Stock Futures Are Falling as Banks Begin Their Quarterly Earnings

Stock Futures
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Stock futures in the United States fell, putting the S&P 500 on track for its sixth straight day of losses as earnings season began with the first reports from big banks.

The S&P 500 futures sank 1.3 percent Thursday, putting the broad index on track for its sixth straight daily fall when markets open. Futures on the Dow Jones Industrial Average fell 1.3 percent, while Nasdaq-100 futures down 1 percent. Following statistics showing inflation at a new four-decade high, major indices slumped on Wednesday.

JPMorgan Chase [NYSE: JPM] Shares slid more than 2% as the bank put aside another $428 million on Thursday to cover potential future loan losses, indicating anxiety about the economy.

Morgan Stanley slumped 1.6 percent after posting lower-than-expected profits per share.

BlackRock, Citigroup, US Bancorp, and Wells Fargo will report earnings on Friday. On Monday, Bank of America and Goldman Sachs will provide updates.

In Europe, Italian indices led the declines as political turbulence challenged Prime Minister Mario Draghi’s coalition government. The FTSE MIB in Italy sank 2.5 percent, while the Stoxx Europe 600 in Europe dipped 0.8 percent.

The yield spread between benchmark Italian and German government bonds expanded on Thursday. According to Tradeweb, the additional yield, or spread, on Italian 10-year notes above their German counterpart has risen to 2.158 percentage points. The difference was 1.359 percentage points at the start of the year.

Ericsson slumped more than 7% after the telecoms firm announced lower-than-expected earnings and warned of increasing expenses due to inflation.

The higher-than-expected inflation figures reported Wednesday signaled that fast increasing consumer prices haven’t yet crested, heightening investors’ concerns that the Federal Reserve would be more aggressive in raising interest rates than previously anticipated. With this background, investors will be paying attention to what bank CEOs say about the status of the economy as well as their own balance sheets.

The 10-year Treasury note yield increased to 2.966 percent from 2.904 percent on Wednesday, while the yield on the two-year bond also increased. Bond rates grow in tandem with price declines. On Wednesday, the two-year yield jumped above the 10-year yield, indicating an inverted yield curve, which is commonly used to forecast a recession. The yield curve is approaching its most inverted level since 2000.

“The Fed will continue to raise rates until they see significant indicators that the economy is turning around,” said Charles Diebel, head of fixed income at Mediolanum International Funds. “The Fed effectively needs to keep rising rates until they break something.”

Data on jobless claims will be announced at 8.30 a.m. ET. With new applications for unemployment benefits, a proxy for layoffs, near to record lows, the labor market has been a source of economic resilience. However, in recent weeks, the statistics have been going upward.

At the same time, producer pricing numbers are forthcoming, which could provide insight into whether suppliers are passing on increased raw prices. The results are expected to indicate a 0.8 percent increase in June over May.

The ICE US Dollar Index increased by 0.7 percent. The index, which measures the value of the US dollar against a basket of foreign currencies, is nearing its highest level in 20 years.

Brent crude fell 2.4 percent to $97.22 per barrel in commodities markets. This month, the worldwide oil standard has fallen as investors anticipate a recession would reduce demand.

Gold prices fell further as a result of higher-than-expected inflation statistics. The precious gold sank 1.5 percent to $1,709.90 per troy ounce, bringing its monthly loss to 5%. While gold is sometimes seen as an inflation hedge, it becomes less appealing to investors when interest rates climb.

Stock markets in Asia were mixed. The Nikkei 225 in Japan increased 0.6 percent, while the Hang Seng in Hong Kong fell 0.2 percent. The Shanghai Composite Index fell 0.1 percent in mainland China.

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