Wall gains fueled by retail sales – Dow surges 650 points

LAST UPDATE: 18.20

All three Wall Street indexes are higher at the end of the week, snapping a five-day losing streak, fueled by better-than-expected consumer spending data today amid a wild 9.1% inflation rate. At the same time, investors are weighing a new round of mixed corporate results, mainly in the banking sector.

The Wall looked set to break its two-week doldrums on Friday as inflation climbed to a new 40-year record bolstering the case for a 1 percentage point Fed rate hike, and while the first signs since the start of the season of corporate results are generally inauspicious. An important exception is Citigroup, which exceeded expectations for second quarter earnings.

In particular, as announced by the US Department of Commerce on Friday, June retail sales rose 1% from a month ago, beating analysts’ estimates in a Reuters poll that expected a 0.8% rise. How fluid the macroeconomic environment is, however, is also shown by the fact that the forecasts of the analysts who participated in the research ranged in an extremely wide range, from -0.2% to +2.2%.

In addition, May sales were revised down, to a 0.1% decrease versus a 0.3% increase initially reported.

“The retail sales data tells us that the consumer is still out there,” commented Steve Sosnick, an analyst at Interactive Brokers. However, Mohannad Aama, portfolio manager at Beam Capital Management, pointed out that the banks’ results show that consumer spending is being financed by credit cards, which could create disruptions going forward.

The consumer confidence index also registered a slight increase in the US for June, after the previous month’s record low, but Americans remain concerned about high inflation and a possible recession. In particular, the index compiled by the University of Michigan stood at 51.1 points in July from 50 points in the previous month, exceeding analysts’ expectations.

Industrial production did not follow the positive pace in the US which fell for the first time since the beginning of the year – by 0.2% – according to data from the Federal Reserve. Manufacturing output fell 0.5% in June, for the second month in a row.

Strong demand in the US economy is setting the stage for even more interest rate hikes by the Fed to combat soaring inflation. In this climate, the head of the St. Louis Fed appeared “aggressive” today James Bullardwho said he would like to see the Fed’s interest rate rise to a range of 3.75% to 4% by the end of the year, from its previous target of 3.5%.

The president of the Atlanta Fed was more lenient Rafael Bostic, who reassured markets by saying “dramatic” moves by the Fed could undermine the US economy. Investors immediately cut the odds of a 100 basis point Fed hike later this month after Bostic’s comments, which helped lift stocks.

It is recalled that at its last meeting the Fed increased its interest rates by 75 bp. (0.75%), in the first move of this magnitude since 1994, which brought its key interest rate to a range of 1.5% – 1.75%.

Now traders are betting at a rate of 29% – as shown by the relevant futures – that the new increase in the bank’s interest rates will be of the order of 100 points.

Meanwhile, the 10-year U.S. Treasury note lost about 3 basis points to 2.929%, while the dollar fell 0.4%.

Indicators – Statistics

On the board, the industrialist Dow up 2.15% or about 650 points to 31,280, the broadest S&P 500 adds 1.75% to 3,850 units and the technology-weighted Nasdaq marks an increase of 1.47% to 11,410 units. In the week all three indicators remain in negative territory.

In the spotlight is Citigroup’s stock, which is rallying more than 10% after it may have declined its profits by 27% in the second quarter, under the weight of increasing its reserves for contingent provisions, but they beat market estimates.

Second quarter profits showed a 30% drop of BlackRock, as jitters in global markets discouraged investors, shrinking fee income at the world’s largest asset manager. BlackRock stock is marginally higher in today’s trading.

Wells Fargo shares are up more than 7% despite missing earnings and revenue estimates.

From the 30 stocks that make up the Dow, 29 are making profits and only one (Procter & Gamble) is moving with small losses. At the top is United Health Group with a “jump” of 5.4%, followed by American Express at +4.3% and Goldman Sachs at +3.96%.

Macro

In another long of the day, after last month’s stagnation factory activity in New York state strengthened in Julybut the short-term outlook for business conditions deteriorated sharply.

In particular, according to the related survey of the Federal Reserve of New York released today, “Empire State Manufacturing Survey”, the index of general business conditions increased to 11.1 in July from -1.2 in June.

In non-US macros, China’s GDP grew at a rate of 0.4% in the second quarter of the year, significantly below estimates that had expected the Chinese economy to grow by 1%. At the same time, the country’s industrial production in June also missed expectations, showing a rise of 3.9% compared to the previous year, against the forecast for 4.1%.