Summary:

• US indices lower with US100 pulling back from ATH
• Trump tweet weighs on sentiment ahead of Juncker 
• GM shares slump on cuts to forward guidance

US stock markets began yesterday’s session brightly with the US500 reaching its highest level since February while the US100 was propelled to a new record peak with FAANG stocks surging after a strong trading update from Alphabet. The early promise faded somewhat as the day wore on and the US100 actually ended in the red. 

 

 After making a new all-time high at 7489 the US100 fell back into the cash close to end the day in the red. The prior breakout zone around 7320 is a region to keep an eye on for possible support if prices continues lower. Source: xStation

There was a notable move lower in indices around lunchtime following the latest abrasive tweet from US president Trump on trade. Trump called the Chinese vicious in targeting the US farmers in a message which suggests he could be in a defensive mood heading into the meeting with the EU’s Juncker. 

 The US President took to social media around lunchtime to take aim at the Chinese on trade once more. Source: Twitter 

 From an inter-market perspective there’s been a notable positive correlation between the US 10 year yield and US stocks of late, with this relationship being of an inverse nature for much of the decade due to expansionary monetary policy suppressing yields and boosting equities. The yield (which is inverse to the price of the TNOTE on xstation) is approaching 3% once more and due to the prior inverse relationship, many had thought this could spell bad news for stocks. 

However, if we extend the time horizon out further and look back to the 1960s, of the 23 time the 10-year treasury yield rose, the S&P500 (US500 on xStation) was higher 80% of the time. Furthermore, since 1996 there have been 11 periods of a higher trending 10-year yield and every single time the S&P500 also went higher. According to LPL financial research the S&P500 rose by an average of 9.5% during these 11 occasions. 

 Since 1996 there’s been a clear positive relationship with US yields and the S&P500 when rates are rising. Source: CNBC, LPL Financial Research 

Thinking of this from an economic standpoint it shouldn’t come as too much of a surprise as a stronger underlying economy should support both a higher yield and a higher stock market. It is just a case of the extraordinary monetary policy measures implemented in the wake of the global financial crisis that flipped this relationship the other way.  

The big earnings releases continue to occur in the US with both GM and Coca-Cola posting before the opening bell. 

GM

An unexpected cut to the profit outlook for the year has seen shares in the car manufacturer drop sharply in the pre-market with the stock expected to open lower by around 5%. The automaker now expects to earn around $6/share in 2018, down from its previous forecast of $6.30-6.60. The latest results themselves were decent, with EPS of $1.81 for the quarter topping the $1.78 expected. Revenue for the 3 months ended in June came in at $36.76B, slightly higher than estimates but down 0.6% from a year earlier.  

 

 GM looks set to fall back below its previous support around 38.80 on the open, with the stock drifting towards the lower reaches of its range. Source: xStation

Coca-Cola

It’s better news for investors in Coca-Cola with the beverage company announcing positive results after stating that its diet sodas are selling better after undergoing some image changes. The company said Wednesday that it sold more Coca-Cola Zero in North America during Q2, following a name change to make it clearer that drink doesn’t contain any sugar. For the 3 months ended June 29, Coca-Cola earned $2.32B or EPS of $0.54 compared to $1.37B or EPS of $0.32 a year earlier.     

 Coca-Cola is called to open higher and if it can gain traction above the 45.60 level then the market could be set for a nice breakout higher. Source: xStation