The Day Ahead: Equities Mixed Ahead of Q3 Earnings

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Broad gains in the Asian session ― +1.11% in the Nikkei and +2.07% in the Hang Seng ― helped US equity futures rally higher overnight. However, early this morning the dollar began to recover a portion of yesterday's losses and stock futures weakened.

Since the dollar has began to correct, oil and gold prices have cheapened and US stocks have fallen. The value of the dollar, gold, and oil are playing major roles in the direction of global stock markets.

“Gold prices are now front and centre, drifting further into record territory at US$1,047/oz this morning alongside a still-weakening U.S. dollar,” said analysts at BMO Capital Markets. They added that commodity currencies, such as the Canadian dollar, are “particularly strong.” 

The day ahead is light on data, with only the consumer credit report at 3pm, but Q3 earnings reports also kick off after the bell beginning with Alcoa. 

Also, at 7am markets learned that that average rates for a 30-year mortgage remained below 5% for the third consecutive week. That helped the MBA’s Market Composite Index, a measure of mortgage loan application volume, increase 16.4% last week.

“Although there seems to be limited room for further declines in mortgage rates, a last minute rush by first homebuyers who are qualified for the one-time tax credit may boost purchase filings,” said analysts from Nomura.

Key Events Today:

10:00 ― House Financial Services hearing on Derivatives.

2:30 ― Senate Banking Committee hearing on “Securitization of Assets: Problems and Solutions.”

3:00 ― Consumer Credit isn’t often a key report, but banks are holding standards tight and consumers are shifting to savings mode, which gives this monthly report additional emphasis. In July credit outstanding fell by a record $21.6 billion, but though the underlying pace of contraction appears to be accelerating, analysts believe credit should fall by “only” $8.5 billion in August due to the success of the cash-for-clunkers incentive program.

“For the long term, lower US consumer borrowing is clearly a positive and will likely be an important part of rebalancing the global economy,” said analysts from Nomura Global Economics. “For the short-term, however, efforts to reduce debt are a negative for consumer spending, all else equal. If the aggressive pace of debt repayment continues, it may hinder the ability of the economy to emerge from recession.”

  • Treasury Auctions:
  • 1:00 ― 10-Year Notes ($20 billion)