand to benefit the most from a reopening of the economy, such as commodity, financial, and industrial shares. The Dow Jones Industrial Average advanced 0.83% to 34,798.00 and the Nasdaq Composite Index jumped 0.92% to 14,631.95. A gauge of small caps rose almost 2%.

Giants Verizon Communications Inc and Coca-Cola Company rose after better-than-estimated quarterly results. Despite investor jitters on whether Covid-19 infections will upend a travel resurgence, United Airlines Holdings Inc predicted profits ahead. Meantime, Netflix Inc retreated on a disappointing subscriber forecast.

Traders are rewarding companies with better-than-expected results amid bets that the second quarter’s expected 70% earnings growth will mark the pinnacle of this expansion cycle. More than 85% of the S&P 500 firms reporting results so far have beaten analyst predictions, according to data compiled by Bloomberg. For a chief executive officer at a financial firm, earnings forecasts for the benchmark have surged because of a “huge explosion” in profits at economically sensitive firms.

“We may be getting back to a point where earnings matter a little bit more than they had,” said a chief investment officer. “Company guidance is going to be very important as well.”

The “reopening of the economy is not an event but rather a process, which in our opinion is still not priced in, and especially not now given recent market moves,” several strategists said. “This does not signal the beginning of a down cycle.” – Bloomberg News.

 

EUROPE

Europe’s market for state and local debt is on its way back to pre-pandemic size.

As businesses reopen and tax revenues fill government coffers, finance officials are winding down their emergency programmes and reining in expansive borrowing. Bond sales have already dropped dramatically from last year’s peak, and experts at financial firms predict the market will soon return to levels similar to 2019.

The shrinking market is bound to frustrate government debt investors, who view state-level European debt as a good way to squeeze a little extra yield out of ultra-safe issuers. For example, a EUR650m (USD768m) 10Y note for the State of Schleswig-Holstein this month offered about 31 bps over German bunds.

Rising tax revenues and other funding programmes, like the landmark NextGenerationEU package, mean that local governments do not need to raise as much money in public debt markets.

German states, which account for 85% of the Europe’s regional borrowing, are likely to sell EUR20b in additional debt this year, according a head of debt capital markets at a financial firm. That is about half of the level from the first half of 2021. – Bloomberg News.

The Stoxx Europe 600 Index surged 1.65% to 453.97 on Wednesday (21 July).

 

JAPAN

Suzuki Motor Corporation and Daihatsu Motor Co Ltd are investing in a Toyota Motor Corporation entity to bring electrification and autonomous driving to commercial vehicles, deepening ties between the automakers.

They will join Isuzu Motors Ltd and Hino Motors Ltd, Toyota’s truck and bus unit, which formed the venture earlier this year. Suzuki and Daihatsu will acquire a 10% stake in the partnership from Toyota, they said in a statement Wednesday (21 July), without disclosing the amount.

The world’s biggest automaker has been stitching together a web of alliances and shareholdings with smaller car and truck manufacturers to pool together resources and take part in the shift away from gasoline engines and human drivers. Volkswagen AG and other global automakers have also been forging partnerships as new technologies and business models disrupt the USD2.23t global auto industry.

Commercial Japan Partnership Technologies is the name of the commercial vehicle joint venture, which now includes Suzuki, Daihatsu, Isuzu, Hino, and Toyota. Toyota and Suzuki took stakes in each other two years ago and Daihatsu became a subsidiary of Toyota in 2016.

Suzuki and Daihatsu bring to the table deep experience in smaller automobiles used by consumers and businesses, which they said account for about 31m of the 78m vehicles owned in Japan and “serve as an essential lifeline in the daily lives of people, especially in rural areas”.

A key challenge of bringing electrification and autonomous technology to smaller cars is keeping costs under control so they remain affordable. That is part of the mission of the Toyota-led partnership, which was forged in April.

“There are many issues that mini-vehicle manufacturers are unable to solve on their own,” Suzuki and Daihatsu said in the statement. – Bloomberg News.

Japan markets are closed Thursday for a public holiday. The Nikkei 225 Index rose 0.58% to 27,548.00 on Wednesday.


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