S&P 500 Rebounds 2%, Banks Advance

Barry Adams
15 Jul, 2022
New York City

U.S. stocks advanced after retail sales increased more than estimated following a surge in inflation reports earlier in the week. 

Retail sales' increase in June was welcomed by investors after two inflation reports earlier in the week showed elevated levels for consumer and wholesale prices. 

In volatile trading, stocks climbed higher on the strength in consumer spending and on the hopes that the Fed will lift rates no higher than 75 basis points at its next policy meeting in two weeks. 

Investors drove banks higher after Citigroup, Wells Fargo, PNC Financial, and U.S. Bancorp reported earnings. 

Banks are benefiting from the rising rate environments but earnings at some banks took a hit on the weaknesses in mortgage and private equity businesses. 

Banks are also setting aside more capital to cover losses emerging from bad loans, but there are few signs of impending recession in the bank's results. 

Retail sales in June rose 1% from the revised 0.1% decline in May, the Commerce Department reported today. 

Sales rose 8.4% from a year ago and in the three month period to June surged 8.1% from the same period a year ago. 

Retail sales are not adjusted for inflation which rose 1.3% from May indicating real retail sales fell. 

Stocks advanced sharply after the release of strong retail sales data indicating consumers are resilient despite 4-decade high inflation. 

Gasoline sales rose 3.6%, sales at bars and restaurants jumped 1%, furniture and home store sales jumped 1.4%, and online sales jumped 2.2%.    

The S&P 500 index jumped 1.92% to 3,863.16  and the Nasdaq Composite index edged up 1.79% to 11,452.42. 

Futures of crude oil increased $1.79 to $97.57 and natural gas rose 51 cents to $7.11 a unit. 

The yield on 10-year U.S. Treasury notes edged down 3 ticks to 2.921%.  

For the week, the S&P 500 declined 0.9% and the Nasdaq dropped 1.6%. 

European Bond Yields Rise After Italy Plunges In Political Turmoil 

European markets advanced following the surge in the U.S. and bond yields were in focus after Italy's prime minister resigned. 

Prime Minister Mario Draghi offered his resignation after the coalition partner 5-Star Movement refused to back the government in a no confidence vote on a disagreement with a plan in combating rising consumer prices. 

President Sergio Mattarella rejected Draghi's resignation and asked him to address the parliament next week. 

Bond market was on alert after Draghi's resignation, and yield on 10-year Italian bonds rose to 3.260%, a one month high and spread with the German bond of similar maturity widened to 2.2% for the second day in a row. 

Bond yields in the region edged slightly lower today but remained elevated on the Italian and British uncertainties. 

The yield on the 10-year bond of Germany traded at 1.13%, France at 1.73% and the U.K. at  2.091%. 

Conservative Party in the U.K. narrowed the list to 6 from 12 contenders to lead the party after the party's parliamentary members revolted against Prime Minister Boris Johnson, forcing his unscheduled departure last week. 

The DAX index gained 2.76% to 12,864.72, the CAC-40 index increased 2.04% to 5,962.87, and the FTSE 100 index added 1.7% to 7,159.01. 

 

China's Economy Barely Grew In June 

China reported lower than expected economic growth in June quarter. 

GDP expanded at 0.4% from a year ago falling well short of expectations between 0.7% and 1.2%, the National Bureau of Statistics said on Friday. 

The economic activities fell sharply after months of lockdowns and dragged the GDP growth down from 4.8% annual rate in the first quarter. 

The economy expanded at the slowest pace since the first quarter of 2020 when GDP shrank 6.8% after initial outbreak of coronavirus in Wuhan brough the second largest economy to a complete halt. 

For the first half, the economy expanded at 2.5% rate well below the annual target rate of 5.5% set by the Chinese government. 

Real estate sector continued to drag the economy with property investment dropping 9.4% but retail sales in June rose 3.1% driven by higher automobile sales. 

Industrial production also jumped 3.9% from a year ago. 

The delays in housing construction has sparked a wave of mortgage boycotts in several cities in the last few days after home buyers refused to pay for unfinished homes.